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					FINANCE
The Seven Keys to Effective
          Aid Management
THE EXECUTING AGENCY OF REHABILITATION AND RECONSTRUCTION FOR ACEH AND NIAS
(BRR NAD–NIAS)
April 16, 2005 - April 16, 2009

Head Office                            Nias Representative Office          Jakarta Representative Office
Jl. Ir. Muhammad Thaher No. 20         Jl. Pelud Binaka KM. 6,6            Jl. Galuh ll No. 4, Kabayoran Baru
Lueng Bata, Banda Aceh                 Ds. Fodo, Kec. Gunungsitoli         Jakarta Selatan
Indonesia, 23247                       Nias , Indonesia, 22815             Indonesia, 12110
Telp. +62-651-636666                   Telp. +62-639-22848                 Telp. +62-21-7254750
Fax. +62-651-637777                    Fax. +62-639-22035                  Fax. +62-21-7221570
www.e-aceh-nias.org
know.brr.go.id


Advisor             : Kuntoro Mangkusubroto                          Photography     : Arif Ariadi
Author              : Amin Subekti                                                     Bodi Chandra
Editor              : Cendrawati Suhartono (Coordinator)             Graphic Design : Bobby Haryanto (Chief)
                      Harumi Supit                                                    Em Samudra
                      Margaret Agusta (Chief)                                         Edi Wahyono
                                                                                      Erwin Santoso
Copy Editor         : Margaret Agusta
                                                                                      Mistono
Writer              : Aichida Ul-Aflaha                                               Wasito
                      Hal Sullivan
                                                                     Final Reviewer : Aichida Ul–Aflaha
                      Hendro Prasetyo
                                                                                      Heru Prasetyo
                      Margaret Mockler
                                                                                      Intan Kencana Dewi
                      Roy Rahendra
                                                                                      Maggy Horhoruw
                      Terry O’Donnell
                                                                                      Ricky Sugiarto (Chief)
                                                                                      Ratna Pawitra Trihadji


Translation to Indonesian
Editor              : Harumi Supit
Copy Editor         : Ihsan Abdul Salam
Translator          : Harry Bhaskara
                      Prima Rusdi




Development of the BRR Book Series is supported by Multi Donor Fund (MDF)
through United Nations Development Programme (UNDP) Technical Assistance to BRR Project




ISBN 978-602-8199-48-3
  With this BRR Book Series, the Indonesian government, its people, and BRR wish to
express their deep gratitude for the many kind helping hands extended from all over the
world following the December 26, 2004, earthquake and tsunami in Aceh and the March
28, 2005, earthquake in the islands of Nias.
  Four years on, the once devastated landscapes are again vibrant with the sporadic
rhythm of human life. This achievement is the result of a steadfast commitment of the
local, national and international community, combined with the resilience of the people
who lost so much.
  The dynamics and challenges encountered during the massive undertaking of
rebuilding homes, hospitals, schools and other infrastructure, while striving to empower
those who survived to reshape their future and redevelop their way of life, provide an
important understanding of the disaster-recovery process in Aceh and Nias.
  In light of this, within the pages of this book, BRR would like to share those experiences
and the lessons learned as a small contribution to return the favor to the world for the
invaluable support it contributed to building Aceh and Nias back better and safer; as a
history of the humanitarian journey of a united world.
                                                 I am proud,
 that we can share the experiences, knowledge, and lessons
with our fellow countries. I do hope that what we have done
          can be a standard, a benchmark, for similar efforts
                     at the national and international levels.

                           Speech of President Susilo Bambang Yudhoyono
 at the Official Closing Ceremony of BRR at the State Palace, April 17, 2009
   about the BRR's trip to the Tsunami Global Lessons Learned Conference
            at the United Nations Headquarters in New York, April 24, 2009
The Aceh-Nias post-tsunami recovery effort involves more than 900 national and international
organizations representing 55 countries. More than two-thirds of the funds come from the
international community. Photo: BRR/Arif Ariadi
Contents
Chapter 1. Turning Pledges into Commitment                           1
   Unprecedented Generosity                                          1
   External Factors that Influenced the Scope and Shape of Giving    3
   The Creation of BRR                                               4
   The Challenge Ahead                                               5
   Building Credibility                                              6
   Maintaining Engagement with Donors and Implementing Agencies      8
   Conclusion and Observations                                      12
Chapter 2. Matching Allocations with Real Needs                     17
   Large Scale Damage and Large Scale Response                      17
   Initial strategy                                                 20
   Persistent Gaps                                                  23
   Shifting to a Guided Facilitation Model                          27
   Ingredients of the guided facilitation approach                  28
   Mid-Term Review (MTR)                                            31
   Coordination Mechanisms                                          33
   Conclusion                                                       35
Chapter 3. Overcoming Disbursement Hurdles                          37
   Dissatisfaction with a Slow Beginning                            37
   The Shortfall of High Expectations                               38
   Two Types of Constraints on Progress                             39
   Breakthroughs & Solutions                                        47
   Net Effects on Disbursement                                      55
Chapter 4. Delivering Results:
   Modality of Fund Channeling and Performance                          57
   Generous External Support                                            57
   Nearing the End the Reconstruction Phase                             58
   Different Fund Channeling Mechanisms                                 59
   Conclusion                                                           69
Chapter 5. Achieving and Upholding Accountability                       71
   Getting to Trust                                                     71
   Mandatory Accountability                                             73
   Value Added Accountability Systems                                   82
   Conclusion                                                           84
Chapter 6. Maintaining Integrity Along the Road                         87
   A Single Incident, Deadly Consequences                               87
   Establishing Business Process Integrity                              89
   Personnel Integrity                                                  91
   Integrity Enforcement                                                92
   Proactive Reporting on Integrity Allegations                         95
   Rigorous Integrity Review and Evaluation                             96
Chapter 7. Ending the Game and Leaving a Lasting Legacy                 99
   Strategic Choice: To Close or Extend BRR?                            99
   General Principles Applied                                          104
   Handing Over Finished Projects                                      106
   Transition of Unfinished Projects                                   111
   Risk Management – Ensuring the Process Stayed Critically On Track   116
   Conclusion & Achievements                                           118
Notes                                                                  120
Bibliography                                                           123
Glossary of Abbreviations                                              125
Fact Sheet                                                             129
FINANCE: The Seven Keys to Effective Aid Management




                                x
                                                      Introduction
                                                        FOR a period of three days, beginning on December 27, 2004, the Indonesian flag
                                                      was drawn to half mast, and a nation was in mourning. A national disaster was declared
                                                      and the world watched in disbelief. An earthquake, followed by a series of tsunamis,
                                                      struck the western-end of Indonesia, causing an unprecedented loss of life and the
                                                      obliteration of whole communities. For those who survived, their homes, livelihoods, and
                                                      prospects for the future were swept out to sea.
                                                         The earthquake, one of the largest in recent history measuring 9.1 on the Richter scale,
                                                      was the result of a convergence between two tectonic plates beneath the ocean floor.
                                                      Although dormant for over 1,000 years, with the buildup of pressure caused by one plate
                                                      slowly sliding under the other at an estimated rate of 50 mm per year, on December 26,
                                                      2004, these two tectonic plates ruptured along a 1,600 km length of what is known as the
                                                      Sunda mega-thrust.
                                                        The epicenter of this earthquake was located 250 km south-west of the Indonesian
                                                      province Nanggroe Aceh Darussalam. Its rupture - a slippage of up to 10 meters,
                                                      resulted in the ocean floor being (permanently) lifted and dropped, pushing the entire
                                                      water column up and down, and generating a series of powerful waves. Tsunamis
                                                      swept violently up to 6 km inland over the shorelines of Aceh and surrounding islands,
                                                      beginning less than half-an-hour after the earthquake. A total of 126,741 lives were lost
                                                      and, in the wake of the disaster, an additional 93,285 people declared missing. Some
                                                      500,000 survivors lost their homes, while as many as 750,000 people lost their livelihoods.
                                                        In the private sector, which constituted 78 percent of the destruction wrought by the
                                                      earthquake and tsunamis, up to 139,195 homes were destroyed or severely damaged,
                                                      along with 73,869 ha of land with varying degrees of productivity. A total of 13,828 fishing
boats vanished, up to 27,593 ha of brackish fish ponds disappeared, and 104,500 small-to-
medium businesses ceased to exist. In the public sector, 669 government buildings, 517
health facilities, and hundreds of educational facilities were either destroyed or rendered
non-functional. The loss to the environment included 16,775 ha of coastal forests and
mangroves, and 29,175 ha of reefs.
   The loss and damage of these regions did not end there and, on March 28, 2005,
another major earthquake measuring 8.7 on the Richter scale struck the nearby islands of
Nias in the Indonesian province of North Sumatera. This second natural disaster resulted
in the death of 979 people and the displacement of 47,055 survivors. The proximity of this
earthquake, a result also of two tectonic plates rupturing, slipping a length of 350 km,




                                                                                               Introduction
directly beneath the Simeulue and Nias islands, resulted in massive damage to the islands’
infrastructure.
  The eyes of the world once again watched in disbelief as the devastation of these              xi
regions unfolded, and helping hands began arriving from all corners of the globe to
assist in the rescue and relief operations. Individuals of every race, religion, culture and
political persuasion across each and every continent worldwide, along with governments,
the private sector, non-government organizations and other national and international
bodies, reacted in an unprecedented show of human concern and compassion.
   From the scale of the devastation wrought by both disasters, it was clear that it would
not be enough to simply replace the homes, schools, hospitals and other infrastructure.
The rehabilitation and reconstruction program would need to embrace the rebuilding
of the social structures that once thrived along the shores of Aceh and within the
hinterlands of Nias. The trauma of losing friends, family and a means to support those
who survived required that the recovery program focused not only on physical, but also
non-physical, development, and on rebuilding an economy to a level that would ensure a
firm foundation for future (re)development and growth.
  On April 16, 2005, the Government of Indonesia, through the issuance of Government
Regulation in Lieu of Law No. 2/2005, established the Agency for the Rehabilitation and
Reconstruction (Badan Rehabilitasi dan Rekonstruksi, BRR) to coordinate and jointly
implement a community-driven recovery program for Aceh and Nias. BRR’s mandate was
to design policies, strategies and action plans, within an atmosphere of transparency and
accountability, and to implement them through effective leadership and coordination of
the combined domestic and international effort to rebuild Aceh and Nias back better and
safer.
  The rehabilitation and reconstruction of Aceh and Nias have constituted a challenge
not only for the people and Government of Indonesia but for the entire international
community. That this challenge was overcome successfully is reflected in the
conclusions drawn in evaluations concerning the recovery program. In the final months
                                                      of the program, the World Bank among others concluded that the recovery was an
FINANCE: The Seven Keys to Effective Aid Management




                                                      unprecedented success story and a model for international partnership - outcomes which
                                                      were realized through effective government leadership.
                                                        The nation’s management of the recovery program gained the confidence of donors,
                                                      both institutions and individuals, and through BRR’s anti-corruption policies and
                                                      processes, the trust of the international community. And without the cooperation of the
                                                      international community, the post-disaster situation in Aceh and Nias - the unparalleled
                                                      devastation - could never have been reversed.
                                                          In recording this humanitarian achievement, BRR has produced the BRR Book Series
                                                      containing 15 volumes that detail the processes, challenges, solutions, achievements and
                                                      lessons learned during the rehabilitation and reconstruction program in Aceh and Nias.
                                                      It is hoped that these books will function to capture and preserve the experience of the
             xii                                      recovery, and to establish guidelines for future disaster-recovery programs across the
                                                      world.
                                                        As its title suggests, this book, “The Seven Keys to Effective Aid Management”, focuses
                                                      on the financial aspects of the rehabilitation and reconstruction program in Aceh and
                                                      Nias.
                                                         It is not unusual to see large sums of money pledged following a horrendous natural
                                                      disaster, but it is unusual to see most of those pledges converted into real commitments.
                                                      In the case of the Aceh and Nias disasters, a remarkable 93 percent of the total
                                                      US$7.2 billion pledged was committed - a remarkable achievement for what was an
                                                      unimaginable series of disasters.
               4-Year Achievement
                 Rehabilitation and Reconstruction

                               635,384
                          people displaced
                               127,720
        people killed and 93,285 missing

                               104,500 155,182
small-medium enterprises (SME) destroyed       laborers trained                          xiii
                                               195,726
                                               SMEs received assistance

                               139,195 140,304
                         houses destroyed      permanent houses built
                                 73,869 69,979
    hectares of agricultural land destroyed    hectares of agricultural land reclaimed
                                   1,927 39,663
                            teachers killed    teachers trained
                                 13,828 7,109
                   fishing boats destroyed     fishing boats built or provided
                                   1,089 3,781
              religious facilities destroyed   religious facilities built or repaired
                                   2,618 3,696
              kilometers of road destroyed     kilometers of road constructed
                                   3,415 1,759
                         schools destroyed     schools built
                                      517 1,115
                 health facilities destroyed   health facilities constructed
                                      669 996
          government buildings destroyed       government buildings constructed
                                      119 363
                         bridges destroyed     birdges constructed
                                        22 23
                           ports destroyed     ports constructed
                                          8 13
             airports or airstrips destroyed   airports or airstrips constructed
                                                                                                                            Chapter 1. Turning Pledges into Commitment
Turning Pledges
into Commitment                                                                                                                    1




Unprecedented Generosity
  THE     unprecedented scale of the December 2004 tsunami disaster catalyzed an
immediate response of massive proportions, both from within Indonesia and from the
international community. By January 2005, in the weeks following the Consultative Group
for Indonesia (CGI) meeting, US$7.2 billion had been pledged to support reconstruction.1

  The US$7.2 billion pledged to Aceh was nearly evenly sourced from the Government of
Indonesia (GOI), bilateral and multilateral donors, and Non-Governmental Organizations
(NGOs). Communities in and outside of Indonesia contributed additional funds. This was
                                                                                           Different with those in other
unprecedented: typically, multilateral donors provide the leading contribution of aid,
                                                                                           places, the Multi Donor Fund
surpassing amounts committed by national authorities and NGOs. In the case of Aceh         (MDF) for Aceh-Nias is an
and Nias however, ‘good donorship’ was not limited to multilateral donors.                 effective mechanism due to
                                                                                           the Co-chairmanship scheme.
  This response was not the largest ever; but it was notable for the number of countries   The scheme places the host
that contributed and the speed at which pledges were made. One hundred thirty-three        government as a decision
countries provided assistance to the humanitarian mission (Masyrafah and McKeon 2008),     maker level to the donor group
many of these whom had never contributed to a disaster before. It is also notable that a   so that alignment between
                                                                                           donor projects and government
                                                                                           priorities is achieved.
                                                                                           Photo: BRR/Arif Ariadi
                                                                                        substantial portion of this aid was generated at the grass-roots level. The New York Times
FINANCE: The Seven Keys to Effective Aid Management




                                                                                        reported on November 27, 2008, that grass-roots donations for victims of the tsunami
                                                                                        broke all fund-raising records for an international humanitarian crisis. Private giving to
                                                                                        NGOs and the United Nations (UN) exceeded pledges by the Organization for Economic
                                                                                        Cooperation and Development’s Development Assistance Committee (OECD DAC)
                                                                                        members, traditionally the world’s major givers. The onslaught of money was so robust
                                                                                        that it made the historically generous response to the earthquake in Pakistan--US$73.4
                                                                                        million, according to data collected by the Center on Philanthropy at Indiana University-
                                                                                        -seem practically miserly. Few international agencies halted fundraising upon reaching
                                                                                        targets and as a result, NGOs, including organizations such as the Red Cross, wound up
                                                                                        with overall more funds than donor administrations or multilateral organizations (TEC
                                                                                        2006).
                                                                                                                             Indonesia was also given welcome breathing room
                              2
                                                      The economic landscape:                                              by the Paris Club of wealthy creditor nations, who
                                                                                                                           decided to let it and other affected countries suspend

                                                      Standard and Poor’s Rating                                           debt repayments. Some criticized the decision to grant
                                                                                                                           Indonesia a debt moratorium since at the time the
                                                        Standard and Poor’s (S&P) is a leading provider of financial       tsunami hit, Indonesia had a sound macro-economic
                                                      market intelligence. The company publishes financial                 environment. On a national scale, interest rates,
                                                      research and analysis on credit ratings, indices, investment         currency exchange and inflation levels were stable.
                                                      research, risk evaluation and data.
                                                                                                                           Indonesia had become a lower middle income country
                                                         Just days before the tsunami hit, S&P raised its rating           with an improving fiscal economy.2 Nonetheless, the
                                                      on Indonesia’s creditworthiness, saying that the improving
                                                                                                                           debt moratorium provided welcome breathing room.3
                                                      economy had raised the government revenue and foreign
                                                      reserves, reduced the country’s debt burden and improved                Clearly there was no lack of willingness to help.
                                                      its ability to weather shocks.                                       However, while the international climate was favorable,
                                                        S&P raised Indonesia’s long-term foreign currency                  past experience has shown that goodwill does not
                                                      sovereign credit rating from B to B-plus to reflect the              necessarily translate into concrete commitment. Often
                                                      country’s successful elections and positive economic
                                                      outlook, and increased its currency rating from B-plus to BB.
                                                                                                                           donors hold back from making good on pledges due
                                                      These upgrades reflected ongoing progress in Indonesia’s             to a lack of confidence that the money will be well-
                                                      macro-economic stability, steadfast fiscal management,               used. It was crucial to instill donor trust and confidence
                                                      declining debt and favorable external liquidity, despite             in order for Indonesia to receive the funds.
                                                      a widening state budget deficit. In addition, successful
                                                      legislative and presidential elections in 2004 sent a message          The following sections examine in detail the process
                                                      of stability that resulted in a better flow of investment.           by which donors were encouraged to make good
                                                                                                                           on their pledges, a process which holds potentially
                                                                                                                           useful lessons for future disaster management and
                                                                                                                           fundraising exercises.
External Factors that Influenced the Scope and
Shape of Giving




                                                                                                                                      Chapter 1. Turning Pledges into Commitment
  Before discussing the process by which pledges were turned into commitments, it is
worth noting that the following external factors distinctly influenced the size, scope and
form of donations. These types of factors may profoundly alter the donor landscape in
future disaster management scenarios and should be taken into account.
   (i) Donor “Freshness”
   At the time of the the tsunami, the world had not witnessed a natural disaster of
comparable proportions for some time. Only one natural disaster had attracted significant
international attention in the previous year, the December 2003 earthquake in Bam, Iran,
with 28,000 casualties. Thus, the tsunami was not in competition for aid with
                                                                                                                                             3
other disasters, nor were givers suffering from “donor fatigue.” (Note that
in the year following the tsunami, calamities in New Orleans, Kashmir, and
                                                                                     Why was the public so
Yogyakarta, put at risk the transference of pledges for Aceh and Nias due to         generous?
commitment elsewhere.)
                                                                                       What impelled the public to give so
   (ii) Timing and Media Coverage                                                    generously? A study by the Tsunami
                                                                                     Evaluation Coalition (2006) that
  The international scope of the disaster, holiday timing and the resulting          looked at funding from the Spanish
intensity of media coverage played a meaningful role in catalyzing pledges.          public listed the following reasons for
                                                                                     private giving, in order of decreasing
  First, during this time there was a lack of other news stories to be covered,      importance:
resulting in repetitive and intense media coverage. The fact that several
                                                                                        •    64.2% always donate after
international celebrities were involved also contributed to the media                        such an event
fascination.
                                                                                        •    28.7% the media coverage
  Second, by 2004, technological advances—most prominently, the internet-
                                                                                        •    17.3% Christmas spirit
-were sufficiently well-developed and widespread to provide real-time, widely
                                                                                        •    8.7% presence of tourists
available updates on the devastation. Information on the climbing death toll
and the damage was available at one’s fingertips. The tsunami was the most              •    2.4% familiarity with the
                                                                                             affected area
reported disaster to date (TEC 2006).
   Third, the international context of the disaster was a key factor. The tsunami                  (Source: TEC Funding Response/
hit several countries and as mentioned above, involved a number of well-                         General Public/Spain Report, 2006)

known celebrities, creating a universal dimension to the disaster. The tsunami
killed people in 14 countries from 40 different nationalities. Reinforced by
dramatic media images of the destruction, people everywhere felt a sense of
connection and sympathy with the victims.
                                                                                             (iii) Recent Shifts in the International Aid Landscape
FINANCE: The Seven Keys to Effective Aid Management




                                                                                           As it happened, the receipt of funds by the Government of Indonesia (GOI) was
                                                                                         positively affected by fortuitous recent developments on the international aid landscape.
                                                                                           Trends in global aid had showed for some time what appeared to be an aggregate shift
                                                                                         away from low-income countries toward middle-income countries (Harford, Hadjimichael,
                                                                                         and Klein 2004), of which Indonesia was one.
                                                                                           Then, just three months after the tsunami, the Paris Declaration on Aid Effectiveness
                                                                                         officially laid the foundation for development aid to become more influenced by
                                                                                         national authorities. This paradigm shift resulted from an examination of the political and
                                                                                         institutional incentives that shape the way in which aid is both delivered and received.
                                                                                            Leading up to the Paris Declaration, discussion in development circles had been
                                                                                         focused on developing an international aid architecture that would more suitably
                              4
                                                                                         address a broad range of emerging issues. Debates had revolved around the role of aid
                                                                                         in: encouraging better development, reducing the need for emergency relief, reducing
                                                                                         the risk of recurrent natural disasters, and supporting fragile states. They also focused on
                                                                                                                                       the role of new aid donors in Asia and Europe.
                                                                                                                                       In general, the prevailing sentiment was that

                                                      Paris Declaration on Aid                                                         aid delivery should be recast to be more
                                                                                                                                       responsive to the frequent emergence of both

                                                      Effectiveness                                                                    natural and man-made disasters, and that aid
                                                                                                                                       should also serve the agenda of the national
                                                         The Paris Declaration on Aid Effectiveness of March 2005 was an               authority. Such was the background of the
                                                      international commitment by over one hundred country Ministers,                  Paris Declaration.
                                                      Heads of Agencies and other Senior Officials to harmonize and align
                                                      aid management, to help developing-country governments formulate                 The resulting aid architecture was thus
                                                      and implement their own national development plans, using their                propitiously conducive to a government-
                                                      own national priorities, planning and implementation systems. The              driven reconstruction program. It enabled
                                                      five principles of the Paris Declaration are as follows:
                                                                                                                                     various breakthroughs and arrangements
                                                        •    Ownership-Patner countries exercise effective leadership over           to take place, as the GOI moved into the
                                                             their development policies and strategies, and coordinate               reconstruction phase of the recovery.
                                                             development actions.
                                                        •    Alignment-Donors base their overall support on partner
                                                             countries’ national development strategies, institutions and
                                                             procedures.
                                                                                                                                     The Creation of BRR
                                                        •    Harmonization-Donor actions are more harmonized,                          Taking ownership of the reconstruction,
                                                             transparent and collectively effective.                                 the GOI took the cardinal step of establishing
                                                        •    Managing for Results-Managing and implementing aid in a
                                                                                                                                     BRR. This new agency had the dual role
                                                             way that focuses on the desired results and uses information            of implementing its own projects while
                                                             to improve decision-making.                                             coordinating the works of others. Donors
                                                        •    Mutual Accountability-Donors and partners are accountable               appreciated the GOI’s move to create a
                                                             for development results.                                                separate government agency expressly to
handle the reconstruction, and were reassured by its dual-role function. The Economist
reported on May 26, 2005, that BRR was “a promising new government body like no other:
i.e., clean, efficient, well managed and results-oriented.”




                                                                                               Chapter 1. Turning Pledges into Commitment
  The GOI made the crucial choice of appointing Kuntoro Mangkusubroto to head the
agency. Kuntoro had a strong reputation and was known for his incorruptibility. As Head
of BRR Executing Agency, Kuntoro’s leadership was inspiring. Early on, his openness to
considering unconventional solutions to get things done as opposed to a ‘business as
usual approach’ set a tone of urgency which trickled down through management levels.
   His appointment greatly contributed to the agency’s success. Under Kuntoro, BRR was
eventually able to pressure the Central Government to change the way the latter worked
(see Chapter 3).
  “Kuntoro Mangkusubroto had operated an open relief effort despite Indonesia’s
history of secrecy and corruption at all levels of government,” stated former United States           5
President Bill Clinton during a visit to Aceh almost a year after the tsunami as reported in
the New York Times on December 1, 2005.
  Four years later, Pieter Smidt, Head of the Asian Development Bank (ADB)’s Extended
Mission in Sumatra, remarked in a similar vein, “It’s difficult to imagine that anybody else
could have done a better job.”4


The Challenge Ahead
   The challenge in front of BRR was enormous. As mentioned earlier, the first task was to
translate pledges into real commitments. To do so, it was imperative to demonstrate BRR’s
own commitment to the task.
  Commitment can be defined as a function of credibility and involvement, whereas
credibility rests on two key elements: trustworthiness and capability. BRR had to
demonstrate that it was trustworthy, that it had the necessary capability, and that it was
involved. This would be fundamental to BRR’s success.
  The sheer amount of funds committed represented a huge responsibility. Pledges made
to Aceh and Nias were so great that they surpassed the minimum required to rebuild to
pre-tsunami levels by US$1.3 billion (Figure 1.1). This supplemental funding provided a
cushion for the rapidly increasing inflation rate and an opportunity to “build back better”
beyond replacing the damaged goods and services to propel the long closed-off province
and isolated islands to a development phase in step with the rest of the nation. But such a
process would have to be carefully managed and came fraught with liability.
  Making things more difficult, a decades-long conflict between the central government
and local separatist movements had been ongoing in the Aceh disaster area. To build trust
and execute in a former conflict zone would not be easy.
                                                         Meanwhile, BRR had to contend with Indonesia’s reputation for corruption. Out of the
FINANCE: The Seven Keys to Effective Aid Management




                                                       145 countries ranked by Transparency International’s 2004 Corruption Perception Index,
                                                       Indonesia came in at 133rd with a dismal score of 2.0 out of 10. Among the countries in
                                                       the Asia-Pacific region, Indonesia ranked second worst just above Myanmar. The New York
                                                       Times reported in January 2005 that as the United States and other world governments
                                                       prepared to channel hundreds of millions of aid dollars to Aceh, Indonesia’s perceived
                                                       culture of corruption had emerged as a major concern.
                                                         BRR as the GOI’s agent in reconstruction had to find a way to overcome these hurdles
                                                       and convince donors of the country’s credibility and commitment. Faced with these
                                                       factors, the full enormity of BRR’s task became apparent.
                                                         Despite all the challenges, in the case of Aceh and Nias, 93 percent of these pledges
                                                       were eventually converted into real funding, a historically high conversion rate and a most
                              6                        impressive achievement. How was the GOI, through the BRR, able to achieve this?


                                                       Building Credibility
                                                         Among the infant agency’s first tasks was to convince its international partners
                                                       that BRR was able to competently lead and manage the funding. Faced with limited
                                                       resources, a short timeframe and high expectations, BRR appealed to established


                                                           Figure 1.1 - Aceh and Nias Reconstruction Needs, Pledges and Commitment




                                                            Total Fund
                                                            USD Billion                                       93%

                                                                                                                0.5

                                                                                                                                     USD 2.4B
                                                                                                                                     NGO


                                                                                                                                     USD 2.2B
                                                                                                                                     Donor Agencies


                                                       4.9                  7.1                   7.2                   6.7          USD 2.1B
                                                                                                                                     Government
                                                                                                                                     of Indonesia



                                                        Damage            Build Back              Pledged              Committed
                                                      Assessment
world-class organizations for assistance. Management consultants McKinsey & Company
were engaged early in the process on a pro-bono basis to prepare organizational
strategy, while ADB and Ernst & Young agreed to assist the set-up of a strong fiduciary




                                                                                                                                          Chapter 1. Turning Pledges into Commitment
management structure. BRR’s credibility received an enormous boost from its association
with these organizations, helping engender international confidence in the agency’s
ability to deliver.
   It was equally important to gain credibility in the eyes of the Acehnese. Three
decades of conflict between the local Free Aceh Movement (GAM) and the Central
Government had created lasting distrust. BRR was seen as an extension of the Jakarta-
based administration, instead of as an organization championing local interests. To
counter these perceptions and establish itself as a trustworthy body in Aceh, BRR took
the unprecedented decision of decentralizing its operations to the regional level and
locating its headquarters in Banda Aceh. It was the first ministerial-level agency to do so
                                                                                                                                                 7
in Aceh. BRR also welcomed locals, including ex-GAM members into its ranks. These steps
effectively altered the perception of BRR, casting it as a non-Jakarta-centric government
body.
   Finally, BRR had to overcome the aforementioned perception of corruption associated
with Indonesia. BRR had to prove from the onset that it was committed to preventing any
misuse of funds provided by the Indonesian government and donors worldwide. Any
sign of irregularities could decrease future funding.
   The agency established an autonomous, Anti-Corruption Unit (SAK) to guard against
misconduct in BRR itself, as well as in any reconstruction projects,
becoming the first Indonesian government agency to do so. The
Anti-Corruption Unit strategy was to simultaneously educate
against, prevent and monitor for corruption, with an eye towards
                                                                          A Silver Lining
ensuring clean and transparent reconstruction. With the support         In the midst of the destruction, the tsunami
of the Corruption Eradication Commission (KPK), which opened         brought an unexpected legacy of peace to the
                                                                     conflicted region of Aceh. Disputes quieted
its first branch office with full enforcement authority in Aceh, BRR
                                                                     in the face of shared disaster, and the long-
also established an Integrity Pact to fight systemic corruption.     closed society opened up to a flood of foreign
Through the Anti-Corruption Unit and the Corruption Eradication      aid workers. Against this landscape, President
Comission regional offices, BRR was able to take a strong stance     Yudhoyono’s attempts at reconciliation
                                                                     unexpectedly worked in Aceh’s favor and inspired
against corruption. Chapter 6 elaborates more on the corruption
                                                                     trust.
risk and the steps BRR took to mitigate that risk.
  Altogether, the combination of these steps--including the                            Source: Sengupta and Mydans, The New York Times,
                                                                                                                    December 25, 2005
appointment of a credible leader in the person of Kuntoro--
reassured the international commitment that their willingness to
give was matched by a real commitment to reconstruction. When
interests are aligned, trust is a reasonable response (Hurley 2006),
and so it was with the donors. In this way BRR built the foundations of credibility.
                                                      Maintaining Engagement with Donors and
FINANCE: The Seven Keys to Effective Aid Management




                                                      Implementing Agencies
                                                         It was crucial to establish effective collaboration platforms between BRR and donors,
                                                      and among the donors themselves. The perceived fairness of a process is as important
                                                      to participants as the outcome itself, and a key principle in creating this fair process
                                                      is engagement, or involving individuals in the decisions that affect them (Kim and
                                                      Mauborgne 1997). Bearing this in mind, BRR was careful to design model financing
                                                      mechanisms that would maintain donors’ governance in the process, while also
                                                      maximizing outputs and minimizing transaction costs.
                                                        Several ways of channeling donations were established by BRR, each catering to a
                                                      different group of players. The focus was to provide flexibility, create a hassle-free process
                              8                       insofar as possible and accommodate the varied needs of donors. It was up to the
                                                      donors to pick what financing channel they wanted to use. The overall goal was to create
                                                      mechanisms that encouraged and enabled funding flows from donors.
                                                        By doing so, the GOI and BRR demonstrated their respect for the reconstruction players’
                                                      needs and their concern that players remain engaged. This was particularly important
                                                      given the vast amounts pledged to Aceh and Nias and the large number of players
                                                      involved, with 992 organizations hailing from over 50 countries, which had made the
                                                      process of converting pledges into commitments challenging from the start.

                                                      The Multi-Donor Fund
                                                         For better coordination of the reconstruction, the GOI and donors agreed to form
                                                      the Multi-Donor Fund (MDF), pooling donor contributions with the World Bank
                                                      serving as trustee. MDFs were conceived as the main body for coordination and donor
                                                      harmonization in line with the best-practice approaches established by the Paris
                                                      Declaration on Aid Effectiveness. According to a Scanteam report (2007), MDFs can reduce
                                                      transaction costs and mitigate fiduciary and political exposure in high-risk, post-crisis
                                                      environments.5
                                                        MDFs allow for the harmonization of donors by ensuring that all procedures follow
                                                      regulations set by the administrator. Thus, MDFs simplify the tasks of the national
                                                      authority in coordinating planning, implementation, reporting and quality assurance.
                                                      Given the high-risk environment stemming from the political conditions in Aceh, the MDF
                                                      was considered a good risk management vehicle taking into consideration the World
                                                      Bank’s tested ability and capacity to work in such an environment.
                                                        The Aceh-Nias MDF was co-chaired by BRR as the GOI representative, the World Bank
                                                      as trustee, and the European Commission as the largest donor. As of December 2008, the
                                                      MDF had a total of US$692 million in pledges from 15 different donors as illustrated in
                                                      Table 1.1.
  Figure 1.2 offers a summary of donor preferences between the three financing options.
As shown, players chose the financing mechanism that they deemed best suited for the
implementation of their projects.




                                                                                                                                           Chapter 1. Turning Pledges into Commitment
  For the GOI and donors alike, the MDF provided an opportunity to simplify
coordination, information flow, administrative and access costs associated with the
reconstruction effort. For donors, moreover, the MDF created a forum for their voices.
Certain major donors, such as the United States and Germany, still chose to channel a
majority of their resources outside the MDF (i.e., directly to their own projects or to other
implementing agencies), typically because they wished their agenda not be moderated
within the MDF. Nonetheless these donors continued to participate in the MDF, regardless
of the amounts they channeled
through the MDF itself. In any one                 Table 1.1 - MDF Fund Pledges and Contributions as of December 2008
MDF Steering Committee meeting,                                                                            Amount *     of Total Pledges
                                                                    Donor                                                                9
75 percent of the top contributors                                                                       (US$ million)          %
were present. In this way, the MDF         European Commission                                                  272.62               39%
helped harmonize donor programs            Netherlands                                                          171.60               25%
and facilitate alignment with
                                           United Kingdom – DFID                                                  73.71              11%
country priorities.
                                              Canada                                                        25.55                 3.7%

Three Financing Options                       World Bank                                                    25.00                 3.6%
                                              Sweden                                                        20.72                 3.0%
   Three types of financing
options were established by BRR               Norway                                                        19.57                 2.8%
in recognition of the considerable            Denmark                                                       18.03                 2.6%
diversity among donors in Aceh                Germany                                                       13.93                 2.0%
and Nias: 1) on-budget/on-treasury,           Belgium                                                       11.05                 1.6%
2) on-budget/off-treasury, and 3)             Finland                                                       10.13                 1.5%
off-budget/off-treasury. No one
                                              Asian Development Bank                                        10.00                 1.4%
mechanism is superior; each has
                                              USA                                                           10.00                 1.4%
benefits and drawbacks (more in
Chapter 4).                                   New Zealand                                                     8.80                1.3%
                                              Ireland                                                         1.20                0.2%
(a) On-budget/on-treasury – In
    line with strengthening                 Total Contribution:                                      691.92                    100%
    government partnership and                                                        * Based on World Bank foreign exchange rates as of
                                                                                      December 2008. Source: MDF 2009
    involvement in the recovery
    process, many traditional bilateral and multilateral donors channeled their funds
    through the government budget by signing a grant or loan agreement. Under the
    on-budget/on-treasury mechanism, donors use the GOI budgetary system and
    regulations to disburse their funds. The advantage is that the projects are then
    accountable under the national budgetary system. However, the regular budgetary
    process was initially slow in responding to reconstruction needs.
                                                                                                          Figure 1.2 Reconstruction Fund Channeling Mechanisms
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         10




                                                      Definition of                                           (b)     On-budget/off-treasury – Some donors who traditionally
                                                                                                              worked with the government preferred that the disbursement of

                                                      on- and off-budget,                                     their funds be done outside the Special Purpose Treasury Office, or
                                                                                                              KPPN-K. These donors, such as the Governments of Germany and

                                                      and on- and off-                                        Japan, had identified certain sectors and projects to be carried out
                                                                                                              by their own implementing agencies. In this scheme, while donor

                                                      treasury                                                projects were accounted for in the national budgetary system, BRR
                                                                                                              lacked the full authority to influence the implementation process.
                                                                                                              (c)     Off-budget/off-treasury – NGOs including UN agencies
                                                         On-budget funds refer to donor funds
                                                      channeled through the government budget,                typically have implementation mechanisms on the ground. In these
                                                      while off-budget funds refer to funds channeled         cases, BRR allowed them to finance their projects using the off-
                                                      directly to the project. The on-budget project          budget/off-treasury mechanism. The upside is a potentially swifter
                                                      expenditures are registered into the GOI national
                                                                                                              implementation process since agencies can bypass the long national
                                                      budget through the Issuance of Spending
                                                      Authority (DIPA).                                       budgetary system process. However, these agencies are not then
                                                                                                              legally accountable to the GOI, making it difficult to monitor and
                                                                                                              evaluate their contributions.
  When choosing among                                                Table 1.2 - Types of Rreconstruction Players
                                                             and the Implications of Their Preferred Funding Mechanisms
these mechanisms, the donors,
mainly bilateral ones, weighed                                                                    fUnD
                                              TyPe             SoUrCe of fUnDing                                            imPliCATionS
                                                                                                meChAniSm




                                                                                                                                                      Chapter 1. Turning Pledges into Commitment
advantages and challenges to
                                                                                                                        Funds were channeled
assess which would work best                                                                                            in accordance to
with their strategy, capabilities,                                                                                      the prevailing GOI
                                                               Indonesian taxpayers
and their own development               Government of                                                                   regulations created
                                                               and Paris Club debt           On-budget
                                        Indonesia                                                                       for normal conditions.
agendas. Most players wound                                    moratorium
                                                                                                                        Bureaucratic systems
up maintaining the fund                                                                                                 with lengthy time
channeling mechanisms that                                                                                              frames impeded swift
                                                                                                                        implementation.
they were accustomed to.
                                                               Aid given by the
Table 1.2 outlines the types of                                government of one
                                                                                                                        Aid is often tied to
players, their sources of funding,                             country directly to
                                                                                                                        specific sectors or to
                                        Bilateral Donor        another. Many dedicated       On- and off-budget
preferred method of channeling
                                                               governmental aid
                                                                                                                        specific implementing                11
funds, and implications attached                                                                                        agencies to serve donor
                                                               agencies dispense
                                                                                                                        country’s agenda.
to their choice of funding                                     bilateral aid, for example
                                                               AusAID.
mechanism.
                                                               Aid is given from the
   Ultimately, it was hoped                                    government of a country
                                                               to an international                                      Streamlined transaction
that BRR could coordinate and
                                                               agency, such as the                                      cost of multiple
monitor all efforts. However,                                  World Bank or the Asian                                  actors. Accountability
                                        Multilateral Donor                                   On- and off-budget
by being flexible with the                                     Development Bank,                                        to multiple nations
                                                               which in turn distributes                                created procedures
financing mechanisms, donors                                   the aid. Multilateral                                    that limit speed and
were more comfortable as                                       aid agencies are                                         flexibility.
they could channel their funds                                 usually governed by the
                                                               contributing countries.
using processes they felt safe
                                                               NGOs, have played an
with. These mechanisms also                                    increasingly active
allowed them to implement                                      role in distributing                                     Faster speed of aid
using their own procedures                                     aid from donations                                       distribution but limited
                                        NGO                    from the private* and         Off-budget                 control as actors
and implementation systems,                                    public sectors. Many                                     function independently
if deemed appropriate.                                         NGOs conduct their                                       of government systems.
                                                               own international
Consequently donors, NGOs                                      humanitarian work.
and other delivery partners
                                                                          * The term ‘private’ covers both the general public and private entities,
were able to maintain their                                               such as companies, religious groups or associations–i.e., all non-
governance in a way that they                                             institutional donors.
were accustomed to.

Working with Implementing Agencies
  BRR did not stop at creating a collaborative platform for donors. It also developed
new or used existing coordination platforms to facilitate coordination with major
implementing partners.
                                                        The United Nations Office of the Recovery Coordinator (UNORC) was one such platform.
FINANCE: The Seven Keys to Effective Aid Management




                                                      UNORC is a facility of the United Nations System whose main role was to coordinate
                                                      UN and aid agencies and also provide strategic policy advice to BRR and the local
                                                      government.
                                                         Another such platform was the International Federation of the Red Cross and Red
                                                      Crescent Societies (IFRC). Similar to the function of UNORC to UN agencies, the IFRC
                                                      worked to assist the coordination of the Red Cross and Red Crescent Societies active in
                                                      the reconstruction efforts in Aceh and Nias. Seventeen out of 27 Red Cross Organizations
                                                      joined the umbrella organization of the IRFC, helping to streamline coordination efforts.
                                                         BRR further made use of the powers bestowed by a Presidential decree to provide
                                                      an alternative funding channel to on-budget fund flows and the MDF. This alternative
                                                      funding channel was called the Recovery of Aceh and Nias Trust Fund (RANTF). The
         12                                           RANTF funding facility was designed to provide flexibility of execution, with an emphasis
                                                      on speedy response to program needs. It was meant to accommodate non-traditional and
                                                      smaller donors, both public and private. The Trust Fund included both ‘open’ funds to be
                                                      allocated by BRR to the most pressing program needs, and ‘closed’ funds earmarked by
                                                      donors for particular projects. BRR had oversight of program and fund allocation, while
                                                      the RANTF was responsible for all aspects of financial management including accounting
                                                      and fund administration services. A procurement agent was engaged to manage the
                                                      delivery of services to ensure the transparent process of project activities.


                                                      Conclusion and Observations
                                                        The generous response to the disaster demonstrated the willingness of the
                                                      international community to give and showcased the best of the human spirit. The GOI
                                                      welcomed the outpouring of sympathy of all forms, opening its doors to contributions
                                                      around the world regardless of origin. This decision was not without drawbacks as the
                                                      proliferation of agencies hampered coordination and increased the fragmentation of
                                                      aid. The bulk of the funding came from the Indonesia taxpayers, and in return GOI was
                                                      given leverage to determine the allocation of funds. However, the large amount of private
                                                      funding channeled through NGOs and the Red Cross did impact the allocation of funds
                                                      (more in Chapter 2).
                                                        Early on BRR expended considerable effort and time on both large and small donors
                                                      as well as on non-traditional donor countries, in order to get a rounded perspective
                                                      on donor concerns. This was a labor-intensive and time-consuming task. In hindsight,
                                                      the amount of time and energy spent with donors should have been more balanced
                                                      to increase efficacy overall. Good relationships with donors large and small must be
                                                      maintained. The ideal balance is to be inclusive yet strategic in allocating time and
                                                      resources to cater to donors.
  Over the course of reconstruction, BRR had to ensure commitments were maintained
and if possible, increased. To do this, BRR provided concrete data that the beneficiaries
were benefiting from donor contributions. These periodic reports demonstrated progress




                                                                                                                   Chapter 1. Turning Pledges into Commitment
being made on the ground. This transparency encouraged some donors to give more
than they initially pledged. Furthermore, some donors transferred pledges from other
tsunami struck areas to Aceh and Nias.
   A key takeaway was that significant funds should be channeled through the national
government budget. Bringing donor funds on-budget can help coordination and effective
implementation of the recovery strategy (TEC 2006). As the Paris Declaration stated, it
is essential for partner countries to exercise leadership over their development policies
and strategies, although the role of aid remains contested on the absorptive capacity of
recipient governments.6 Strong ownership of the arrangements for the flow of funds, and
effective coordination among donors in line with a unified recovery plan and budget,
                                                                                                                          13
is essential. These conclusions are backed by the experiences of countries which have
experienced significant aid inflows; such experiences have generally underscored the
importance of country ownership, coordination, and of reinforcements to governmental
budget and accounting systems.
   By contrast, experiences with off-budget support have been more complex because
each project has its own accounting, financial management, and procurement
arrangements, resulting in fragmented recovery efforts. As NGOs
operate outside of government authority, there is also a lack of
formal political accountability that in the case of Aceh, arguably
affected pledges: the lack of political accountability meant
                                                                       The DIPA Process
that pledges not turning into commitment were more a factor             The project preparation process for
of concern for the NGOs than for the traditional bilateral and        government begins with the development
                                                                      of a ministry’s annual work-plan and
multilateral donors.                                                  budget (RKA-KL), which is informed by the
  In Indonesia’s case, a government management structure               Annual Government Work Plan (RKP) and
                                                                       budgetary ceilings. Implementing agencies
was in place that could review bilateral programs, co-financed         submit draft budget plans to the Ministry
multilateral programs and MDF decisions for consistency with           of Finance for review and approval. With
Indonesia’s own recovery plan and evolving priorities (TEC 2006).      an approved budget plan in hand, the
Despite this fact, the GOI elected not to impose an overarching        implementing agency then prepares a
                                                                       budget Issuance of Spending Authority
government-led management and structure. It also decided not to
                                                                       (DIPA), against which all disbursements
compel donors to deliver funds through the government budget.          are to be authorized and processed
Instead, it created BRR as a separate agency to take ownership of      through the Office of State Services and
the overall program and assist coordination.                           Treasury (KPPN). On-budget projects may
                                                                       be authorized and processed through the
   BRR’s role at the helm of reconstruction did not come easily. It    KPPN. On-treasury refers to disbursements
first had to earn trust and credibility from donors, partners and      through the Directorate General of
the community. Steps such as the establishment of the Anti-            Treasury, or KPPN-K, office in Aceh.
Corruption Unit and the Selection of a respected leader helped
create trust. Meanwhile, BRR hired consultants with respected industry credentials to
bolster the agency’s experience. Their experience substituted for the organization’s own,
establishing a foundation of credibility.




                                                                                                                                   Chapter 1. Turning Pledges into Commitment
   Cognizant that donors and NGOs have their own reconstruction objectives, their
own procedures and, at times, their own implementing agencies, BRR established three
different fund channeling mechanisms for donors to choose from. BRR acknowledged
the various needs of donors and implementing partners, facilitated donor engagement
in the financial process, and provided comfort to donors who were able to pick the
option they felt most secure with. Donors were also able to weigh the strategic
advantages and disadvantages of each option. The formation of MDF and RANTF as
facilitating instruments for coordination further demonstrated the GOI’s commitment
to, and appreciation of, the international community's reconstruction efforts. The sum
total of these steps fostered an environment that was conducive to channeling aid and
                                                                                                                                          15
implementing reconstruction projects.
  In retrospect, BRR’s success and the overall effectiveness of the steps and processes
described in establishing credibility can perhaps best be judged by the unprecedented
amount of pledges made good.




                                                                                            Eddy Purwanto, Chief Operating
                                                                                            Officer, in discussion with JICA
                                                                                            representatives during a field visit
                                                                                            to a proposed Final Waste site.
                                                                                            Photo: BRR/Arif Ariadi
                                                                                                                          Chapter 2. Matching Allocations with Real Needs
Matching Allocations
with Real Needs                                                                                                                   17




Large Scale Damage
and Large Scale Response
  ONE thing was clear from the rush of goodwill: Indonesia was not alone in
rehabilitating and reconstructing its shattered parts. The outpouring of generosity from
citizens around the world brought a large number of NGOs, agencies and institutions
into the tsunami-affected areas. This high level of commitment demonstrated a universal
spirit to answer the call of humanity.
  The challenging task ahead of the BRR was evident. Lives must be rebuilt, communities
protected, local economies revived, and the massive inflow of relief, rehabilitation and
reconstruction funds must be managed with transparency and accountability to provide
modernized civil administration and infrastructure. Adding to the complexity of this task
was the coordination of a large number of actors and a high volume of funds that were       The Saman Dance is a traditional
                                                                                            Acehnese dance that symbolizes
off-budget and outside official development assistance flows.
                                                                                            a harmonious relationship
  This chapter explores how in developing a recovery strategy, BRR sought a balance         among humans. In a high-paced
between responding rapidly to the needs of the people and coordinating the numerous         and bold rythm, the dancers
international actors. As time revealed the changing needs on the ground, BRR responded      form an impressive coherence of
                                                                                            movement. Photo: BRR/Arif Ariadi
accordingly to the dynamics of the environment.
                                                                                                                                                                                                                           The tsunami unleashed unprecedented destruction in modern history. It killed
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                                                                                                                                         people from 14 countries. In Aceh, the waves reached one to six kilometers inland and
                                                                                                                                                                                                                         destroyed 800 kilometers of coastline, an expanse greater than the distance from Jakarta
                                                                                                                                                                                                                         to Surabaya or San Francisco to San Diego. By January 2005, 124,741 people died and
                                                                                                                                                                                                                         93,285 were recorded missing.
                                                                                                                                                                                                                            The total estimate of damage and losses by the tsunami in Aceh alone was US$4.45
                                                                                                                                                                                                                         billion, or equivalent to about 80 percent of Aceh’s regional gross domestic product. Of the
                                                                                                                                                                                                                         total, 66 percent was damage, while 34 percent constituted losses in the terms of income
                                                                                                                                                                                                                         flows lost to the economy. The private sectors were heavily impacted by the disaster,



                                                                                                               Figure 2.1- Damage and Loss Assessment

         18
                                                      1600
                                                                                                                                                                                                                                                                                                   Damage
                                                                                                                                                                                                                                                                                                                                                    Damage and Loss
                                                      1400
                                                                                                                                                                                                                                                                                                   Losses
                                                                                                                                                                                                                                                                                                                                                    Assessment
                                                                                                                                                                                                                                                                                                                                                      Immediately following the tsunami, Indonesia’s
                                                      1200
                                                                                                                                                                                                                                                                                                                                                    National Development Planning Board (Bappenas)
                                                                                                                                                                                                                                                                                                                                                    alongside international partners conducted a
                                                      1000                                                                                                                                                                                                                                                                                          damage and losses assessment intended to provide
                                                                                                                                                                                                                                                                                                                                                    a preliminary picture of the impact caused by the
                                                                                                                                                                                                                                                                                                                                                    tsunami. This assessment was made under the
                                                       800                                                                                                                                                                                                                                                                                          standard internationally accepted methodology
                                                                                                                                                                                                                                                                                                                                                    developed by the United Nations Economic Commission
                                                                                                                                                                                                                                                                                                                                                    for Latin America and the Caribbean (ECLAC).
                                                       600
                                                                                                                                                                                                                                                                                                                                                       Damage (direct impact) refers to the impact on
                                                                                                                                                                                                                                                                                                                                                    assets, stock, property and is valued at agreed
                                                       400                                                                                                                                                                                                                                                                                          replacement (as opposed to reconstruction) unit prices.
                                                                                                                                                                                                                                                                                                                                                    The level of damage is also taken into consideration,
                                                                                                                                                                                                                                                                                                                                                    i.e. whether an asset can be rehabilitated or repaired or
                                                       200                                                                                                                                                                                                                                                                                          has been completely destroyed. Damage provides both
                                                                                                                                                                                                                                                                                                                                                    an idea of the destruction of assets in a country as well
                                                                                                                                                                                                                                                                                                                                                    as a baseline for defining a reconstruction program.
                                                         0
                                                                                                                                                                                                                                                                                                                                                      Losses (indirect impact) refer to flows that will
                                                                                                                             Agriculture and Livestock
                                                                                                               Enterprises



                                                                                                                                                                                                      Environment


                                                                                                                                                                                                                                Health



                                                                                                                                                                                                                                                                                                 Energy
                                                                                                                                                                                                                                                                                                          Water and Sanitation
                                                                                                                                                                                                                    Education


                                                                                                                                                                                                                                         Govermance and Administrations




                                                                                                                                                                                                                                                                                                                                 Bank and Finance
                                                                       Transport & communication
                                                                                                   Fisheries



                                                                                                                                                         Flood control, Irrigation & Sea Protection




                                                                                                                                                                                                                                                                          Culture and Religion
                                                             Housing




                                                                                                                                                                                                                                                                                                                                                    be affected--such as revenue, public and private
                                                                                                                                                                                                                                                                                                                                                    expenditure--until the assets are recovered.
                                                                                                                                                                                                                                                                                                                                                      The private sector refers to the part of the economy
                                                                                                                                                                                                                                                                                                                                                    that is both run for private profit and is not controlled by
                                                                                                                                                                                                                                                                                                                                                    the state. Housing, agriculture and livestock are part of
                                                                                                                                                                                                                                                                                                                                                    the private sector.




                                                                                                                                                                                                              Source: Bappenas and International Community, 2005
absorbing approximately 78 percent of the total damage and losses, whereas about 22
percent of damages and losses were borne by the public sector (Bappenas and International
Community 2005). The huge human toll and the brunt of the disaster borne by the private




                                                                                               Chapter 2. Matching Allocations with Real Needs
sector translated into lost or severely impacted livelihoods (Bappenas and International
Community 2005). In Nias, total damage and losses amounted to US$400 million.
   In designing a reconstruction strategy, these assessments of damage and loss informed
BRR’s scale of priorities and actions. The damage and loss profile assisted in determining
priorities (importance vs. urgency) and sequencing (timeline for reconstruction process
in each sector and geographic region. The damage in Aceh was vast, affecting nearly
every sector and nearly every region. This presented a different case than other disasters
wherein only certain sectors had to be rebuilt, such as the housing sector after the
earthquake in Bam, Iran. The scope of reconstruction works was massive. Livelihoods
had to be rebuilt along with the social fabric while the physical reconstruction of housing,
                                                                                                       19
production, and infrastructure proceeded.
  A surge of players poured into Aceh in the days following the tsunami. The once
closed-off province found itself inundated with external parties. Agencies from 133
countries carried out 200 projects in the emergency phase alone (Masyrafah and McKeon
2008). The outpouring of domestic and international support resulted in many local
and international NGOs, private sector actors, official donor agencies, and multilateral
institutions seeking to provide assistance. Traditional groups of relief players, especially
NGOs, found themselves in an unconventional situation whereby the generosity of the
contributions given to them from their own sources, outside the government agencies,
provided an opportunity for organizations to do more than they normally would have--to
remain in Aceh and Nias beyond the relief phase. Many of them did stay and according to
BRR’s Data and Information Center, Pusdatin, as many as 992 funding and implementing
agencies contributed during the reconstruction phase.
  The openness of the GOI to welcoming these numerous players had its costs. With so
many agencies on the ground in Aceh and Nias, each with its own management structure
and support services, the duplication of efforts was unavoidable. As the number of
agencies grew, so did the burden of coordination on BRR.
   Coordinating all these organizations while promoting the interests of local communities
was by no means a simple task. BRR attempted to coordinate partners not funded by the
national budget, or off-budget projects, via sector working groups. In these meetings,
partners gathered to discuss problems on the ground and searched for collaborative
opportunities to address overlaps. BRR’s role was to facilitate the discussions and
guidance when necessary. However, issues were rarely resolved as partners increasingly
used the forum to promote or defend their own priorities. What initially started out as a
promising management level forum for dialogue and coordination shifted mid-term to
become a forum for a project status updates by lower-level personnel, and it was only
later that a slightly modified approach restored its efficacy.
                                                                                            As mentioned in Chapter 1, in the early months of reconstruction, BRR was a new
FINANCE: The Seven Keys to Effective Aid Management




                                                                                         agency trying to establish credibility and a form of structure both internal and external
                                                                                         that was adequate to its dual role. BRR had not reached the stage of credibility at which
                                                                                         partners could accept strict controls on their programs or on their fiduciary management
                                                                                         from BRR. BRR was still trying to develop a unified planning strategy, budgetary
                                                                                         framework and coordination structures that could be respected by all the international
                                                                                         actors. The agency had limited resources to oversee such a massive endeavor and its
                                                                                         coordination mechanisms were yet inadequate in quality and accuracy to handle the
                                                                                         large scale of damage, combined with multiple actors. An evolving strategy was needed.


                                                                                         Initial Strategy
                                                                                           Locals, nationals and internationals alike were faced with an enormous task,
         20                                                                              exacerbated by the complexity of the situation and scale of constraints. BRR was
                                                                                         established to synthesize this chaotic situation and lead the national response, ensuring
                                                                                         that resources were effectively allocated to meet the demands of the reconstruction.
                                                                                              In devising a strategy to guide the reconstruction process that the National
                                                                                                                          Development Planning Agency Board (Bappenas) and its
                                                                                                                          partners (2005) had outlined, decision makers needed

                                                      Goals of the Master Plan                                            to: incorporate a comprehensive damage and needs
                                                                                                                          assessment, rapidly mobilize reconstruction funds and
                                                        The Master Plan aimed to, among other things:                     activities, focus on the needs of the local population,
                                                                                                                          establish the highest fiduciary standards and an efficient
                                                        build consensus and commitment among central
                                                      and local governments, donors, and other stakeholders               system for managing the funds, and establish a way to
                                                      involved in the reconstruction                                      update and monitor needs and results. Each stage of the
                                                        coordinate and synchronize plans from various                     strategy needed to be shaped by the needs of the local
                                                      sectors and stakeholders to create an integrated                    population. As we have learned from global experiences in
                                                      action plan that clearly laid out the timeframe and                 post-disaster management, local communities need to be
                                                      locations, identified sources of funding, and delegated             among the central decision makers of the reconstruction
                                                      implementation responsibilities
                                                                                                                          process.
                                                        publicize and disseminate data and information to
                                                      local, national and international counterparts on the
                                                      damage, loss and needs assessments
                                                                                                                       The Master Plan
                                                                                                                         Subsequent to the damage and needs assessment,
                                                        develop an effective, transparent, and accountable
                                                      system and mechanisms to mobilize funding from                   Bappenas in cooperation with international partners
                                                      the national budget, regional budget and donors in               developed a Master Plan. This Master Plan confirmed the
                                                      accordance with the principles of good governance                need for a separate reconstruction agency and laid out
                                                                                                                       guidelines outlining detailed reconstruction targets in Aceh.
                                                                                             Source: Bappenas 2005     On the following day, the President established BRR through
                                                                                                                       Government Regulation in Lieu of Law No. 2/2005. Later, after
                                                                                                                       being passed by the Indonesian Legislative, this emergency
                                                                                                                       regulation became Law No. 10/2005.
  It was estimated that the Master Plan would take between three to five years to
implement, the results of which would feed into the more sustainable programs of the
Provincial Medium-Term Development Plan (RPJMD). As determined by law, in carrying




                                                                                                                                        Chapter 2. Matching Allocations with Real Needs
out reconstruction according to the Master Plan, BRR played a dual role: (i) to directly
implement reconstruction projects funded by the national budget, and (ii) to coordinate
the implementation of the rehabilitation and reconstruction by line ministries, local
government and donors/NGOs.
   The original Master Plan provided key targets for reconstruction to be carried out and
coordinated by BRR. However, this version failed to also incorporate a strategic plan and
key decisions to guide the process. It was developed in haste to provide a barometer
to gauge progress and targets for BRR. Faced with escalating demands from locals and
international contributors for results, and under pressure to act immediately, the GOI
opted not to take the time to design a sturdy foundation upon which a broad-based
                                                                                                                                                21
strategy of implementation and coordination could be built. While the Master Plan
did lay out goals and set quantitative performance measurements, it failed to create a
comprehensive strategy for BRR.
  In other words: the goals to be reached by BRR were manifold, the path to reach those
goals lined with numerous obstacles, and the road map to reach the end target was
nonexistent.



                 Figure 2.2 - Shifting Focus of Rehabilitation and Reconstruction Activities as Conceived in December 2005


                                                  Infrastructure & Other
                                                      Public Facilities

                      Housing




                                                                                  Economic and Business
                                                  Education &                         Empowerment
    Community &                                     Health
   Spatial Planning




                                                                                                                        Institutional
                                                                                                                       Development

                                   Land Titling


                                                                Religion, Social and
                                                                  Cultural Affairs


    2005                    2006                              2007                             2008                   2009
                                                         In the absence of a clear reconstruction plan in the Master Plan, BRR, created a broad
FINANCE: The Seven Keys to Effective Aid Management




                                                      strategy to guide the focus of its rehabilitation and reconstruction activities (Figure
                                                      2.2). Although unspecific, this strategy provided an initial broad design of sectors to be
                                                      prioritized at various periods of the reconstruction. The intensity and time span that was
                                                      to be dedicated to each sector was also shown in the strategy.

                                                      A Free Market Approach
                                                         In the 4th century BCE, the Taoist philosopher Zhuangzi said, “Good order results
                                                      spontaneously when things are let alone.” This notion was the seed for what the late
                                                      Austrian economist Friedrich Hayek called spontaneous order. Hayek espoused the
                                                      classical liberal view that in market economies, order will emerge spontaneously out of
                                                      seeming chaos, rather than springing from intentionally controlled, directed or managed
                                                      economies (Hayek as cited in Petsoulas 2001, 2). Hayek believed that the organic
         22                                           emergence of resources would lead to an allocation more efficient than any human
                                                      design could achieve.
                                                        The recovery landscape in Aceh was nothing short of chaotic when BRR first came into
                                                      the picture. There was damage across all sectors and a plethora of agencies had rolled in.
                                                      Instead of trying to control these agencies, BRR decided to adopt a predominantly “free
                                                      market” approach bounded by appropriate regulation.
                                                         This avoided a traditional command and control relationship between BRR and recovery
                                                      players, allowing ideas and people to flow freely. Under the Hayek argument, over time
                                                      ‘demand’ from the locals, local government and BRR would be matched with ‘supply’
                                                      from donors and NGOs, and a sophisticated business network would emerge organically
                                                      amongst the delivery partners.
                                                         This ‘free market’ approach also gave NGOs, whose largely private funding could be
                                                      disbursed faster than funds from donors or GOI, relative freedom to act. As a result they
                                                      were able to meet some urgent needs ahead of other actors. This meant that certain
                                                      recovery programs which needed immediate action, such as support for those with
                                                      trauma, getting children back to school and providing shelter, could be speedily tackled.
                                                        Facing the tremendously varied needs in nearly every sector, many NGOs took further
                                                      advantage of the flexibility they were given to explore areas beyond their conventional
                                                      expertise. Thus for instance, many organizations with no history of building houses
                                                      hired contractors to rebuild houses in Aceh and Nias. Here, their capacity to adapt to
                                                      the expansive demands of recovery was tested. Through a natural selection process, the
                                                      varying skills and capacities among delivery partners became more evident.
                                                         BRR strategically fostered these emerging comparative advantages as they became
                                                      evident. For example, BRR encouraged partners who were already equipped with the
                                                      strategic, budgetary and structural designs to quickly deliver, supporting the need for
                                                      rapid but organized response.
  The roles of the stakeholder groups became more defined with regard to different
reconstruction needs and types of projects. Bilateral and multilateral donors mostly
covered large-scale projects, whereas NGOs mainly carried out small-scale localized




                                                                                                Chapter 2. Matching Allocations with Real Needs
projects. With time, as Hayek had theorized, resources were appropriately allocated and
organizations matched their own skills, old and new, with the priorities on the ground.


Persistent Gaps
  In the early days, letting the outpouring of good will proceed unencumbered by
controlled management from BRR allowed the comparative advantages of different
agencies to emerge organically, and also allowed the players to operate at their own
individual speeds. Over time however, this ‘free market’ model proved to be inadequate in
managing the influx of players.
                                                                                                        23
  The proliferation of agencies and the ample funding that most had access to created
a disincentive for the players to coordinate. A negative externality of their flexibility and
autonomous funding was that agencies had the liberty to implement independently.
Meanwhile the receiving organizations were not tied to the purse strings of official
donors, including the national government (TEC 2006). These factors enhanced the
independent action of NGOs and the Red Cross Movement and arguably increased the
influence of non-government actors on the reconstruction, further reducing their need to
coordinate with multilateral and bilateral actors.
  Without rigorous coordination, overlaps occurred and some needs were not met. BRR
did its best to cover instances where supply did not meet demand, wielding the large
and flexible funds at its disposal to fill gaps. It had at its disposal the GOI on-budget
reconstruction funds. It is worth noting that the APBN national budget funding was
the single largest source of funds in reconstruction. Masyarafah and McKeon (2008)
reported that having a single agency controlling a significant share of the funding in
Aceh meaningfully reduced fragmentation of funds. But despite BRR’s best efforts, gaps
persisted. A more effective coordination mechanism was needed.

The Costs of Proliferating Aid Organizations
  Generous funding led to the proliferation of new and insufficiently experienced actors,
and to established actors venturing into activities outside their normal area of expertise
(TEC 2006). Many of the players moreover plunged into similar sectors, such as livelihood
and health, creating oversupply in certain sectors, while leaving others underfunded.
  This describes a situation of aid proliferation or aid bombardment where large numbers
of donors and projects overburden the recipient government’s capacity to manage and
administer aid inflows. As a result the resident government cannot avoid having over- or
under-funded sectors.
                                                                                                                                                          Donor proliferation, as witnessed in Aceh, has taken place almost continuously on
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                                                                        a global scale since 1975 and comes with associated costs. Sources and channels of
                                                                                                                                                        aid have increased rapidly with various multilateral organizations such as UN agencies
                                                                                                                                                        emerging and more countries developing their own independent bilateral aid programs.
                                                                                                                                                        For some countries, having such a program has virtually become a badge of a “developed”
                                                                                                                                                        status (Acharya, Fuzzo and Moore 2004).
                                                                                                                                                           Proliferation has important implications for the quality and cost of a response. In her
                                                                                                                                                        catalog of the “seven deadly sins” of aid delivery, Birdsall (2005, as cited by Roodman 2006)
                                                                                                                                                        cites proliferation under “envy,” a heading that refers to the failure of donors to coordinate.
                                                                                                                                                        Evidently, each donor wants its own school-building project, its own HIV prevention
                                                                                                                                                        campaign, and so on.

                                                                                Figure 2.3 - Sectoral Allocations in December 2005                                                                                                                                                                                                                                         The immediate consequence of aid proliferation
         24                                                                                                                                                                                                                                                                                                                                                             is an increase in the transaction costs incurred
                                                                    1200
                                                                                                                                                                                                                                                                                                                                                                        by recipient governments as they absorb foreign
                                                                                                                                                                                                                                                                                                                                                                        aid (Acharya et al., 2006). The costs can be direct
                                                                    1000
                                                                                                                                                                                                                                                                                                                                                                        transaction costs or indirect transaction costs
                                                                                                                                                                                                                                                                                                                                                                        (Acharya, Fuzzo and Moore 2004). Direct transaction
                                                                                                                                                                                                                                                                                                                                                                        costs absorb the energy of the recipient government,
                                                                     800                                                                                                                                                                                                                                                                                                which is burdened for example by increased reporting
                                                                                                                                                                                                                                                                                                                                                                        costs and other administrative overhead, siphoning
                                                                                                                                                                                                                                                                                                                                                                        off scarce domestic recipient resources such as
                                                      US$ Million




                                                                     600                                                                                                                                                                                                                                                                                                tax revenue and the time of skilled government
                                                                                                                                                                                                                                                                                                                                                                        officials from directly productive use (Roodman
                                                                                                                                                                                                                                                                                                                                                                        2006). Further, there is an increased burden on local
                                                                     400                                                                                                                                                                                                                                                                                                authorities and coordination structures. Indirect
                                                                                                                                                                                                                                                                                                                                                                        transaction costs take the form of unscrupulous
                                                                                                                                                                                                                                                                                                                                                                        bureaucratic and political behavior stimulated by aid
                                                                     200                                                                                                                                                                                                                                                                                                proliferation (Masyrafah and McKeon 2008).
                                                                                                                                                                                                                                                                                                                                                                           Initially, by allowing the chips to fall freely, BRR
                                                                                                                                                                                                                                                                                                                                                                        gave itself room to make sense of the chaos as
                                                                       0
                                                                                                                                                                                                                                                                                                                                                                        the free market approach brought to light the real
                                                                                                                                                                                                                                                                                                                      Flood Control and Irrigation Work
                                                                                                                      Community, Culture and Religion
                                                                                     Transport


                                                                                                          Education




                                                                                                                                                                                                                                                                   Other Infrastructure
                                                                                                 Health




                                                                                                                                                                                                                                Water and Sanitation




                                                                                                                                                                                                                                                                                          Agriculture and Livestock
                                                                                                                                                        Governance and Administrations (incl.Land)
                                                                                                                                                                                                     Industry, Trade and SMEs


                                                                                                                                                                                                                                                       Fisheries




                                                                                                                                                                                                                                                                                                                                                          Environment
                                                                           Housing




                                                                                                                                                                                                                                                                                                                                                                        needs and the varying degrees of expertise among
                                                                                                                                                                                                                                                                                                                                                                        players. Over time, problems emerged. Coordination
                                                                                                                                                                                                                                                                                                                                                                        was fragmented and issues were handled on an ad
                                                                                                                                                                                                                                                                                                                                                                        hoc basis, while organizations implemented in the
                                                                                                                                                                                                                                                                                                                                                                        same region and sector with limited information-
                                                                                                                                                                                                                                                                                                                                                                        sharing taking place. The costs of this ‘free market’
                                                                                                                                                                                                                                                                                                                                                                        proliferation of agencies became apparent as the
                                                                                                                                                                                                                                                                                                                                                                        allocation of funds across sectors soon became
                                                                                                                                                                                                                                                                                                                                                                        unstable.


                                                                                                                                                                                                     (Source: BRR and Partners 2005)
                                                                                                                                       Figure 2.4 - Sectoral Allocations Gaps Versus Key Minimum Needs
                                                                                                                                                                in December 2005
                                                US$ Million
Misallocation of Funds                                400
   The total reconstruction program                   300
                                                                                                                                                                                                Surplus




                                                                                                                                                                                                                                                                                                                                                                       Chapter 2. Matching Allocations with Real Needs
of US$7.2 billion in Aceh and Nias was                200
the largest reconstruction program in                 100
the developing world at the time. By                     0
December 2005, US$4.4 billion had                     -100
been translated into concrete programs
                                                      -200
that served as the backbone for the                                                                                                                                                                                                                                 Deficit
                                                      -300
first year of reconstruction (BRR and
                                                      -400
Partners, 2005). Almost half of the




                                                                       Community, Culture and Religion




                                                                                                                                                                                                     Agriculture and Livestock




                                                                                                                                                                                                                                                                                                                       Flood Control and Irrigation Work
                                                              Health




                                                                                                                                                                              Water and Sanitation
                                                                                                                                                     Enterprise
                                                                                                                                                                  Education




                                                                                                                                                                                                                                             Other Infrastructure


                                                                                                                                                                                                                                                                               Communications
                                                                                                                                                                                                                                 Fisheries




                                                                                                                                                                                                                                                                                                Energy
                                                                                                                                                                                                                                                                                                         Environment


                                                                                                                                                                                                                                                                                                                                                           Transport
                                                                                                         Governance and Administration (incl.Land)




                                                                                                                                                                                                                                                                     Housing
funds were allocated to the housing
and infrastructure sector, followed
by the transport, health, education,
                                                                                                                                                                                                                                                                                                                                                                               25
community support and governance
sectors (Figure 2.3). This section
illustrates the gaps in reconstruction
that emerged over time and their
implications.
  The initial US$4.4 billion was
sufficient to cover the initial damage                                                                                                                                                                                                                               Source: BRR and Partners 2005
and loss assessment, but it was not
enough to meet minimum needs in
some sectors, to build back better, or to account      A Note on the Definition of
for increased costs. Further, these allocations
were only broadly in line with sectoral needs.         ‘Projects’
Due to the varying appeal of sectors and the             The true definition of a “project” is unclear due to varying
presence of aid “tied” to certain projects, a year     measurements for different partners and the varying tools for
after the tsunami, funding for several sectors         recording reconstruction activities. For off-budget activities, BRR
had exceeded core minimum needs while other            used the number of Project Concept Notes (PCNs) as an indicator.
                                                       As of December 2008, 1,658 PCNs had been approved by BRR
sectors remained heavily underfunded (Figure
                                                       (more on the PCN approval process below). However, a PCN can
2.4). Further, rising inflation rates triggered aid    also represent a sectoral program with a collection of project
volatility in Aceh and had a direct impact on the      components, in which case the number of off-budget projects
ability of international agencies to deliver on        would be greater than the number of PCNs.
their planned promises (Masyrafah and McKeon              Meanwhile, for on-budget activities, BRR used over 900 Project
2008).                                                 Implementing Units (PIUs or Satker) during the agency’s lifetime.
                                                       Each PIU implemented a number of packages composed of a
  According to Masyrafah and McKeon                    varying number of contracts. As with a PCN, each package and
(2008), Aceh hosted around 2,200 projects              contract may constitute one single project or a group of them.
implemented by over 500 agencies in the                During 2005-2008, there were over 20,000 packages. Needless
                                                       to say, the divergence in tools of measurement makes it difficult
reconstruction phase alone. Of these projects,         to come up with one clear number for the amount of projects
NGOs managed 80 percent, while the                     managed in the reconstruction period.
                                                                         Figure 2.5 - Regional Gaps in Financing in December 2005
FINANCE: The Seven Keys to Effective Aid Management




         26




                                                      NIAS
                                                      45



                                                        NIAS SELATAN
                                                             40




                                                                                                                                    (Source: BRR and Partners 2005)




                                                                  government donors and the GOI implemented 18 percent and 7 percent respectively.
                                                                  The average project size for NGOs was far smaller than that of the GOI programs. By far
                                                                  the largest number of projects and reconstruction actors was found in the social sector,
                                                                  although its allocation of funding was not the highest. In the infrastructure and housing
                                                                  sectors—the most severely affected by the disaster—the number of projects and actors
                                                                  was lower.
                                                                    Fund allocation corresponded strongly with spatial damage, with a bias visible towards
                                                                  areas close to Banda Aceh. The regions which had experienced the greatest damage,
                                                                  Aceh Jaya and Aceh Barat followed by Nias, Aceh Besar and Banda Aceh, received the
                                                                  most funds with the exception of Nias. In the case of Banda Aceh and Aceh Besar, funding
                                                                  appeared to exceed the amount of damage and losses. By contrast, other parts of Aceh
                                                                  particularly the South and North-East of Aceh, as well as Nias, were still significantly
underfunded (Figure 2.5). However, this discrepancy was in large part the result of
limited access during the early months of reconstruction to areas outside of Banda Aceh
and Aceh Besar. As more remote areas of the province and Nias became increasingly




                                                                                                                                                                                                                                                                                                                                                                                          Chapter 2. Matching Allocations with Real Needs
accessible, funding flows into these areas increased.
  As noted previously, a year following the tsunami, it became apparent to BRR that its
on-budget funds were not sufficiently bridging these misallocations. The proliferation of
agencies required a firmer, coordinated management approach to match allocations with
real needs than the free market approach provided. A change was needed.


Shifting to a Guided Facilitation Model
   As BRR matured and a clearer picture emerged of the demands on the ground and the
supply that players were able to provide, BRR shifted to a “guided market” approach. The                                                                                                                                                                                                                                                                                                          27
laissez faire approach had allowed order to emerge on its own, but it had its drawbacks in
a situation of this scale. Ideally a common framework would have been set in place for the
implementation and administration of assistance operations, setting consistent standards
and guidelines across projects. Providing common rules for fiduciary management
and performance reporting would also have been useful to ensure the effectiveness,
efficiency and integrity of funds usage. The management structure of the recovery
and reconstructions fund could have been designed in such a way as to provide such
overarching coordination, with care
taken of course to avoid unnecessary                    Figure 2.6 - Sectoral Gaps Versus Core Minimum Needs in December 2006
bureaucratic bottlenecks at a time
                                               US$ Million
when fast-disbursement of assistance                 500
is paramount.
                                                        400
  Now, BRR began steering                               300                                                                                                                                                                                        Surplus
partners to implement projects in                       200
the underfunded sectors, filling                        100
gaps in needs on the ground that                           0
the free market approach had not
                                                       -100
adequately met. Over the course of                                                                                                                                                                                                                                                                            Deficit
                                                       -200
reconstruction, the guided facilitation
                                                                                                                                                                                                                   Agriculture and Livestock




                                                                                                                                                                                                                                                                                                                                         Flood Cntrol and Irrigation Work
                                                               Health
                                                                        Governance and Administrations (incl.Land)
                                                                                                                     Education
                                                                                                                                 Enterprise


                                                                                                                                                                                Water and Sanitation




                                                                                                                                                                                                                                                           Communications
                                                                                                                                                                                                                                                                            Other Infrastructure
                                                                                                                                                                                                                                                                                                   Bank and Finance
                                                                                                                                                                                                                                               Fisheries




                                                                                                                                                                                                                                                                                                                                Energy


                                                                                                                                                                                                                                                                                                                                                                            Environment
                                                                                                                                              Community, Culture and Religion


                                                                                                                                                                                                       Transport




                                                                                                                                                                                                                                                                                                                      Housing




approach yielded real results on the
ground.
   Figure 2.6 and Figure 2.7 provide
a comparison of sectoral allocations
gaps versus core minimum needs in
December 2006 vs. December 2007,
showing an overall improved match
between funds and sector allocations.


                                                                                                                                                                                                                                                     Source: World Bank 2007
                                                             Figure 2.7 - Sectoral Allocations Gaps Versus Core Ninimum Needs in December 2007                                                                                                                                                                                                                                                     It should be noted that sectoral
FINANCE: The Seven Keys to Effective Aid Management




                                                      USD Million                                                                                                                                                                                                                                                                                                                               funding needs to be changed over time;
                                                            600                                                                                                                                                                                                                                                                                                                                 for example the assessment of fund
                                                            500                                                                                                                                                                                                                                                                                                                                 allocations in December 2006 revealed
                                                            400                                                                                                                                                                                                                                                                                                                                 that there was no longer a deficit
                                                                                                                                                                                                                                                                      Surplus                                                                                                                   in the funds for the transportation
                                                            300
                                                            200                                                                                                                                                                                                                                                                                                                                 sector, whereas there was a greater
                                                            100                                                                                                                                                                                                                                                                                                                                 need for funds in the housing sector
                                                               0
                                                                                                                                                                                                                                                                                                                                                                                                compared to the previous year. By
                                                                                                                                                                                                                                                                                                                                                                                                December 2007, housing had received
                                                            -100
                                                                                                                                                                                                                                                                                                                             Deficit                                                            the appropriate allocations by BRR and
                                                            -200
                                                                                                                                                                                                                                                                                                                                                                                                partners to surpass the core minimum
                                                                    Governance and Administrations (incl.Land)




                                                                                                                                                                                                                                  Agriculture and Livestock




                                                                                                                                                                                                                                                                                                                                     Flood Control and Irrigation Work
                                                                                                                 Health


                                                                                                                                                            Enterprise
                                                                                                                                                                         Education
                                                                                                                                                                                     Water and Sanitation




                                                                                                                                                                                                                                                              Communications



                                                                                                                                                                                                                                                                                           Other Infrastructure
                                                                                                                                                                                                                                                                                                                  Bank and Finance
                                                                                                                                                                                                                      Transport




                                                                                                                                                                                                                                                                               Fisheries




                                                                                                                                                                                                                                                                                                                                                                         Energy
                                                                                                                                                                                                                                                                                                                                                                                  Environment
                                                                                                                          Community, Culture and Religion




                                                                                                                                                                                                            Housing




                                                                                                                                                                                                                                                                                                                                                                                                needs. However, environment and
         28                                                                                                                                                                                                                                                                                                                                                                                     energy sectors were still underfunded.
                                                                                                                                                                                                                                                                                                                                                                                                Overall, the gaps in the different sectors
                                                                                                                                                                                                                                                                                                                                                                                                narrowed as BRR approached its final
                                                                                                                                                                                                                                                                                                                                                                                                year.


                                                                                                                                                                                                                                                                                                                                                                                                Ingredients of the
                                                                                                                                                                                                                                                                                                                                                                                                Guided Facilitation
                                                                                                                                                                                                                                                                                                                                                                                                Approach
                                                                                                                                                                                                                                                                        Source: World Bank 2007
                                                                                                                                                                                                                                                 Matching allocations with real needs
                                                                                                                                                                                                                                              is a function of information symmetry,
                                                                                                                                                                                           persuasion and leadership. This section discusses how BRR translated these three
                                                                                                                                                                                           elements into reality and got the guided facilitation approach to work.

                                                                                                                                                                                           Information gathering and the enabled shift to portfolio
                                                                                                                                                                                           management
                                                                                                                                                                                           1. Data capture: Recovery Aceh-Nias (RAN) Database
                                                                                                                                                                                             Information is power. One key tool that enabled the shift in approach was the
                                                                                                                                                                                           establishment of a sophisticated IT system that captured and reported financial
                                                                                                                                                                                           commitments and disbursements. This was the web-based Recovery Aceh-Nias (RAN)
                                                                                                                                                                                           Database.
                                                                                                                                                                                              The RAN Database was based on the Development Assistance Database (DAD) system,
                                                                                                                                                                                           which had been used to track funds in Afghanistan since 2003. In 2004, the United
                                                                                                                                                                                           Nations Development Program (UNDP) initiated the use of DAD in all of the countries
                                                                                                                                                                                           affected by the tsunami to provide information on the flow of funds. The GOI decided to
                                                                                                                                                                                           customize and revamp the DAD to create the RAN Database.
                                                                           Project Concept Notes
  First inaugurated in October 2005, the RAN Database                        Project Concept Notes (PCNs) are an important
underwent several iterations. It tracked where off-budget                  part of the RAN Database data gathering process.
funding was and was not being allocated, and also tracked                  Each PCN contains information on the goals and




                                                                                                                                  Chapter 2. Matching Allocations with Real Needs
the physical progress of projects as reported by submitted                 objectives of projects, the source of funding, the
                                                                           implementing agency, timeline, location, and exact
Project Concept Notes (PCNs). This data was then used to more              Key Performance Indicators (KPIs) of the project.
accurately guide partners towards addressing real needs.7                  PCNs provide a basis for BRR to track projects
2. On-the-ground presence: BRR Regional Offices                            implemented through off-budget mechanisms,
                                                                           as approved PCNs are registered into the RAN
   Data from the RAN Database was enhanced by information                  Database.
from the BRR regional offices in the field. BRR had established
                                                                              The PCN approval process also substitutes for
regional offices across Aceh and Nias to oversee on-the-spot               direct control over the NGOs. BRR held regular
execution of projects and foster the active participation of               PCN Approval Workshops in which BRR sector
community members and the local government in the planning                 experts, the local government and relevant external
                                                                           stakeholders we invited to evaluate a batch of
and execution of projects. Having arms and legs on the ground
                                                                           submitted PCNs in a transparent fashion. The                   29
strengthened the bottom-up approach to reconstruction                      PCNs we rated as follows: unconditional approval,
and provided a clearer picture of what was happening on the                conditional approval, holding bay, or turned down.
ground. Chapter 3 further elaborates on BRR regionalization.               The criteria used to evaluate projects include
                                                                           alignment with the Master Plan and sector
   The information from the RAN Database and the BRR Regional              vision, local community involvement, and project
Offices was instrumental in providing a more accurate picture of           sustainability. This single approval process allowed
the individual parts as well as developing an understanding of             for maximum coordination between government
                                                                           and non-government projects and avoided overlaps
the collective whole. Armed with this information, BRR was able
                                                                           in implementation.
to better prioritize. It could sensibly sort through the profusion
                                                                             The PCN Approval Workshops thus provided a
of organizations and projects to make decisions on fund
                                                                           forum where BRR could match proposed projects
allocations that maximized delivery.                                       and partner skills with sectoral and regional
                                                                           demands on the ground. This process helped guide
  Consequently BRR was able to adjust its management
                                                                           funding towards real needs while maintaining donor
approach to focus on managing at the “big picture”                         and NGO buy-in.
reconstruction portfolio level. Portfolio management is about
                                                                             As of December 2008, 46 PCN Approval
managing strengths and weaknesses, opportunities and threats,              Workshops had been conducted. Of 1,859 PCNs
and other tradeoffs in order to achieve a successful outcome               proposed, 1,658 were approved.
of the total recovery effort. Previously BRR had focused on
managing at the project level, a mammoth task due to the
thousands of existing projects. This was a better use of its limited
resources.

Working with Reconstruction Players—The Art of Persuasion
  Each partner had their own reconstruction agenda and many had earmarked their
funds for specific purposes. Yet for the resources to work effectively in the recovery
period, GOI through BRR had to take ownership of the reconstruction and persuade
players to align their strategies with that of the GOI’s. This follows the principles of the
Paris Declaration mentioned in Chapter 1.
                                                        Complicating the task, some funds were pre-earmarked by donors for specific purposes.
FINANCE: The Seven Keys to Effective Aid Management




                                                      Tied aid limits the ability of any national coordinator to redirect flows. Bilateral agencies
                                                      tend to focus on addressing needs driven by political motives, which are generally short-
                                                      term in nature, while multilateral agencies generally take on longer-term projects within
                                                      the range of their development agenda. Even if this tied aid is aligned with the recipient
                                                      country’s priorities, there is a degree of constraint at the sector level where donors tie
                                                      their support to specific activities.
                                                         Non-earmarked money came with its own implications. All the tsunami affected
                                                      countries brought in a high amount of un-earmarked money; according to a TEC report
                                                      (2006), over half of the funds for the UN Appeal were given as un-earmarked money. Only
                                                      a small proportion of IFRC funds (less than 10 percent) were earmarked. This general
                                                      lack of earmarking meant that agencies could be extremely flexible in the use of funds,
                                                      especially since donations from the general public were subject to reporting standards
         30
                                                      less rigorous than that for funding from institutional donors. However, the pressure to
                                                      show immediate results to private funders drove many agencies to select projects that
                                                      clearly displayed the products of the contribution, even if that project was outside of their
                                                      competency.
                                                         In the absence of direct control, BRR had to be persuasive. Persuasion exerted far
                                                      greater effect over the decision-making of independently-funded partners than rigid
                                                      hierarchical structures did. Fortunately BRR had taken the pains to establish its credibility
                                                      during the free market phase before it attempted to exert influence. As Cialdini (2001)
                                                      remarked, persuasion can be extremely effective when it comes from peers as influence is
                                                      better exerted horizontally rather than vertically. In addition, BRR understood the terrain
                                                      faced by other actors on the ground thanks in part to the RAN Database augmented by
                                                      field information from the BRR Regional Offices. As American entrepreneur Victor Kiam
                                                      has been quoted as saying, “Information is the negotiator’s best weapon,” and of that the
                                                      BRR had plenty.
                                                         Once the agency had reached a position to negotiate, BRR artfully made the case to
                                                      donors on where the aid should flow. Conger (1998) states that effective persuasion
                                                      becomes a negotiating and learning process through which a persuader leads colleagues
                                                      to a problem’s shared solution. The BRR combined its knowledge on sector allocations
                                                      from the RAN Database with its capacity to guide the international community in a united
                                                      effort to fill the reconstruction gaps.

                                                      Leadership
                                                        Having a single, leading agency in the form of BRR was a prerequisite to guided
                                                      facilitation. Donors generally want to see recipient countries take leadership and
                                                      articulate their wants at the strategy level, with a solid team deployed at the operational
                                                      level. BRR had the resources to negotiate with finesse and make hard decisions based on
the detailed information that it owned. This was a vast contrast to other line ministries
at that time. Such leadership, grounded in comprehensive information and executed
through persuasion, effectively realized the guided facilitation model.




                                                                                                                        Chapter 2. Matching Allocations with Real Needs
Mid-Term Review (MTR)
   With a different model for coordination in place, halfway through its mandate, BRR
moved to conduct a Mid-Term Review (MTR) in April 2007 to measure the progress of the
last two years and decide how it should move forward. As mentioned, the original Master
Plan was developed responsively to the urgent demands and for quick implementation,
and it thus fell short of laying out a clear plan and strategy for reconstruction. By early
2007, while targets for some facilities now exceeded requirements (more schools and
health centres than required), others were not feasible (a railway from Aceh to Medan),
and still other livelihood needs had being addressed for some communities in Aceh and                                           31
Nias (micro-hydropower plant, rice field rehabilitation). The MTR provided an opportunity
to assess progress to date against the targets of the Master Plan. It also provided an
opportunity to revise policies, strategies and targets in concert with an evaluation of
dynamic real needs, recapitulating the main rehabilitation and reconstruction programs
in Aceh and Nias during 2005-2007.
   The MTR aimed to (i) recommend
                                                                           Figure 2.8 - The Four Quadrants of the MTR
strategies and policies on the
implementation of rehabilitation and
reconstruction projects, (ii) provide
guidance on an action plan for the
remaining reconstruction period, and (iii)
give recommendations on the closure of
BRR and transition to Line Ministries and
Local Government. As a whole, the revised
Master plan was meant to refine the goals
of the recovery activities and provide
a legal basis for the implementation of
rehabilitation and reconstruction by BRR
in 2005-2008, as well as for any remaining
works by the Line Ministries and the Local
Government in 2009. The MTR applied a
four quadrant system to categorize progress
by BRR and its partners (Figure 2.8). The
first quadrant was designated for projects
that had exceeded the targets of the original
Master Plan. Reconstruction of health and
education facilities fell under this category.
FINANCE: The Seven Keys to Effective Aid Management




         32




                                                      Public Consultation with National    The second quadrant contained projects that had inadequately met Master Plan targets.
                                                      Development Planning Agency in       These projects, such as the provision of fishing boats, had been moved down the priority
                                                      Jakarta regarding revisions to the   list in deference to other, more urgent needs on the ground. In the third quadrant were
                                                      Master Plan, July 19, 2007. Photo:
                                                                                           projects that had been implemented despite their lack of mention in the Master Plan, in
                                                                         BRR/Arif Ariadi
                                                                                           response to demand. The last quadrant contained targets in the Master Plan that had not
                                                                                           been carried out at all as the situation on the ground indicated a lack of implementation
                                                                                           efficiency or insufficient need. These categories clearly showed the sectors that most
                                                                                           needed additional funding versus those that had sufficiently met their targets.
                                                                                              By scrupulously measuring the progress of the last two years, BRR obtained information
                                                                                           critical to refining the outcome of reconstruction. Key features of the revision included
                                                                                           increased allocations to housing and economic development and revision of the program
                                                                                           targets based on consultations with beneficiaries, local government, and partners. The
                                                                                           MTR considered the economic climate of exchange rate fluctuations with the US Dollar
                                                                                           worldwide adversely affecting the price of imported materials, the fuel crisis escalating
                                                                                           oil prices and indirectly raising transportation costs, security and social conflict issues,
                                                                                           community and contractor capacity, and adverse weather conditions in arriving at realistic
                                                                                           targets.
   The recommendations of the MTR became the basis for the Revised Master Plan containing
adjustments to program targets and budget allocations, as well as more comprehensive
policies and strategies to be carried during the BRR’s remaining lifetime. Some policies were




                                                                                                 Chapter 2. Matching Allocations with Real Needs
streamlined while others were broken down into more effective and efficient components.
The budget plans were also revised in response to changing needs on the ground. These
adjustments to the Master Plan made for an expedited process and more accurate goals. A
Presidential Regulation on the revision of the Master Plan was issued by the President in July
2008.
   The MTR and, subsequently, the Revised Master Plan, were two critical landmarks in
reconstruction. When dealing with the enormous task of implementing and coordinating
reconstruction, it is undoubtedly important to lay out a clear plan and targets on strategic
and operational levels, and maintain the urgency of delivery without compromising
rigor. It is equally as crucial to be flexible and leave room for adjustments as needs
                                                                                                         33
change. Finally, measures are needed to assess the effectiveness of the plan in meeting
the changing needs. Reviewing the overall reconstruction is a key step in ensuring that
things are on the right track. The MTR allowed this to happen and the Revised Master Plan
was modified in accordance with changing needs.


Coordination Mechanisms
   The scale of the Aceh and Nias reconstruction called for significant coordination
mechanisms to reduce overlaps and duplication of efforts, to minimize gaps and
inefficiencies, and to make sure that projects were aligned with the interests of the people
of Aceh and Nias. BRR was established to take on such coordination responsibilities,
consolidating and streamlining the GOI’s reconstruction work through one agency. As
for donors, the Multi Donor Fund for Aceh and Nias (MDF) provided a framework for
coordination and acted as a forum for dialogue. The UN agencies and the Red Cross Societies
similarly had their own coordination forums.

Coordination Forum for Aceh and Nias (CFAN) and Nias Islands
Stakeholder Meeting (NISM)
   Led by BRR, the annual Coordination Forum for Aceh and Nias (CFAN) and Nias Islands
Stakeholder Meeting (NISM) were meant to be vehicles to bring together delivery
partners in one room, receive partner recommendations, and create open dialogues to
collaboratively identify gaps, needs and solutions. Each year, CFAN and NISM focused on
a different theme relevant to the changing needs in the reconstruction process. The BRR
also used this forum to publicize and raise awareness of where the funding was going,
specifically allocations of funds by sector.
                                                         As reported by Masyrafah and McKeon (2008), views on the success of these forums
FINANCE: The Seven Keys to Effective Aid Management




                                                      were mixed. In some quarters these forums were viewed as a mere public relations
                                                      exercise. The CFANs and NISMs did provide a platform for discussing progress and
                                                      challenges. However, as their titles fundamentally denoted, there was an expectation
                                                      that the forums would coordinate agencies, helping the reconstruction actors to set their
                                                      strategies and shaping longer-term development plans. These expectations to a degree
                                                      were not realized (Masyrafah and McKeon 2008).
                                                         On the other hand, these forums for stakeholder coordination proved to be effective
                                                      in aligning priorities. For example the introduction of the regionalization approach was
                                                      discussed and lauded during the second CFAN. Chapter 4 discusses the history of CFAN.
                                                        Approaching the end of its mandate, the last CFAN with BRR was intended to focus on
                                                      three objectives: the acknowledgment of achievements, consolidation of lessons learned,
         34                                           and continued coordination during the transition from reconstruction to sustainable
                                                      development.

                                                      Multi Donor Fund for Aceh and Nias (MDF)
                                                        As mentioned in Chapter 1, the MDF was a joint initiative by the GOI and donors to
                                                      pool funds for reconstruction. It provided an opportunity for participants including GOI to
                                                      reduce information, coordination, administrative and various transaction costs.
                                                         MDF initially implemented projects in response to outstanding needs. It partnered
                                                      with agencies such as the World Bank that had a track record of implementing projects
                                                      elsewhere in the country. As other needs became apparent, BRR capitalized on its position
                                                      as co-chair and as the leading national authority on reconstruction to take on a leading role
                                                      in determining fund programming. The agency steered funds where possible to meet the
                                                      targets set by the Master Plan and to avoid overlaps with other projects and available funds.
                                                      For instance, funds were allocated to provide technical assistance to BRR, and to small and
                                                      large-scale infrastructure projects that could became strategic enablers in reconstruction,
                                                      laying the foundation for improved agency capacity and drawing on local resources in
                                                      building local infrastructure. The nearly US$700 million in the MDF, which amounted to
                                                      about 10 percent of the total funds, had a relatively lower degree of constraints and therefore
                                                      could also be utilized to help bridge gaps between funds and sector needs.
                                                         The informed leadership of BRR was the key ingredient in ensuring the MDF pool of
                                                      funds was optimized. In their review of 18 MDFs, Scanteam found that although the
                                                      national authorities have both formal and informal means of influencing MDFs, the formal
                                                      role is often weak (2007). In general, donors tend to have the dominant formal role in
                                                      allocating or earmarking funds and in influencing decisions. The case of Aceh and Nias
                                                      provided a different reality wherein the BRR used the opportunity to ensure alignment of
                                                      donor programming with the government’s reconstruction agenda.
Extended Arms of Coordination
  As mentioned, BRR took advantage of existing mechanisms and platforms that other




                                                                                                   Chapter 2. Matching Allocations with Real Needs
agencies had to offer, to extend its coordination role and reduce associated costs.
  The United Nations Office of the Recovery Coordinator (UNORC) : Established at the
request of GOI through an MOU in 2005, UNORC has played a key function in facilitating
policy dialogues among recovery stakeholders. The UNORC provided a single access
point for BRR to the United Nations system.
  International Federation of the Red Cross and Red Crescent Societies (IFRC) - Similar to
the function of UNORC to UN agencies, IFRC’s role in Aceh is to assist the coordination of
the Red Cross and Red Crescent Societies active in the reconstruction efforts in Aceh and
Nias. Of the 23 Red Cross Organizations, 18 of them have joined the coordination arms of
the IRFC. The presence of this umbrella organization assisted BRR’s efforts in coordinating
the numerous aid organizations in Aceh and Nias.                                                           35


Conclusion
   Exceptional international funding provided the opportunity for an exceptional international
response. The GOI welcomed all commitments from all around the world. To quickly address
the immediate needs in all sectors, BRR enabled all players to carry out projects with minimal
intervention. Loosening its grip at the early stage let BRR discover valuable insights that only
time could give.
  Reconstruction projects are fundamentally different than development projects. Gaps
are persistent in reconstruction. The environment changes much more quickly, requiring
an equally adaptable response. The speed of implementation must also be different
because of the urgency. Thus a balance needs to be struck between planning and
action, while flexible funding is required on the part of the national authority as well as
donors. This flexibility must be exemplified in the government’s Master Plan and in other
planning.
   BRR caught the signals of misallocated funding early on but exerting too much control
at this stage would have been counterproductive. In time, order emerged out of the
chaos and revealed the strengths and weaknesses of each partner and in BRR itself. The
shift to a guided facilitation approach at the appropriate time worked in Aceh and Nias
to cope with a chaotic terrain wherein a proliferation of agencies, each with their own
funding, posed challenges in coordination. The guided facilitation approach generated
positive results with regard to the allocation of funds to the appropriate sectors.
                                                                                                                               Chapter 3. Overcoming Disbursement Hurdles
Overcoming
Disbursement
Hurdles                                                                                                                               37




Dissatisfaction with a Slow Beginning
  THE honeymoon period was soon over. By the end of 2005 and well into 2006, BRR
faced growing discontent with its performance. Confidence in its abilities was steadily
eroding. Public and civil society organizations in Aceh and Nias openly criticized BRR for
acting too slowly, while local governments and donor communities also expressed signs
of impatience, albeit in a more graceful manner.
   An outside consultant hired by BRR conducted a media study which showed that
between December 17, 2005 and January 3, 2006, 18 percent out of 113 national and
international news articles on BRR mentioned the agency’s slow progress (Emerson
2006). Of the 22 articles, only one had a positive tone. Opinions from local newspapers
were particularly pointed. Three weeks after the leading national newspaper Kompas
ran a December 17, 2005 news column titled “BRR Works Slowly”, on the Head of BRR
Executing Agency Kuntoro Mangkusubroto’s visit to the vice president for a progress
update, on January 11, 2006, local newspaper Serambi Indonesia ran the headline “BRR is
                                                                                             Assistance programs for
Unprofessional.” Serambi Indonesia accused BRR of a lack of coordination and of harboring    companies and capacity building
incompetent personnel within the agency. Still harsher criticism came from a noted           for employees are important
informal leader of Nias who openly castigated BRR for failing to carry out rehabilitation    initiatives for the economic
                                                                                             and business development.
                                                                                             Photo: BRR/Arif Ariadi
                                                      and reconstruction in the area: “During 2005, it may be said that BRR did not seem to
FINANCE: The Seven Keys to Effective Aid Management




                                                      know what had to be done. In fact, the committed funds were not disbursed because they
                                                      were unsure what to do with the money.”8
                                                        Frustration at the progress of rehabilitation and reconstruction was understandable.
                                                      By the end of 2005, only 10 percent of the Rp3.9 trillion budget had been disbursed. One
                                                      year after the tsunami, great swathes of urban landscape in Aceh and Nias remained
                                                      nothing but empty wasteland while 67,500 people were still housed in tents, many of
                                                      which were going moldy. Hundreds of thousands of people who had hoped to able
                                                      to move quickly into permanent housing and return to normal activities were as yet
                                                      dependent on food aid and emergency employment schemes (BRR and International
                                                      Partners 2005). Nobody expected BRR to finish rebuilding overnight, but the general
                                                      belief was that BRR should be moving faster. People were losing their patience.

         38
                                                      The Shortfall of High Expectations
                                                        It is a truism that when people receive less than what they expect, they are generally
                                                      disappointed. The greater the perceived gap, the higher the level of dissatisfaction. As
                                                      Zeithaml et al notes (1993), “Customer dissatisfaction occurs when ex ante expectations of
                                                      a product or service exceed ex post perceptions of the product or service." This phenomenon
                                                      was clearly at work in the context of post-disaster Aceh and Nias.
                                                         It did not help that BRR had been burdened with exceedingly high expectations
                                                      from the start. The people of Aceh and Nias, donors and NGOs, had greeted BRR’s
                                                      establishment in April 2005 with great excitement, believing that the new agency would
                                                      improve and speed up the recovery effort. But five months after the tsunami, little
                                                      progress on the rehabilitation and reconstruction front was apparent. The emergency
                                                      relief operations had largely commendable results with negligible additional casualties
                                                      and successful prevention of disease outbreaks, but donors and NGOs had been cautious
                                                      in moving on longer-term initiatives for fear of misdirected or duplicated assistance,
                                                      and the government was slow to provide coordination.9 Only after the government had
                                                      declared the end of emergency relief operations in March 2005 did the focus finally shift
                                                      to rebuilding. In the ensuing lull of emergency relief activities, all eyes turned to BRR as
                                                      the designated leader of the recovery effort.
                                                        This excitement was reflected and reinforced by the barrage of positive media coverage
                                                      early in the process, citing warm and hopeful remarks from prominent figures such
                                                      as the UN Special Envoy for Tsunami Recovery Bill Clinton, World Bank officials, and
                                                      noted Indonesian economist Faisal Basri. Local Acehnese newspaper Serambi Indonesia
                                                      went even further on May 6, 2005, hoping BRR would act as a “motivator” for the local
                                                      government and community in Aceh.
                                                                       Figure 3.1 - Constraints Affecting Disbursement Levels.

   As mentioned previously, the scale of devastation
and the inherent complexities of post-disaster recovery
effort involving thousands of actors were no easy




                                                                                                                                 Chapter 3. Overcoming Disbursement Hurdles
challenges for the infant organization, which was
still finding its legs. Seven months was a minimal
amount of time to develop organizational capacity and
reach out to key stakeholders—line ministries, local
governments, multilateral and bilateral donors, and
NGOs—to agree on working mechanisms, establish a
common agenda, and develop shared priorities.
   BRR spent its first two months preparing and revising
issuance of the Issuance of Spending Authority (Daftar
Isian Pelaksanaan Anggaran, DIPA), the state budget
                                                                                                                                        39
execution document that was eventually released in
July 2005. BRR also held a series of project concept
workshops which approved 180 projects worth
US$1.78 billion. From October to December 2005, 101 Project
Implementing Units were set up to implement 945 projects funded
through the state budget (APBN). Given the scope of planning and preparation
involved, it was not surprising that by the end of 2005 the disbursement rate was
still very low. From the perspective of the people in Aceh and Nias, however, BRR
had made scant progress for its seven months of existence. Among locals, the BRR
acronym was derisively translated as ‘Baru Rapat-Rapat’ (just holding meetings) to
express their dissatisfaction with the agency.


Two Types of Constraints on Progress
  As the coordinator of recovery and the main government on-budget project
implementer, BRR faced enormous and multifaceted disbursement challenges. These
challenges occurred on both a legal policy level and an implementation level.

Legal and Policy Constraints
  The legal/policy level constraints became pressing issues early on, and had to be
addressed ahead of the implementation challenges. These had to do with legal and
regulatory rules in Indonesia, which defined “the rules of the game” and the operating
environment in which BRR functioned. These constraints were encountered within the
context of Indonesian regulations as follows. (Note that the first two were financial
legal/policy constraints, while the remaining three were non-financial constraints
but directly affected the disbursement speed of reconstruction funds.)
                                                                                               (i) Line-By-Line Budget Allocations
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                 As a government agency, BRR had to follow the standard national budget cycle in
                                                                                               which proposed work plans and budget expenditures are submitted in the first quarter
                                                                                               of the year. The final budget allotment for the upcoming fiscal year (Figure 3.1 and Figure
                                                                                               3.2) is issued in November after a series of government budget planning sessions that
                                                                                               take place internally and with the legislature (DPR).
                                                                                                  Unlike line ministries and other permanent government agencies which dealt with a
                                                                                               relatively stable development environment, BRR operated an emergency reconstruction
                                                                                               effort that was extremely dynamic and fluid in nature. Situations on the field could
                                                                                               change in a heartbeat due to the many players involved--including the NGOs who
                                                                                               represented roughly one-third of reconstruction spending but could only be controlled
                                                                                               at arm’s length by BRR—and the fragile socio-economic conditions of post-disaster
         40                                                                                    Aceh and Nias. Budget details that were valid in the planning stage might turn out to be
                                                                                               inexecutable during implementation due to potential overlap with the works done by
                                                                                               NGOs, competing new priorities, changes in demand, or sudden hikes of reconstruction
                                                                                               material prices requiring substantial reduction in scope of projects.



                                                                                                               Figure 3.2 - GOI Budget Mechanism


                                                                    Proposed Budget Law/
                                                                        Financial Note



                                                                                                                                    Line Ministry Budget
                                                                                                                                        & Work Plan
                                                                        Budget Law               Ministry of                                                     Line Ministry
                                                      Legislature                                 Finance                                                         (incl. BRR)


                                                                                     Reviewed
                                                                                     LM B&WP


                                                                                                   DGBFB
                                                                                                                                                              WU Budget & Work Plan
                                                                                                          Presidential
                                                                                                          Decision on
                                                                                                         Budget Details


                                                                                                 DG Treasury


                                                                                            Budget
                                                                                           Allotment

                                                                                                                                  Copy of Budget Allotment
                                                                                                DG Treasury                                                       Work Units
                                                                                               Regional Office
                                                                                                                                       DIPA Concept

                                                                                                                                           DIPA
                                 Figure 3.3 – GOI Budget Timetable

                                            goi bUDgeT TimeTAble




                                                                                                                Chapter 3. Overcoming Disbursement Hurdles
 January - April              Annual National Strategic Plan (Bappenas)
                              Macroeconomic and Fiscal Update and Outlook, including Revenue, Expenditure and
 Early April
                              Deficit Estimate (BAPEKKI), Forward Estimate (DGBFB)
 April - May                  Preparation of Fiscal Policy Statement and Budget Policy Statement (DGBFB)
 May 15                       Fiscal Policy Statement is submitted the Legislature (MoF)
 Mid May                      Budget Circular Budget Policy Statement and Line Ministries Cellings (DGBFB)
 June                         Ministries Strategic Plan and Budget Proposal are submitted to MoF (DGBFB)
 June                         Budget Preliminary Discussion between Line Ministries and Sectoral Committes
 July                         Budget Negotiation and Consolidation between line ministries and MoF (DGBFB)
 July                         Financial Note (MEFUO) First Semester (DGBFB)
 August 1st Week              Cabinet Review and Approval of Government Budget (DGBFB)                                 41
 August 18                    Budget Law Submission to the Parliament (DGBFB)
 Sept - Oct                   Budget Discussion in the Parliament (DGBFB), Budget Committee)
 October 31                   Budget Law Approval by the Parliament
 November                     Allotment Documents are issued (DGT Tresaury)




   The existing requirement of getting budget allotment approval from the Ministry of
Finance and the National Development Planning Agency (Bappenas) down to Project
Implementing Unit and project levels was not flexible enough to cope with this fluid
situation. It needed to be amended to produce a more flexible allotment scheme in which
allocations could be switched among projects “on-the-fly” as needed.
(ii) The Return of Unspent Funds
   As the reconstruction progressed, another roadblock lay in wait. Indonesian state
budget regulations require that at the end of the fiscal year, unspent funds must be
returned to the Treasury (KPPN).10 This rule is useful in maintaining budget time-discipline,
but it was unfortunate for BRR because at the end of 2005, as previously mentioned,
around 90 percent of the amount allocated in the DIPA remained unspent. This unusually
large budget balance was due to the fact that the establishment of BRR happened late,
in the middle of the fiscal year, and the subsequent process of budget preparation and
approval took almost three months. Thus, when the DIPA was released in July 2005,
BRR only had five months remaining to disburse the funds. Hastily prepared, the DIPA
also turned out to contain a number of inaccurate and insufficient project details that
impeded execution, leading to low disbursements.
                                                                                            In order for the projects to be continued, a special policy was needed allowing BRR
FINANCE: The Seven Keys to Effective Aid Management




                                                                                          to carryover the unspent budget from 2005, while still receiving the full amount of
                                                                                          the 2006 budget. Otherwise, BRR would be forced to return the unspent 2005 budget
                                                                                          to the Treasury, and would consequently suffer a sizeable budget reduction in 2006
                                                                                          with the overall size of the 2006 budget being just slightly higher than that of the total
                                                                                          budget used in 2005 (Figure 3.4) based on the low absorption levels in 2005. This was
                                                                                          unacceptable to BRR; the low absorption rate in 2005 did not properly reflect its capacity.
                                                                                          BRR’s actual implementing capacity was far bigger.
                                                                                          (iii) Procurement Process
                                                                                            According to government procurement rules, the provision of goods and services
                                                                                          valued above Rp50 million (around $4,500) must be held through open bidding. The usual
                                                                                          process of project tendering—from document preparations, announcement, and bid
         42                                                                               solicitation to contract sign-off— usually takes no less than 59 days for any transaction.
                                                                                          There is an almost two-month lead time before any physical project implementation
                                                                                          can begin. That was too long a waiting period for the thousands of locally displaced
                                                                                          victims still living in tents and barracks one year after the tsunami. Each additional day
                                                                                          worsened the simmering problems caused by this vast human displacement, and it was
                                                                                          not unforeseeable that the mounting social cost might eventually be unbearable for the
                                                                                          government. A quick project start was of paramount importance.
                                                                                          (iv) Operational and Working Permits
                                                                                                                                     Impeding legal/policy constraints also
                                                                                                                                   hampered the administrative procedures for
                                                                                                                                   registration and immigration. Moved by the
                                                      Figure 3.4 - Reallocation of Unspent Budget in Subsequent Years
                                                                                                                                   scale of the disasters, hundreds of international
                                                                                                                                   agencies involving thousands of individuals
                                                                                                   Additional                      arrived in Aceh and Nias from all corners of
                                                                                                   budget                          the world. They needed to promptly legitimize
                                                                                                   from Year 1
                                                                                                   Balance                         their presence in Indonesia in order to be
                                                                                                                                   able to open bank accounts, legally hire local
                                                                                                                                   staff, obtain appropriate visas for foreign
                                                                                                   Budget
                                                                                                                                   staff, receive tax exemptions and customs
                                                                 Balance
                                                                                                   Allocated                       clearance, and claim other privileges that were
                                                                                                                                   only available to registered organizations.
                                                                                                                                   However, the registration process proved to be
                                                                                                                                   overwhelmingly tedious. They needed to go
                                                                                                                                   to separate government agencies for different
                                                                 Budget
                                                                 Spent                                                             types of documents. The sudden upsurge
                                                                                                                                   of administrative work handled by the said
                                                                     Year 1                           Year 2
agencies also caused serious backlogs in almost all facets of the process. Long waiting
lines were involved and the issuance of the greatly-needed operational and working
permits took an unacceptably long time. These administrative backlogs and delays




                                                                                              Chapter 3. Overcoming Disbursement Hurdles
seriously hindered movement of international talent badly needed for the recovery. The
intricate and irresponsive administrative service also reflected poorly on the Indonesian
government in the eyes of the international community.
(v) Tax Exemptions
   The enormous demand for reconstruction materials and equipment necessitated
more flexible import customs arrangements. Prevailing regulations required proof to be
presented that import tax and duties had been paid before a customs clearance could
be issued. This caused a serious bottleneck in the supply of imported materials since
the majority, as donations in kind, were officially tax exempt.11 In this case, a letter of
recommendation for tax exemption in lieu of the tax receipts was required for customs                43
clearance.
  Since BRR was responsible for the overall recovery, it was the most appropriate
government agency to issue such a recommendation letter. However, close cooperation
with relevant government agencies was needed to verify facts and ensure the validity of
supporting documents before a recommendation letter could be safely issued.
   Another problematic regulation had to do with the Value Added Tax (VAT) and luxury
goods sales tax imposed on services and goods procured by foreign NGOs. The prevailing
law did not provide tax exemptions for grants contributed by foreign non-governmental
institutions. Tax exemptions were only given to grant projects delivered through the
government on-budget mechanism. A special tax policy was needed to fix the inequality
in the treatment of on-budget versus off-budget grants.

Implementation Constraints
  Compared with policy/legal constraints, implementation constraints became apparent
during later months as the implementation process proceeded and issues began to emerge.
The following implementation constraints were faced by BRR:
(i) General Startup Challenges
  As a new government agency, BRR faced a number of startup challenges in the first
months of its establishment. As mentioned previously, BRR had to coordinate a staggering
number and size of projects. It was one of the world’s biggest post-disaster rehabilitation
and reconstruction programs in history, with US$6.7 billion worth of projects spread
across the 16 public and private sectors that had been devastated by twin disasters—the
tsunami in Aceh and subsequent earthquake in Nias. BRR’s small initial capacity was not
up to handling this overwhelming amount of tasks right away.
                                                        Reconstruction performance in the early months was therefore slower than it would
FINANCE: The Seven Keys to Effective Aid Management




                                                      have been in the hands of a more established government agency. The lack of internal
                                                      coordination and capacity was apparent in the beginning as the agency was still in the
                                                      process of acquiring and developing its human resources, organizational systems, and
                                                      working procedures. BRR started with just twelve staff, which ballooned to 326 personnel
                                                      within the first year of operations. The newly assembled staff members—recruited from
                                                      the private sector or “loaned” from various government agencies and the private sector—
                                                      needed time to adapt to their roles and develop a collective sense of mission before
                                                      exhibiting their potential. Internal coordination and reporting mechanisms from the Head
                                                      of BRR Executing Agency on down were still in formation and being fine-tuned to cope
                                                      with the operational and strategic challenges of the organization.
                                                      (ii) Coordination Problems

         44                                             Initially, BRR coordination with local governments was rather weak. Local governments,
                                                      seriously weakened by the disaster, seemed to expect that BRR would help them
                                                      implement local priorities. However, seeing that the local governments lacked
                                                      comprehensive rehabilitation plans, BRR devised its own overarching strategy and set
                                                      up regional offices to target local problems within that strategy. This approach did not
                                                      work very well. Local governments felt they already had sufficient knowledge about local
                                                      concerns and were furious over what they regarded as a late start by BRR.
                                                         The weak coordination between BRR and local governments cannot be attributed to
                                                      lack of effort. There were many meetings and discussions. The different organizations just
                                                      did not relate to each other very well in the beginning. As noted in the publication of BRR
                                                      and International Partners (2005): “…most meetings, ostensibly for coordination, achieved
                                                      little more than information-sharing rather than strategic planning [and] ... agency leaders
                                                      were so busy on their own programs that they were frustrated when they attended a
                                                      meeting that wasn’t useful ... [so that] they were likely to send junior staff in future, so
                                                      reinforcing the information rather than strategy content” (Nazara and Resosudarmo 2007).
                                                         This lack of coordination created a number of implementation problems, such
                                                      as duplication of work with projects performed by the local governments, delayed
                                                      project execution due to inadequate local support, and erroneous decisions caused by
                                                      miscommunication. The fact that the majority of BRR staff members were stationed in the
                                                      head office in Banda Aceh raised other questions about first-hand understanding of local
                                                      situations and aspirations. It was apparent that BRR needed to decentralize its operations
                                                      to improve coordination in the field.
                                                        Coordination with line ministries such as the Ministry of Finance, the National
                                                      Development Planning Agency, the Ministry of Public Works and the Ministry of Foreign
                                                      Affairs was no less problematic. The roles and responsibilities of BRR, as a new agency,
                                                      while clearly stated by Government Regulation in Lieu of Law No. 2/2005, were not
                                                      readily understood and implemented on the operational level, especially by those who
                                                                                                                                 Chapter 3. Overcoming Disbursement Hurdles
                                                                                                                                        45




worked in the field. The Jakarta Post reported on November 9, 2005, that occasional acts       Said Faisal, the Deputy for
of ‘bureaucratic turf battle’ were apparent as the various agencies struggled to establish a   Education and Health, speaks in
mutually comfortable working relationship. The same could be said of BRR’s relationship        front of NGOs and donors during
                                                                                               a coordination meeting at Syiah
with donors and NGOs, who each had their own set of interests and priorities.
                                                                                               Kuala University. Banda Aceh,
(iii) Limited Availability of Resources for Reconstruction                                     May 13, 2005. Photo: BRR/Arif
                                                                                               Ariadi
  The level of reconstruction activities that can be performed in a given area is limited by
the supply of labor, machines, materials, and other resources than can be mobilized by
the implementing actors. Without enough contractors to carry out projects and enough
skilled people with the technical capability to execute and manage reconstruction jobs,
the pace of progress will be limited.
  There is also a trade-off between the elements of time, cost, quality and quantity of
projects delivered. It is difficult if not impossible to reduce a project’s completion time
without affecting the cost, quality or quantity of the deliverables.
  The pre-disaster economies of Aceh and Nias were not robust. Nias’ economy was
retarded as a result of its relative geographic isolation, whereas the growth rate of Aceh’s
economy, despite its being a relatively rich province in terms of natural resources, had
lagged behind the rest of Indonesia as a result of the three-decades-long conflict with
the central government. Aceh ranked as the fourth-poorest province in the nation, before
                                                                                        the tsunami contracted its economy by 10 percent in 2005.12 Total annual government
FINANCE: The Seven Keys to Effective Aid Management




                                                                                        spending in both Aceh and Nias—the dominant economic driver in an region where the
                                                                                        private sector barely existed outside of mining and natural resources—averaged less than
                                                                                        Rp10 trillion annually before the disasters, while their combined regional Gross Domestic
                                                                                        Products (GDPs) reached just Rp37 trillion in 2005.
                                                                                                                              As a result, the sudden inflow of post-disaster

                                                      Finding Team Spirit                                                   funds overwhelmed these regions beyond their
                                                                                                                            absorption capacity. Moreover, the vast destruction
                                                         In hindsight, the problems encountered by BRR as leader            of transportation infrastructure seriously hindered
                                                      of the rehabilitation and reconstruction effort follow the            shipment of needed materials. This situation
                                                      patterns of the group development model as first proposed by          was reflected in the delays of projects due to
                                                      Bruce Tuckman (1965), who maintained that the phases of
                                                                                                                            inavailability of materials and skilled personnel.
                                                      forming-storming-norming-performing-adjourning are necessary
         46                                           and inevitable in order for a team to grow, handle problems,            The proliferation of agencies mentioned in
                                                      find solutions, plan work, and deliver results. BRR and all           Chapter 2 exacerbated the shortage as they
                                                      stakeholders who worked together as a team were initially in
                                                      the forming stage in which they met and learned about the             competed for resources. New, not necessarily
                                                      opportunity and challenges, and then agreed on goals and              experienced or competent actors entered the
                                                      began to tackle the tasks. Team members at that point tended          scene. Among these were ex-GAM members
                                                      to behave quite independently. They might be motivated but            reintegrating into society who were eager to take
                                                      were usually relatively uninformed of the shared issues and
                                                                                                                            part in the opportunities of the reconstruction
                                                      objectives of the reconstruction team.
                                                                                                                            program. Meanwhile, established actors ventured
                                                         The team then moved to the storming stage in which
                                                                                                                            into activities outside of their normal area of
                                                      different ideas compete for consideration. The team addressed
                                                      issues such as what problems they were really supposed to             expertise. Altogether this only worsened the
                                                      solve, how they would function independently and together             complicated problems caused by inadequate supply
                                                      and what leadership model they would accept. Team members             of contractors and materials.
                                                      opened up to each other and confronted each other’s ideas
                                                      and perspectives.                                                       Theoretically, BRR and other implementing
                                                        Several months later, the team of stakeholders entered the          actors could have “imported” contractors from
                                                      norming stage. Team members adjusted their behavior to each           the outside. However, it was BRR's policy that
                                                      other, agreed on rules, shared methods, and working tools.            redevelopment of Aceh and Nias should utilize
                                                      During this phase, team members began to trust each other.            indigenous local capacity where possible, although
                                                      Motivation increased as the team became better acquainted
                                                                                                                            construction materials and some highly skilled labor
                                                      with the task.
                                                                                                                            were inevitably brought in. This policy aimed to
                                                         The team finally reached the performing stage, where they
                                                                                                                            develop local capacity and promote local long-term
                                                      could find ways to get the job done smoothly and effectively
                                                      without inappropriate conflict. Team members became                   ownership of project results. From the socio-political
                                                      interdependent, motivated and knowledgeable.                          perspective, social sensitivity stemming from
                                                         At the adjourning stage, the team completed the task and           prolonged government conflict meant that it was
                                                      BRR gradually shifted responsibilities and handed over assets         imperative to give the Acehnese an active role. BRR
                                                      to other mainstream permanent government agencies. For                had to actively avoid the impression of supporting—
                                                      BRR, this was also a mourning stage in which people were              as an Acehnese saying goes--“buya krueng teudong-
                                                      dismayed by the prospect of BRR's closure after working hand-
                                                      in-hand with them, sharing “the joys and sorrows” of managing
                                                                                                                            dong, buya tamong meuraseuki” (newcomers amass a
                                                      a colossal reconstruction effort.                                     lot of fortune, while the indigenous can only watch).
  But the consequence of this policy was a slower rate of progress. Local implementing
partners needed time to develop capacity, sometimes through costly trial-and-error, as
they moved along the learning curve. Some of the project outputs delivered by “small-




                                                                                                 Chapter 3. Overcoming Disbursement Hurdles
time” local contractors, many of whom were only able to build one or two houses at a
time, turned out to be of low quality, thereby requiring retrofitting in the following year to
settle complaints from the beneficiaries. While some critics pounced on this an example of
quality control failure by BRR, put in perspective, the amount spent on retrofitting was a
drop in the bucket compared to the overall spending in housing projects, at Rp 2.3 billion
or a mere 0.36 percent of the total Rp 4.7 trillion. For BRR, this was an acceptable price to
get local communities actively participating.


Breakthroughs & Solutions
  BRR formulated a number of legal, policy and implementation breakthroughs and                         47
solutions to deal with the constraints and performance barriers discussed above. These
were as follows.
(i) Block Allocation
  To provide more budgetary flexibility, BRR proposed a block allocation system wherein
the national legislature approved broad budget allocations by sector or district as
opposed to approving line-by-line allocations earmarked for individual projects.
  Under the block allocation system, the implementation process proceeded as follows.
Project proposals were submitted by working units to BRR, BRR reviewed and approved
projects drawing on its knowledge of extant gaps in reconstruction activities, and funds
were then transferred from the broad block allocation to individual, fully-prepared
projects. This approach had a number of advantages over the normal budgetary process:
•	 It enabled BRR to compare individual project proposals, specifically off-budget
   projects, with the evolving project catalogue. This improved coordination.
•	 It gave BRR the time to review proposals more rigorously and ensure that they
   followed BRR guidelines; that is to ensure that they were community-driven, benefited
   from expert input, followed the highest professional standards, etc.
•	 It gave BRR the flexibility to allocate resources according to changing needs and
   funding gaps instead of ‘locking in’ all activities for that year in the middle of the
   previous year, as the regular budget cycle demanded.
•	 It maintained greater transparency for stakeholders throughout the process.
•	 In summary, grouping the budget allocation by sector allowed more flexibility,
   created a smaller administrative burden, and afforded faster implementation. The
   block allocation budget system proved to be an effective breakthrough mechanism.
                                                                            (ii) Budget Carryover & Trust Fund
FINANCE: The Seven Keys to Effective Aid Management




                                                                              As previously mentioned, to sustain the recovery as it gained momentum, it simply
                                                                            did not make sense for BRR to stick to the standard procedure of returning the budget
                                                                            balance to the Treasury at the end of the year. BRR therefore sought approval from the
                                                                            government, and was allowed to carry over most of the unspent funds into the following
                                                                            year.13 As a result, in 2006 BRR had two fiscal budgets running simultaneously, the 2006
                                                                            Carryover Budget and the 2006 Annual Budget.
                                                                               Having two fiscal budgets running at the same time was not without consequences.
                                                                            Between the 2005 Carryover Budget of Rp 3.5 trillion and 2006 Budget of Rp 10.5 trillion,
                                                                            BRR operating capacity was stretched to the limit. Staff members worked long hours
                                                                            seven days a week, yet at the end of the year, there were still works unfinished and monies
                                                                            unspent. Out of Rp3.5 trillion available in the 2006 Carryover Budget, only Rp 2.0 trillion
                                                                            was eventually spent. As for the 2006 budget, the end-of-year realization was Rp 5.6
         48
                                                                            trillion, leaving a balance of Rp 4.8 trillion.
                                                                               Unlike the request to carry over the 2005 unspent budget, the appeal for another
                                                                            budget extension by BRR at the end of 2006 was not granted. The Indonesian
                                                                            Government felt that approving another extension would send a signal to other
                                                                            government agencies that budget extensions were acceptable. The overall budget time-
                                                                            discipline would be seriously challenged. Therefore, another mechanism was created in
                                                                            order to enable spending of the remaining funds.
                                                                              To this end, a BRR Trust Fund account was formed to accommodate the unused funds.
                                                                            This was accomplished by an authorization letter from the Director General of Treasury
                                                                            of the Ministry of Finance authorization letter in 2006, and by another letter from the




                                                                                          Figure 3.5 - BRR Budget Carryover and Trust Fund

                                                                   0.4T                                                                                    0.2T
                                                                 Absorbed



                                                                              Balance        2T
                                                                               1.5T       Absorbed
                                                      Balance                                                                                2T Absorbed
                                                       3.5T                                                                   Trust
                                                                                                                              Fund

                                                      Ceiling 3.9T               Ceiling 3.5                                                   Ceiling 2.2T
                                                          2005                 2006L (carryover)                       2006                  2007 Trust Fund
                                                                                                                                  Chapter 3. Overcoming Disbursement Hurdles
                                                                                                                                         49




Director General of Treasury Regulation in 2007.14 These two decrees contained technical       A number of Project
guidelines on the use of funds from the Trust Fund. Later, the closure of the BRR Trust fund   Implementing Unit personnel
was directed by a Director General of Treasury Regulation issued in September 2007.15          wait in line to pick up a Fund
                                                                                               Disbursement Authorization
   The establishment of the Trust Fund shifted the function of the Treasury vis-a-vis BRR      Letter at the Special Office for
in keeping with the specific guidelines outlined by those decrees. Similar to the budget       State Services and Treasury
carryover, the Trust Fund allowed unspent 2006 national APBN budget funds to be                (KPPN-K). Banda Aceh, December
                                                                                               16, 2008. Photo: BRR/Arif Ariadi
disbursed the following year, providing funding for delayed projects. The total ceiling
of the trust fund was established at Rp 2.2 trillion. At the closure of the fund, almost all
monies had been spent, with absorption levels reaching as high as 91 percent.
(iii) Direct Appointment of Housing Contractors
  To speed up contracting of housing projects, deviation from government procurement
standards was necessary. Therefore, during a cabinet meeting in July 2005, the Head
of BRR Executing Agency Kuntoro Mangkusubroto officially submitted a request to the
president to amend the procurement regulation. In response, a presidential regulation
was issued in November 2005 which allowed BRR to directly appoint contractors for the
housing projects.16 This amendment was originally valid until July 1, 2006 but was later
extended to December 31, 2006. Upon issuance of the amendment, BRR moved quickly
                                                      to review some 3,000 companies who had registered for pre-qualification. BRR directly
FINANCE: The Seven Keys to Effective Aid Management




                                                      appointed the ones deemed capable to develop shelters for the people of Aceh and Nias.
                                                      After going through a fair and transparent objections stage, most contracts had been
                                                      awarded by the end of May 2006.
                                                         Apart from speedy project contracting, direct appointments also afforded flexibility
                                                      in making one-on-one matches between the contractor and project, which was
                                                      especially useful when local preferences and aspirations had to be taken into account.
                                                      Robust capacity development and the previous history of conflict warranted equitable
                                                                                                 distribution of projects among contractors,
                                                                                                 with a strong bias towards utilizing local
                                                                                                 resources as much as possible.
                                                                                                 (iv) Integrated Government Services
         50                                                                                        Another innovative breakthrough was
                                                                                                 devised to improve government service in
                                                                                                 the matter of registering foreign agencies,
                                                                                                 and issuing operational and working permits
                                                                                                 including the letter of recommendations
                                                                                                 needed for tax exemptions. Through
                                                                                                 Presidential Regulation No. 69/2005, in
                                                                                                 November 2005 BRR established an Integrated
                                                                                                 Team that gathered relevant branches of
                                                                                                 government offices under one roof.
                                                                                                    Included in the Integrated Team were: the
                                                                                                 Directorate General of Immigration (from the
                                                                                                 Ministry of Law & Human Rights), the Directorate
                                                                                                 General of Taxation and Directorate General of
                                                                                                 Customs & Excise (from the Ministry of Finance),
                                                                                                 the Directorate General of Metals, Machines,
                                                                                                 Textiles & Miscellaneous (from the Ministry of
                                                                                                 Industry), the Directorate General of Foreign
                                                                                                 Trade (from the Ministry of Trade), the Regional
                                                                                                 Police Office, and the Directorate General of
                                                                                                 Protocol and Consular Affairs (from the Ministry
                                                                                                 of Foreign Affairs).
                                                                                                   Although in retrospect the setup of a one-
                                                                                                 stop-shop for government services was a great
                                                                                                 idea and eased the administrative process
                                                                                                 for all concerned, it was a real battle to get
                                                                                                 buy-in from the government agencies. The
                                                                                                                             Chapter 3. Overcoming Disbursement Hurdles
                                                                                                                                    51




government agencies were afraid that this “special treatment” would set a precedent for       Stacks of wood imported from
others to expect the same service in the future. Fear of losing control over the process to   New Zealand used for housing
BRR was another (unspoken) reason for their brush-offs.                                       reconstruction in Teunom,
                                                                                              Aceh Jaya, following customs
   Understanding their concerns, BRR went to great lengths to convince them that the          clearance. March 23, 2007.
one-stop service would not comprise special treatment. All requirements for obtaining         Photo: BRR/Arif Ariadi
the documents would remain exactly the same, the only difference being in the pooling
of the various government offices within one location to speed up service. Furthermore,
BRR would not take over the responsibility and authority of said government agencies.
There would be no change in the chain of command. Service staff in Integrated Team
would still report to their various line ministry superiors and BRR would not intervene in
their decision-making process. After a series of meetings, the one-stop-shop service idea
finally received the green light.
  By combining and modifying administrative procedures, Integrated Team sped up
the registration process for international agencies and the issuance of foreign visas and
working permits. Through letters of recommendation for customs duties and first-level
VAT exemptions, Integrated Team also expedited imports of aid materials and facilitated
project activities financed by foreign grants.17
                                                                               The establishment of Integrated Team also helped boost the rate of registration
FINANCE: The Seven Keys to Effective Aid Management




                                                                             compliance, which was very advantageous to BRR in keeping track of so many
                                                                             organizations—most notably the NGOs which had their own resources and were not
                                                                             dependent on the government for funding— and in coordinating and monitoring their
                                                                             activities. (For those interested in reading more about on Integrated Team and other
                                                                             breakthroughs made by BRR, please refer to Book 3 of the BRR Book Series which focuses
                                                                             on these breakthroughs in detail.)
                                                                             (v) Tax Exemptions
                                                                               To provide a legal basis for tax-exemptions on foreign grant-funded goods and services
                                                                             procured by NGOs, at the request of BRR, the Ministry of Finance (MoF) released the MoF
                                                                             Regulation No 43/2007 establishing said exemption. This new ruling greatly benefited
                                                                             the 68 NGOs who were subsequently granted tax-exemption on their various projects,
                                                                             creating billions of rupiah in tax savings and increasing net project amounts. The benefits
         52                                                                  of this policy trickled down to the people of Aceh and Nias as beneficiaries.
                                                                             (vi) Decentralization of Offices
                                                                               To produce quick results while building up its capacity, BRR’s initial strategy was
                                                                             to coordinate reconstruction efforts, provide general oversight and approve, but not
                                                                             implement, projects. However, the slow pace of initial progress prompted the GOI to
                                                                             broaden BRR’s functions in hopes of expediting these tasks, including implementing




                                                                                       Figure 3.7 - Number of BRR Personel 2005 - 2008


                                                                                                                                                           1200


                                                      1200                                                                                                 1000


                                                      1000                                                                                                  800


                                                      800                                                                                                   600


                                                      600                                                                                                   400


                                                      400                                                                                                   200
                                                             2005

                                                                      2006




                                                                                    2008




                                                                                                            2005

                                                                                                                    2006




                                                                                                                                     2008
                                                                             2007




                                                                                                                            2007




                                                      200

                                                                    Head Office                                    Regional Office
                                     Figure 3.8 - Functions of Regional Offices




   Administration                                               Coordination




                                                                                                                 Chapter 3. Overcoming Disbursement Hurdles
   • Establish office                                           • Communicate reconstruction program to
   • Record and report issues arising in                          stakeholders
     stakeholder meeting                                        • Lead coordination meetings
   • Represent BRR with stakeholders in                         • Assist in avoiding overlaps and filling gaps
     the region                                                 • Understand and communicate
   • Provide information to stakeholders                          reconstruction needs
     about BRR



   Operations                                                   Capacity building                                       53
   • Coordinate disbursement of BRR funds                       • Assist local government in establishing
   • Monitor and evalube BRR Project                              policies ang programs
     Implementing Units                                         • Work to prevent collusion, corruption and
   • Settle problems faced by BRR projects                        nepotism
   • Facilitiate release of useable land                        • Work to support and strengthen civil society
   • Manage Operations center unit in the region                • Work with the local government in
   • Prepare region’s program for following year’s                coordination and program implementation
     budget                                                     • Prepare an exit strategy for BRR




projects that were funded through the state budget. To effectively undertake these
broader functions, BRR expanded and restructured its operations. The number of staff grew
significantly from 271 at the end of 2005 to 1,073 in December 2006, peaking at 1,576 in
December 2007. Staff received training as needed on financial and project management,
project contracting, and other relevant topics to improve their skills and knowledge.
More sector specialists, financed mostly through donor assistance, were also recruited to
enhance BRR’s technical capability.
   To improve coordination with local governments and other local stakeholders, BRR moved
from a centralized model to a decentralized regional model. The centralized model was
initially necessary to coordinate the delivery of vital needs during the early stages, but as the
reconstruction progressed it was deemed important to bring the decision-making authority
and responsibility closer to the field. Six BRR regional offices were set up throughout Aceh and
Nias in mid-2006. Due to the dynamics of the organization and changing demands from the
stakeholders, the regional offices were restructured three times between 2006-2007.
                                                                         Figure 3.9 - Completed Shipment by Commercial Operators Under Coordination of World Food Program
                                                                                                              Shipping Service (WFPSS)
FINANCE: The Seven Keys to Effective Aid Management




                                                      50,000
                                                                                                                44,971
                                                      45,000

                                                      40,000

                                                      35,000
                                                                                      31,654                                               31,799
                                                                                                                         29,090
                                                      30,000
                                                                                                                                                                                                        24,978
                                                                                                                                                     24,812
                                                      25,000        24,120


         54                                                                                         23,434                                                                 21,145
                                                      20,000                                                                                     22,796
                                                                                                                              20,960
                                                                                                                                                                                    14,107
                                                      15,000                     16,212                                                                                                                                  13,706
                                                                                                                                                                                                                                            12,185
                                                                                                                                                                                                13,156
                                                      10,000
                                                                                                                                                                                                                     11,104
                                                                        7,500
                                                       5,000
                                                                                                                                                                                    4,659                                                             2,813
                                                               Oct-06

                                                                        Nov-06

                                                                                 Dec-06

                                                                                          Jan-07

                                                                                                   Feb-07

                                                                                                            Mar-07

                                                                                                                     Apr-07

                                                                                                                              May-07

                                                                                                                                       Jun-07

                                                                                                                                                Jul-07

                                                                                                                                                         Aug-07

                                                                                                                                                                  Sep-07

                                                                                                                                                                           Oct-07

                                                                                                                                                                                     Nov-07

                                                                                                                                                                                              Dec-07

                                                                                                                                                                                                       Jan-08

                                                                                                                                                                                                                Feb-08

                                                                                                                                                                                                                          Mar-08

                                                                                                                                                                                                                                   Apr-08

                                                                                                                                                                                                                                             May-08
                                                                                                                                                                                              Source: WFP Logistic Support Unit, “Monthly
                                                                                                                                                                                              Bulletin” 12 May 2008



                                                                                                   (vii) Shipping Service
                                                                                                     To solve the problem of inadequate material supplies, a novel breakthrough was
                                                                                                   created in October 2005 through the establishment of the World Food Program
                                                                                                   Shipping Service, a module of the WFP Global Logistics organization. This service
                                                                                                   provided delivery of reconstruction materials such as cement, timber and housing
                                                                                                   supplies to the east and west coasts of Aceh and to the islands of Simeulue and Nias
                                                                                                   where road transport was made difficult, if not impossible, following the tsunami.
                                                                                                   Operating nine landing crafts and three conventional vessels, the Shipping Service
                                                                                                   assisted 80 implementing organizations involved in the reconstruction effort.18
                                                                                                     The decision to set up this service was prompted by the market failure as actors from
                                                                                                   the private sector failed to resolve the shortage of sea transport service. This created a
                                                                                                   giant hole in the reconstruction supply chain, causing a dramatic surge in costs due to
                                                                                                   scarcity of materials that in turn led to a major distortion of the reconstruction program.
                                                                                                   Year-on-year inflation surged as high as 42 percent in Aceh and Nias during 2006, and was
                                        Figure 3.10 - Disbursement Rates by Players


100%




                                                                                                          Chapter 3. Overcoming Disbursement Hurdles
 90%

 80%

 70%

 60%

 50%

 40%                                                                                                             55

 30%
                                                                                                  Donor
 20%                                                                                              NGO
                                                                                                  GOI
 10%



        Nov-05            Jun-06            Dec-06              Jun-07                Dec-07     Dec-08




possibly significantly higher in the less accessible areas. Subsidized by the MDF, the service
provided by the WFP Shipping Service was crucial to the success of the reconstruction
program in the most inaccessible areas.


Net Effects on Disbursement
  The pace of reconstruction picked up steadily after the various breakthroughs and
solutions discussed above removed or alleviated constraints. The rise in disbursement
rates from November 2005 to December 2008 reflects this momentum.
   BRR had a slow start in 2005 but its disbursements increased significantly throughout the
years, surpassing the performance of NGOs in 2007 and 2008. By BRR’s closure in April 2009,
140,304 houses were built, and, overall, the conditions were even better than before the
disaster occurred.
Delivering Results:




                                                                                                                                 Modality of Fund Channeling and Performance
Modality of Fund




                                                                                                                                 Chapter 4. Delivering Results:
Channeling and
Performance                                                                                                                          57




Generous External Support
  THE aid landscape in the reconstruction program of Aceh and Nias was unique in that
the government of Indonesia only contributed about one-third (31 percent, to be precise)
of the total reconstruction funds. Of the US$6.7 billion funds committed, US$4.6 billion
came from various bilateral and multilateral donors, international NGOs and communities.
This disproportionately large donor contribution was not due to any withholding on the
part of the GOI, which allocated a massive US$2.1 billion. It was rather evidence of good
will from the domestic and international communities. Indonesia was blessed to receive
such generous global support as the massive scale of the combined disasters was simply
beyond the capacity of Indonesia to go it alone in recovering. Without it, the recovery
could have taken much longer, if even possible at all.
  As in most situations where a multitude of donors exist, the methods of fund
channeling were diverse. One surprising aspect about the composition of aid in
                                                                                            Every year, more than 20%
Aceh and Nias was the extent to which NGOs came up with substantial sums of their           of Aceh's GDP comes from
own money.19 A large amount of aid funds flowed through some 992 funding and                agriculture. Some 70 thousand
implementing partners operating on the field rather than directly to the government.20      hectares of agricultural land were
Roughly half of all donor aid was channeled through the NGOs, many of which operated        rehabilitated or newly created
                                                                                            in the 4-year recovery period.
                                                                                            Photo: BRR/Arif Ariadi
                                                      as both implementing and funding organizations which also supported smaller NGOs
FINANCE: The Seven Keys to Effective Aid Management




                                                      with funding. This in effect created a parallel structure of support for the reconstruction
                                                      program that BRR could only control at arm’s length through a range of coordination
                                                      meetings and forums.
                                                        The actors channeling these funds had a range of different experiences with fund
                                                      disbursement and implementation. They also produced varying results, with differing
                                                      degrees of effectiveness. The sections of this chapter provide a retrospective analysis
                                                      on how effective the different aid channeling methods were in delivering results.
                                                      Conclusions are drawn from our experiences leading the reconstruction of Aceh and
                                                      Nias, and therefore may not be appropriate for general application. Each post disaster
                                                      reconstruction is unique and should be handled accordingly. Moreover, these conclusions
                                                      are based on subjective judgments that may differ from the way others perceive the same
                                                      realities. Nonetheless, we have done our best to draw and convey conclusions
         58

                                                      Nearing the End the Reconstruction Phase
                                                         Towards the end of BRR’s mandate, BRR prepared to transition the GOI aid it channeled
                                                      to other government organs. BRR’s mandate was only four years long, from April 16,
                                                      2005 to April 16, 2009, whereas according to the Master Plan and Revised Master Plan
                                                      the overall reconstruction effort was expected to take five years starting from the end
                                                      of emergency phase on March 26, 2005. With this in mind, BRR planned to complete
                                                      all physical projects by the end of 2008, leaving the remaining final months in 2009 for
                                                      gradual transition and exit.
                                                         BRR’s strategy was successfully rolled out, as reflected by the high deployment rate
                                                      (96 percent) of the GOI budget under its control. Of the US$2.1 billion allocated to BRR
                                                      between 2005 and 2008, US$2.0 billion had been spent. The Indonesian Legislature
                                                      concluded from these results that BRR had achieved its mandate and should be closed
                                                      down as scheduled on April 16, 2009. There would be no extension to the mandate.
                                                      In preparation, beginning in January 2009, the execution and implementation of all
                                                      reconstruction-related on-budget projects was shifted to the relevant mainstream line
                                                      ministries and local governments under the coordination of the National Development
                                                      Planning Agency, as had been the case before establishment of BRR.
                                                         The status of donor and NGOs projects, on the other hand, varied considerably and was
                                                      not so easily summarized. While some had seen the majority of their projects completed
                                                      well before the end of 2008, such as the governments of Japan and Germany, some
                                                      others took longer to implement their projects. The MDF was a case in point for the latter.
                                                      To ensure sufficient time for the implementation of their projects, MDF extended its
                                                      completion date from 2010 to 2012.
Different Fund Channeling Mechanisms
  As described in Chapters 1 and 2, BRR set up three main fund channeling mechanisms,




                                                                                                     Modality of Fund Channeling and Performance
or modalities, to accommodate the different needs of donors. They are briefly
recapitulated below.
(a) On-budget/on-treasury. Here, donors used the GOI budgetary system and
    regulations to disperse their funds. Multilateral donors such as the World Bank in its




                                                                                                     Chapter 4. Delivering Results:
    capacity as the administrator of MDF and the ADB—both being essentially banks with
    no direct implementing capacity—chose this modality, as well as some of the large
    bilateral donors.
(b) On-budget/off-treasury: Where funds were disbursed outside of the State Treasury
    (KPPN), but the disbursement was reported in the national budgetary system.
    Under this mechanism, the fund was not initially legalized in the budget document.
    Disbursement was made directly from the donor government’s account into the                          59
    GOI’s account at a specified bank, and from there payments would be channeled to
    the implementing agencies. After the procurement of goods or services had been
    completed, the disbursed fund would then apply for budget legalization through an
    Issuance of Spending Authority (DIPA). This mechanism was used by the governments
    of Japan and Germany.


                                       Figure 4.1 - Fund Channeling Mechanisms
 of Fund




                                           Foreign Govt                          Organizations and
 Source




                    GOI                  Multilateral Donors                       Communities
   Trust Fund




                                                   MDF                              RANTF
  Fund Channel




                    On Budget/                       On Budget/                       Off Budget/
                    On Treasury                      Off Treasury                     Off Treasury
   Implementer




                 BRR & Other Govt Working Units                    Own Implementation Units &
                           (Satkers)                                        NGOs
   Project




                               REHABILITATION & RECONSTRUCTION PROJECTS


                        On Budget Mechanism                               Off Budget Mechanism
                                                                               Figure 4.2 - Fund Modality and Performance
FINANCE: The Seven Keys to Effective Aid Management




         60




                                                      (c) Off-budget/off-treasury: When donors used neither the GOI budgetary system nor
                                                          dispensed funds through the State Treasury. This mechanism was employed by all
                                                          non-governmental donors and by some foreign governments. Multilateral donors
                                                          such as the ADB and the World Bank-administered MDF also utilized this mechanism
                                                          to complement assistance delivered through the on-budget mechanism. The
                                                          Recovery Aceh-Nias Trust Fund (RANTF), a trust fund managed by BRR on behalf of
                                                          individual, community and foreign government donors, used this modality too.

                                                        The diagram in Figure 4.1 illustrates these flows, while Figure 4.2 provides an overview
                                                      of the actors according to their preferred fund channeling modality.

                                                      Effectiveness of Players Using the On-Budget/On-Treasury
                                                      Modality
                                                        Since the Paris Declaration, multilateral and bilateral donors have been channeling
                                                      more aid through on-budget mechanisms in line with the implementation of the five
                                                      principles of the Paris Declarations on aid effectiveness. On-budget mechanisms promote
                                                      ownership, alignment, harmonization, managing for results and mutual accountability
                                                      of aid funds by allowing the partner government to formulate and implement its own
                                                      reconstruction or development plans, using its own methods of prioritizing, planning and
                                                      implementation.
   From BRR’s perspective, on-budget/on treasury donor funds constituted the most
flexible external support. They were “programable funds” that could be arranged to
support and complement domestic funds in the agency’s budget. Consequently these




                                                                                                                                                   Modality of Fund Channeling and Performance
funds were always aligned with the overall reconstruction agenda. In some cases, on-
budget donor funds were allocated to fill sectoral and regional gaps where no other
funding was available. This was in contrast to off-budget aid, where funding was usually
tied to a specific project. Reallocation of funds to other projects within or outside the




                                                                                                                                                   Chapter 4. Delivering Results:
original sector or program was usually impossible.
                                                                  Figure 4.3 - Disbursement Rates of ADB and MDF as of December 2008
Donor experiences with this
modality                                                                                                                                    800
  Two major donors using the on-
                                                            800                                                                             700
budget/on-treasury modality during                                                                                    Commitment
the reconstruction of Aceh and Nias                         700                                                       Disbursement          600        61
were the MDF and ADB. The combined                                                                                                          500
                                                            600
contribution of the two multilateral
donors was in excess of one billion                         500                                                                             400
                                                                                65%
                                              US$ million




dollars. Another donor using this                                                                                                           300
                                                            400
modality was the government of Italy,                                                                          83%

who swapped GOI loans for grants (See                       300                                                                             200

Box: Debt Swap with Italy).                                 200                                                                              100

                                                            100



                                                                             MDF                            ADB




  Debt Swap with Italy
    “Italy approved an agreement initiated in 2005 with the Indonesian government to finance seven projects in Aceh
  under a bilateral debt swap deal. The seven projects, worth more than Rp 150 billion (US$13.6 million), include
  the construction of a fishing port, three irrigation systems and two roads, and a Rp 49.96 billion incentive support
  contribution to a government poverty alleviation scheme called Hopeful Family Program (PKH).
    Under the 2005 agreement, Italy would forgive $24.2 million and 5.7 million euro ($7.8 million) of Indonesia’s debt
  within five years by financing the country’s reconstruction projects in Aceh, still recovering from the devastating 2004
  tsunami. It has so far eliminated $5 million and 10.74 million euro by financing ten projects during the 2006-2008
  period.
     A debt swap scheme allows a country to shift budget allocations which should be used to pay foreign debts over to
  financing other activities, with approval from the lender. Such activities may include infrastructure construction, health
  and education projects, or social empowerment programs.”


                                                                                                      Source: The Jakarta Post, January 10, 2009
                                                                                          Both the World Bank, as the trustee and partner agency of MDF, and the ADB are
FINANCE: The Seven Keys to Effective Aid Management




                                                                                        development banks, which have a long history of relations with the GOI. In the beginning,
                                                                                        the World Bank and the ADB's ETESP experienced similar constraints on resources. But
                                                                                        as the reconstruction program neared its end, a noted disparity in performance became
                                                                                        apparent between them. ETESP had achieved a high disbursement rate of 83 percent at
                                                                                        the end of 2008 whereas the disbursement rate of MDF on-budget projects stood at 65
                                                                                        percent (Figure 4.3).
                                                                                          The ADB’s superior performance can be attributed to a number of breakthroughs they
                                                                                        created to expedite processes, while still retaining high standards of aid accountability
                                                                                        and effectiveness.

                                                                                        What breakthroughs enabled ADB’s success?
                                                                                        (i) Post-Facto Review
         62
                                                                                           Post-facto review was an innovative breakthrough that greatly sped up ADB projects.
                                                                                        According to the provisions of the grant agreement, ADB approval was required for
                                                                                        all subprojects. However, it was agreed that approval could be done on a “post-facto”
                                                                                        basis. Subprojects could be immediately implemented once the GOI (as represented by
                                                                                        BRR) approved the contract. If during post-facto reviews it was found that acceptable
                                                                                        procedures had not been followed, ADB would not finance the contract and therefore
                                                                                        any grant funds that had already been spent would have to be refunded by the GOI. Prior
                                                                                        ADB approval was only required for the first three subprojects in a given sector and for
                                                                                        subprojects estimated to cost in excess of US$500,000.




                                                      Multi Donor Fund
                                                        The Multi Donor Fund (MDF) for Aceh and Nias was established at the GOI’s request in April 2005 by the World Bank
                                                      and several donor agencies. The MDF is a trust fund administered by the World Bank as trustee and constitutes pooled
                                                      funds amounted to US$691.92 million contributed by 15 donors: the European Commission, the Netherlands, United
                                                      Kingdom, World Bank, Sweden, Denmark, Norway, Germany, Canada, Belgium, Finland, Asia Development Bank (ADB),
                                                      United States, New Zealand and Ireland (see Table 1.1 in Chapter 1 for list of contributions by donor).
                                                        Project proposals for the MDF were initially reviewed by BRR, but approval had to be granted by a Steering
                                                      Committee, which was co-chaired by officials from BRR, World Bank, and the European Commission as the biggest
                                                      donor. Therefore, unlike ADB’s funded projects, MDF projects could not start before getting approval from the Steering
                                                      Committee. For coordination of the day-to-day operations, the Steering Committee was supported by a secretariat.
                                                        MDF provided a convenient way of pooling donor resources and liberated donors from establishing multiple of
                                                      bank accounts and programs. This significantly reduced the transaction costs of aid delivery. Among the desirable
                                                      characteristics of MDF were full integration with the GOI budget, preparation of timely reports on actual disbursements
                                                      derived from the government’s accounting system, and good fiduciary arrangements to ensure integrity in the use of
                                                      funds.
  Post-facto review was a solution made possible by the high level of trust ADB placed in
the GOI. With this breakthrough, project commencements could be sped up significantly
while ADB as the donor remained safeguarded from the accompanyingly higher risk of




                                                                                                                              Modality of Fund Channeling and Performance
misappropriation. It was a brilliant mechanism whereby both parties “could have their
cake and eat it too,” increasing project speed without relinquishing control. By relying on
the GOI procurement system—in essence, the fund channeling was not only “on-budget”
but also “on-procurement”—ADB also helped empower GOI implementing units in Aceh




                                                                                                                              Chapter 4. Delivering Results:
and Nias. This in turn developed their capacity to deliver similar projects in the future.
  When asked whether the decision to utilize a post-facto review was indeed a good
decision, Pieter Smidt, head of ADB’s Extended Mission in Sumatra (EMS) said:
     “Of course there is risk if you use an ex-post procurement review. There are a number
   of cases where the project implementing units did not follow [what are] essentially the
   government’s own procedures and therefore ADB cannot finance some contracts. We                                                63
   have to declare three to four million dollars to be ineligible for ETESP funding and the
   number may increase as we have not finished doing the review… but [the post-facto
   review] was still a good decision as it accelerated implementation. Indeed it was a
   good decision.21
  We at BRR were of the same opinion as ADB. Although
the ineligible amounts might end up having to be refunded
by GOI, we considered them an acceptable cost of doing
                                                                     Asian Development Bank
business. Putting it in a larger context, the benefits of faster        The Asian Development Bank (ADB) was among
                                                                     the first to respond to the tsunami by committing
overall project execution far exceeded its cost. Benefactors
                                                                     significant grants for the rehabilitation and
by now have long enjoyed project deliverables, and the               reconstruction program. On April 7, 2005, ADB
momentum of recovery could be maintained at a higher                 approved a support package for rehabilitation and
speed.                                                               reconstruction of Aceh and Nias, comprising the
                                                                     Earthquake and Tsunami Emergency Support Project
(ii) Delegation of Authority (Decentralization)                      (ETESP) for US$290 million, a contribution to the MDF
                                                                     of US$10 million, and a Community Water Services
   Another principle that ADB’s actions illustrated was the          and Health Project (CWSHP) grant of US$16.4 million.
usefulness of decentralizing operations and having a field
                                                                       ETESP was the largest grant project in ADB’s history
presence. ADB’s initiative to establish a local office—the
                                                                     and was used to restore essential public services and
Extended Mission in Sumatra—paid real dividends. Given               rebuild infrastructure and promote the resurgence
adequate authority to make decisions on its own, the local           of private economic activity. Although ETESP was
office was responsive and adaptive to the demands from the           approved prior to the formal establishment of BRR,
                                                                     subsequent to its establishment all its subprojects
field. The time needed for project preparation, appraisal and
                                                                     were designed and implemented in close coordination
execution could be shortened to a minimum.                           with BRR as the leader for the overall reconstruction.
  Indeed, the importance of speed cannot be overstated in            ETESP was funded through the Asian Tsunami Fund
                                                                     (ATF), a trust fund established by ADB in the wake of
post-disaster reconstruction. Disaster victims need to get           the tsunami to assemble contributions from ADB and
back to their normal lives as soon as possible. The longer they      other bilateral and multilateral donors.
have to wait, the greater the social and economic cost. Time
planning is a luxury that such circumstances do not afford,
                                                                                                                        and consequently meticulous planning often falls by the

                                                      New Structures Foster
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                                        wayside. A strong sense of urgency must be maintained
                                                                                                                        throughout the process.
                                                      Urgency                                                               While people usually agree on the importance of
                                                                                                                        speed in a post-disaster undertaking, acting accordingly
                                                         When managing post-disaster reconstruction, it is
                                                                                                                        is easier said than done. As time passes and disaster
                                                      important for government as well as donors to adopt a
                                                      structure that is conducive to this high sense of urgency.        news coverage recedes, after the basic minimum
                                                      A new structure may be best. The organizational culture           supports have been delivered to victims, it is only human
                                                      of government and big donors is usually shaped to cope            fall back into a “business as usual” mentality. The sense
                                                      with predictable, regular development challenges with             of emergency gradually evaporates. Daily routine kicks
                                                      longer time frames. The pace of decision making is typically
                                                      slow and energy levels are rarely high. The organization          back in and activities return to their normal pace.
                                                      structure also is designed to focus people’s attention on            One of the best ways to maintain a high sense
                                                      narrow technical and functional issues, sometimes at
         64                                           the expense of broader goals. Establishing a high sense
                                                                                                                        of urgency is by decentralizing operations. The
                                                      of urgency in such a big organization can be extremely            government, donors, and other reconstruction actors
                                                      difficult (Kotter 1996).                                          should delegate authority to the lowest level possible,
                                                         The establishment of BRR as an ad-hoc government               where capacity exists. Despite the obvious risk of
                                                      agency independent of any line ministry provided just such        delegation of authority, local management of the
                                                      an autonomous structure where a high level of energy              reconstruction process has a host of advantages. The
                                                      and sense of urgency could be maintained until the finish
                                                                                                                        scope for interaction and collaboration between the
                                                      line. The flat organization as structure with a less formal
                                                      working environment adopted by BRR also promoted the              disaster-affected population and the reconstruction
                                                      free flow of information. Staff avoided being slotted into        actors is greatest at the local level. Armed with better
                                                      organizational silos and instead worked collaboratively on        first-hand knowledge about what is going on, the issues
                                                      cross-cutting issues to achieve common goals.                     that need to be addressed, the aspirations of people and
                                                         A higher level of turnover and attrition is expected in such   the tradeoff among choices, local management usually
                                                      a stressful, fast-paced working environment. Indeed, an           makes fast and better decisions than those managing
                                                      agency with a limited lifespan such as BRR should not be
                                                                                                                        from a distance. Localized authority also avoids the
                                                      expected to yield a stable career path. BRR was more akin
                                                      to an organization of volunteers than a government agency.        frustration caused by the rigid, hierarchical decision-
                                                      Individuals ought to take their leave if their contribution is    making chains of centralized organizations. Accordingly,
                                                      no longer needed or excessive burnout prevents them from          the ADB’s decision to delegate authority to its EMS office
                                                      performing.
                                                                                                                        made great sense.
                                                         The Extended Mission in Sumatra, a nimble organization
                                                      unit separated from the mainstream organization structure           This contrasted sharply with the centralized structure
                                                      of ADB, was a good example of an effective ad-hoc                 adopted by many other donors in which Jakarta-based
                                                      organization on the donor side. Armed with sufficient             decision makers sat far removed from the goings-on in
                                                      capacity and authority, the office could respond quickly          Aceh and Nias, with post-disaster reconstruction being
                                                      and decisively on various planning and implementation
                                                      issues of ETESP subprojects without being paralyzed by the        just one of the many “development projects” on the
                                                      limiting structure of the bank’s organization.                    agenda. Distanced from the emergency atmosphere
                                                                                                                        that was the order of the day in Aceh and Nias and
                                                                                                                        lacking incentives to work faster and harder as typically
                                                                                                                        demanded by post-disaster reconstruction, these
                                                                                                                        officials did not share the same sense of urgency as the
                                                                                                                                Modality of Fund Channeling and Performance
                                                                                                                                Chapter 4. Delivering Results:
                                                                                                                                    65




people in the field. Here, decision-making processes went though the usual pipelines          Vacational High School built by
in which onerous administrative and technical requirements frequently delayed                 KfW in Banda Aceh. August 22,
implementation. Finally, the Indonesia country office sometimes lacked the authority or       2008. Photo: BRR/Arif Ariadi
confidence to make decisions, even decisions that could have been locally, and waited
for instructions to be sent from global headquarters. Occasionally, prospective projects
and the time spent developing them might come to nothing if the judgments of the local
office were not shared by the global headquarters, despite the fact that the latter did not
necessarily know what was happening in the field and therefore operated from a different
perspective. The need to relay information between the Indonesia country office and
global headquarters caused yet further delays.

(iii) Use of an Imprest Account
  To expedite disbursements, ADB established a project-specific imprest account in Bank
Indonesia with a ceiling of US$29 million that was maintained and monitored by BRR,
with support provided by a project management office. Line ministries were given access
to sub-accounts of this imprest account so that they could use the funds for subproject
implementation. The imprest account was replenished to compensate for the liquidation
                                                      Reducing Transaction                                          and the usage of funds by the end-beneficiaries. For transactions

                                                      Costs Through
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                                    below US$100,000, statement-of-expenditure procedures could
                                                                                                                    be used so long as the appropriate conditions for the use of the

                                                      Collaboration                                                 procedures were satisfied.
                                                                                                                      This mechanism greatly facilitated the speed of disbursements
                                                         Transaction costs are not the only consideration           of ADB grants (ADB 2006). Since the majority of the transactions
                                                      in deciding to go it alone or to join a trust fund, nor       were paid for out of this imprest account, direct payments only
                                                      possibly the most important. However, it is worth
                                                                                                                    had to be arranged for some very large contracts.
                                                      throwing in a brief theoretical discussion.
                                                          Tapscott and Williams (2006) posited a new
                                                      way of reading the famous Coase Theorem first
                                                                                                                    Effectiveness of Players Using the
                                                      posited by Nobel prizewinner Ronald Coase as                  On-Budget/Off-Treasury Modality
                                                      such: “There must be a balance between the costs                 The upside of the on-budget/off-treasury modality is that the
                                                      of the transactions that a company must pay and               donor has its own implementing capacity. This helps relieve the
         66                                           the opportunity to make everything in-house.” Only
                                                      if the costs of doing things in-house are higher than
                                                                                                                    burden of implementation from the partner government, whose
                                                      performing them in partnership with others, is it             resources are typically spread thin across sectors and regions
                                                      better for the company to collaborate.                        affected by the disaster. The downside of this modality is that the
                                                         Applied to fund channeling mechanisms in a                 partner government has limited influence on the fund allocation
                                                      post disaster reconstruction context, we derive the           and project execution. Donor agencies usually arrive with
                                                      following axiom: “As long as the transaction costs            preconceived notions on the types of project to be funded and
                                                      of going it alone exceed those of working together
                                                                                                                    the way these projects should be implemented.
                                                      in a pooled fund, donors will be better off by joining
                                                      in.”                                                             Donor visibility is among the main reasons why this modality
                                                        This axiom held true in reality. Government and             is preferred by certain donors to multilateral arrangements. By
                                                      donors benefitted from reduced transaction costs              going bilateral and off-treasury, the results of aid projects are
                                                      when government resources were pooled, such                   more visible, quantifiable, and directly attributable to the donors.
                                                      as under the BRR or in the case of the integrated
                                                      “one-stop-shop” of Tim Terpadu. By contrast, in the
                                                                                                                    This can be beneficial when they report back to their home
                                                      case of certain non-traditional donors in Aceh such           country taxpayers and to the media. Meanwhile, by including
                                                      as Kuwait and Saudi Arabia who decided not to                 aid disbursements in the government state budget reports, they
                                                      channel their funds through multilateral channels             align projects with the partner government’s objectives.
                                                      or multi-donor funding schemes, the transaction
                                                      costs incurred by both the donors and the BRR (by                Another reason why big bilateral donors prefer this modality
                                                      spending scarce management time on bilateral                   to pooling their funds in a trust fund such as the MDF is the
                                                      courtesy visits, etc) were very high relative to the
                                                                                                                     negligible benefit that such a trust fund provides for big donors.
                                                      contributions they made.
                                                                                                                     Pooling contributions into a single fund reduces transaction
                                                                                                                     costs in the form of information, coordination, administrative
                                                                                                                     and various access costs through joint effort and burden sharing
                                                                                                                     among donors. By combining resources, the donors also can
                                                                                           leverage impact to the extent that is not achievable by smaller-sized, more scattered
                                                                                           contributions. But these benefits are not appealing for large donors, who already have the
                                                                                           economies of scale to prepare, appraise, approve and implement projects by themselves.
                                                                                           For these donors, participation in a trust fund is likely not to reduce transaction costs and
                                                                                           may even increase them due to additional efforts associated with collaboration.
Performance
 The governments of Germany and Japan were among the donors who selected this
modality.




                                                                                                                                      Modality of Fund Channeling and Performance
(i) The Government of Germany
  Traditionally, German bilateral assistance is implemented through project and program
aid. For the reconstruction of Aceh and Nias, Germany provided special grants amounting




                                                                                                                                      Chapter 4. Delivering Results:
to €170 million, €35 million of which was delivered through the German Agency for
Technical Cooperation (GTZ) with the remaining €135 million delivered through the
German Bank for Reconstruction and Development (KfW).
  Projects implemented included the reconstruction and improvement of health
services in Aceh, rehabilitation and reconstruction of vocational schools, secondary
schools, housing and settlements, modernization of vocational training, support for local
government, and reconstruction and development of the microfinance system.                                                                67
(ii) The Government of Japan
   Japanese bilateral assistance to the Aceh-Nias
recovery program totaled ¥14.6 billion, which was          Clearing Up Donor Confusion
allocated across 15 projects administered by JICS
                                                              The Head of Rehabilitation and Reconstruction Agency
(Japanese International Cooperation System) as the         for Aceh and Nias (BRR) Kuntoro Mangkusubroto said in an
implementing arm of JICA (Japanese International           interview that donors used to be confused about whom they
Cooperation Agency).                                       should talk to if they wanted to get involved in post-tsunami
                                                           reconstruction. “There seems to be confusion among those
  Projects implemented included support for                wishing to participate in the reconstruction work as to which
vocational training centers, schools and universities,     government agency they should talk to.”
rehabilitation of fishing activities, reconstruction          “There are always questions about how to participate in the
of orphanages, roads, markets and health centers,          reconstruction process. For example, the one that we received
supply of medicine, recovery of water supply and           from the German government. They were confused as they
sanitation system.                                         were accustomed to approaching ministries in Jakarta before
                                                           coming to Banda Aceh.”
   Overall, the bilateral grant projects from Germany
                                                              In response, Kuntoro said he asked them to come directly
and Japan performed satisfactorily, reaching near
                                                           to him or his agency, BRR. “When it comes to coordination,
completion by the end of 2008. Some implementation         the authority over all reconstruction activities in Aceh and
hurdles were inevitably encountered, which is to           Nias, I always urge international agencies or NGOs to come
be expected when disbursing grants of such a               straight to Banda Aceh. No need to go to Jakarta.”
large scale. Confusion regarding the role of BRR              According to Kuntoro, the only agency that still seemed
marred coordination in the early months (see Box           confused was JICA from Japan. “It seems they are not well
4.6); uncertainty regarding customs clearance              informed about the BRR. I hope that once they understand
procedures delayed the release of Rp 32 billion worth      that the BRR is the only agency that has been given the
                                                           authority by the government over the rebuilding of Aceh and
of school equipment from Germany,22 while land
                                                           Nias, they will come to us to discuss their programs in Aceh
acquisition problems threatened cancellation of a          and Nias.”
Japanese-funded local marketplace rehabilitation
project.23 However, apart from those minor hiccups,                                         Source: The Jakarta Post, June 11, 2005
implementation generally went smoothly.
                                                      CFAN Meetings
                                                         CFAN meetings focus on resolving major           Effectiveness of Players Using the Off-Budget/Off-
FINANCE: The Seven Keys to Effective Aid Management




                                                      issues faced during the period.                     Treasury Modality
                                                        CFAN 1 (October 2005). Identified
                                                      bottlenecks and challenges and discussed
                                                                                                          Proliferation of Agencies
                                                      a new approach to coordination, i.e., the             The advantage to off-budget modality was swift implementation,
                                                      guided facilitation model.                          as the aid agencies did not have to follow a long and rigorous national
                                                        CFAN 2 (May 2006). Focused on the                 budgetary cycle. However, since the agencies were not legally
                                                      regionalization and establishment of the            accountable to the GOI, it was difficult to monitor and evaluate their
                                                      Joint Secretariat.
                                                                                                          contributions. In the case of Aceh and Nias, the difficulty was multiplied
                                                        CFAN 3 (April 2007). Held halfway                 by the fact that the over 992 funding and implementing agencies,
                                                      through the BRR’s mandate, the meeting
                                                                                                          scores of UN agencies and bilateral donors who went off-budget
                                                      focused on thematic issues and preparation
                                                      of a consolidated mid-term report.                  generally had their own funding sources. Therefore, they had little or
                                                                                                          no incentive for coordination among themselves. The potential cost of
                                                        CFAN 4 (February 2009). The last
         68                                           meeting, a celebratory CFAN to acknowledge          redundant resources and duplicate activities was enormous.
                                                      achievements, consolidate the lessons                  Fortunately, despite the many actors involved, aid funds were
                                                      learned and give input for the continuation
                                                      of post-BRR coordination.
                                                                                                          largely concentrated in the hands of a few big international NGOs
                                                                                                          and donors, making coordination easier than envisaged. The top 15
                                                                                                          actors accounted for 80 percent of reconstruction funding24. Among
                                                                                                          the largest off-budget contributors were USAID, UN Agencies, and
                                                                                                          International Red Cross.

                                                                                        Coordination Tools
                                                                                          As mentioned in Chapter 2, in coordinating the off-budget activities, BRR employed two
                                                                                        levels of meeting to improve harmonization of activities and alignment of projects with
                                                                                        the interests of the people of Aceh and Nias:
                                                                                        (a) Coordination Forum for Aceh and Nias (CFAN)
                                                                                          CFAN was a high level forum for coordination, bringing together all recovery partners,
                                                                                        both government and NGOs, to discuss collective progress and challenges as well as
                                                                                        provided a critical avenue for sharing information and creating strategies for moving
                                                                                        forward.
                                                                                        (b) Project Concept Note Approval Workshop (PCN Workshop).
                                                                                          In order to better coordinate the activities of NGOs, BRR established a mandatory
                                                                                        submission of Project Concept Notes (PCN) by the project proponent. NGO-led
                                                                                        projects could not start without BRR’s prior approval. PCN Approval Workshops were
                                                                                        an operational level meeting conducted to discuss and decide on feasibility of projects
                                                                                        proposed. The criteria used to evaluate projects included alignment with the Master Plan
                                                                                        and sector vision, local community involvement, and project sustainability.
                                                                                          During the early recovery period, the workshop was held once a week, then every three
                                                                                        weeks. Eventually, as the number of projects proposed declined over the latter half of
                                                                                        2008, it was conducted monthly. Each workshop reviewed an average of 40 to 50 projects.
                                                                                                                                 Modality of Fund Channeling and Performance
                                                                                                                                 Chapter 4. Delivering Results:
                                                                                                                                     69




Over the 44 workshops held during BRR’s tenure, some 1,700 projects were reviewed out,        Finance Minister Sri Mulyani
of which 1,540 projects were approved.                                                        speaks in front of CFAN 3
                                                                                              participants. Jakarta, April 24,
Performance                                                                                   2007. Photo: BRR/Arif Ariadi
  The performance of projects channeled off-budget was largely commendable. Of the
Rp 3.38 trillion committed, Rp 2.67 trillion (79 percent) had been disbursed by the end of
2008. Most of the unfinished projects were at their final stages, with 106 (56 percent) of
190 open projects anticipating completion in 2009.


Conclusion
   As the famous Sichuan proverb popularized by Deng Xiaoping says, “No matter if it
is a white cat or a black cat, as long as it can catch mice, it is a good cat.” Donors may
choose different fund channeling mechanisms, but in the end they are all accountable for
results. The main reason to select one particular modality over another is effectiveness in
delivering performance. Regardless of the modality a particular donor agency chooses,
what donor constituents and benefactors most care about is the end result.
                                                                                                                                 Chapter 5. Achieving and Upholding Accountability
Achieving and
Upholding
Accountability                                                                                                                            71




Getting to Trust
  AT   the onset, BRR had struggled to build credibility and inspire trust. As the
reconstruction and rehabilitation process progressed and more responsibilities came
under its purview, accountability emerged as an increasingly important factor in
maintaining that credibility and trust.

  Unlike most government agencies, BRR was an agency established to provide a speedy
response to an emergency situation. Essential to its effectiveness was the capacity to be
responsive, flexible and solution-oriented.

  The previous chapter highlighted the breakthroughs that enabled BRR to deliver its
work swiftly. These breakthrough policies and procedures were meaningful to the extent
that there was accountability to assure compliance with their provisions.

  Accountability is advanced when the organization is held responsible for the operation    Micro, small, and medium
and effectiveness of programs and institutions under its control. Demonstrating             enterprises in Aceh revived in
                                                                                            a very short period. Not only
accountability therefore requires that accurate performance information be collected and
                                                                                            receiving funding assistance, they
reported in some public venue.                                                              also got business management
                                                                                            training and consultations.
                                                                                            Photo: BRR/Arif Ariadi
                                                         The agency’s mandate dictated that BRR was legally accountable for financial reporting
FINANCE: The Seven Keys to Effective Aid Management




                                                      on the use and performance of funds expended from its central government budget.
                                                      It was also responsible for recording and coordinating the outputs of reconstruction
                                                      projects implemented by other international and national organizations. BRR’s
                                                      accountability framework required ingenious tailoring to encompass the numerous
                                                      delivery partners’ various needs, within the structure of the GOI public finance
                                                      regulations that BRR was subject to. BRR needed to create a framework that contained
                                                      the appropriate modalities and fund channelling options to speed supplies and urgently
                                                      needed assistance to beneficiaries.
                                                        In addition to the mandatory accountability systems that BRR was subject to as a
                                                      Line Ministerial level agency, BRR also put in place and carried out non-mandatory
                                                      accountability systems that were developed from the mandatory systems. These non-
                                                      mandatory accountability systems had the added bonus of facilitating BRR’s coordination
         72
                                                      work.
                                                        Each system of accountability had its own tools and methods for application. This
                                                      chapter will discuss the reporting systems and tools that BRR used to enable a clear
                                                      and accurate accounting of funds usages, reconstruction program outputs, and
                                                      accomplishments.

                                                      A Note on Compliance and Effectiveness
                                                        The compliance view of accountability is deeply entrenched in the history, theory,
                                                      and practice of the GOI. This view of accountability holds that a correct operation is
                                                      one where every step is properly documented and is taken in accordance with existing
                                                      regulations to ensure funds are used appropriately and to provide a complete and
                                                      accurate record of what is being accomplished.
                                                         Financial accountability is a form of compliance accountability, for it has to do with how
                                                      the government uses and treats its funds. Has it disbursed its funds honestly? Have it
                                                      lived up to expectations by checking whether it complied with prevailing rules? Financial
                                                      accountability can be measured vis-à-vis compliance with regulations.
                                                         It is important to keep in mind that until today, there was no national disaster
                                                      management regulatory framework for accountability. BRR was therefore held
                                                      accountable to regulations that were created under normal conditions, contrary to its
                                                      mandate for speedy delivery and flexible response. As a new organization, BRR did not
                                                      have pre-established procedures ready to be put into action; rather these procedures
                                                      were formed during the initial months of operations, during which the agency’s attempts
                                                      at swift response to people’s needs where at times at loggerheads with the need to
                                                      adhere to regulations created for normal situations. In these circumstances, compliance
                                                      with the legal framework actually functioned to constrain the organization’s effectiveness
                                                      and response time.
  Accountability for performance has to do with what outputs and outcomes have
been produced from inputs. Has the organization achieved the desired result? Was




                                                                                                                                      Chapter 5. Achieving and Upholding Accountability
the organization able to reach clear performance targets? To create accountability for
performance, we must frame our expectations in terms of results--not in terms of rules,
regulations or processes. In this sense, accountability for performance is not compliance
accountability (Behn 2001). The more appropriate model--especially in a reconstruction
context--is effectiveness accountability. Effectiveness is a measure of goal achievement.
An effective program achieves the goals that have been set in advance for it (Wolf and
Hassel 2001). The Master Plan and its revision clearly outlined the expectations of the
reconstruction.; therefore performance accountability could be measured by comparing
outputs against the outlined expectations, as opposed to measuring the processes by
which these results were produced.

                                                                                                                                               73
Mandatory Accountability
  Accountability systems are a way to hold government agencies “accountable” for their
accomplishments or lack thereof, and for the use or misuse of funds. These systems
constrained the extent to which BRR could deviate from the responsibilities as laid out
for it by Presidential Regulation in Lieu of Law No. 2/2005. With regard to the different
types of modalities and funding channels available to donors, BRR was accountable for
the performance of on-budget APBN funds as well as for bilateral and multilateral donor
contributions, and for recording the output of the off-budget funds managed by NGOs.
Hence BRR’s mandatory accountability was comprised of two components: financial and
performance accountability.
                                              Table 5.1 - Mandatory Accountability Systems

     legal                                                 fund                                     Source of
                     Type            report                                       indicator                         Submitted to
  framework                                              mechanism                                 information
                                Financial Report
                                                                                                 Project
                                (composed of:                                                                     President through
                                                                                                 Implementing
                                1. LRA              On-budget/on-             Disbursement                        MOF
                                                                                                 Units and
                 Financial      2. Balance Sheet    treasury & on-            levels                              Subject to audit
                                                                                                 State Treasury
                                3. Notes to         budget/off-treasury       Financial Status                    by Supreme Audit
                                                                                                 disbursement
                                Financial                                                                         Agency
                                                                                                 status reports
                                Statements)
                                                                                                 Project
Presidential                                                                                     Implementing
                                                    All fund mechanisms
Regulation in                                                                                    Units and
                                Performance         (On-budget/on-
Lieu of Law                                                                                      State Treasury   President
                                Report              treasury; on-budget/
No.2/2005                                                                                        disbursement     through MOF
                                                    off-treasury, & off-
                                                                                                 status reports
                                                    budget/off-treasury)
                                                                                                 and RAN
                 Performance                                                  Outputs (KPIs)     Database
                                                                                                 Project
                                                                                                 Implementing     State Ministry of
                                                    On-budget/on-
                                                                                                 Units and        Administrative
                                LAKIP               treasury & on-
                                                                                                 State Treasury   Reforms
                                                    budget/off-treasury
                                                                                                 disbursement     (MenPAN)
                                                                                                 status reports
                                                      Financial Accountability
FINANCE: The Seven Keys to Effective Aid Management




                                                        BRR’s mandated scope extended to the management of funding mechanisms not
                                                      only of GOI centrally funded reconstruction activities, but also of funds committed
                                                      and implemented by international and domestic NGOs and donors. BRR was legally
                                                      responsible for financial reporting of all on-budget expenditures. For off-budget projects,
                                                      BRR relied on its partners’ own accountability mechanisms to report on their financial
                                                      achievements.
                                                        This section will first discuss the financial reporting of on-budget projects that BRR was
                                                      directly responsible for under its mandate.
                                                      (a) The Role of PIUs in the Accountability Process
                                                         BRR reported on the thousands of projects it implemented using the GOI funds by
                                                      tracking project fund disbursement. This was done through Project Implementation Units
         74                                           (PIUs). PIUs were responsible for implementing and executing BRR projects at the district
                                                      level and as such were on the frontline of overseeing fund disbursements. Figure 5.1
                                                      illustrates the structure of each PIU and the financial responsibilities of its members.
                                                        During BRR’s tenure there were over 900 PIUs throughout NAD and Nias. BRR
                                                      established rigorous financial reporting systems and procedures for project
                                                      implementation in which the PIUs on the ground reported directly to BRR’s Chief
                                                      Financial Officer (CFO), or the Deputy of Finance and Planning. All PIUs had to be held



                                                                                    Figure 5.1 - Satker Financial Structure


                                                                                           HEAD OF
                                                                                  PROJECT IMPLEMENTING UNIT




                                                        Project Manager                             SPM                        TREASURER
                          Figure 5.2 - BRR’s Organizational Financial Reporting Line




                                                                                                            Chapter 5. Achieving and Upholding Accountability
                                                BRR Director


                  Deputy of                                                            Deputy of
                   Finance                                                             Operations



             Sectoral      Sectoral      Sectoral      Sectoral      Sectoral      Sectoral      Sectoral
             Deputy        Deputy        Deputy        Deputy        Deputy        Deputy        Deputy




                    Regional      Regional      Regional      Regional      Regional      Regional
                       I             II            III           IV            V             VI
                                                                                                                     75
            PIU    PIU   PIU    PIU




accountable for their work. This system of direct accountability allowed BRR to monitor
spending without many layers of administration, making for a much more streamlined
accountability system.
  BRR closely monitored this system to ensure that it adhered to its mandated task.
Each PIU reported on a monthly basis to the Directorate of Accounting under the
BRR’s CFO/Deputy of Finance and Planning which in turn checked expenditures, then
consolidated reporting for all PIUs. BRR completed monthly consolidated financial
reports. Reconciliations were carried out with the State Treasury (KPPN-K) to allow for
timing and recording differences. Reports were adjusted accordingly and submitted to all
stakeholders; to ensure integrity. After they were audited by the GOI’s Badan Pemeriksa
Keuangan (BPK or Supreme Audit Agency), these financial reports were open to public
scrutiny.
   According to public finance regulations, the PIUs should comply with Directorate
General of Treasury regulations. A PIUs internal process, structure, and accountability
is well-regulated by Ministerial Decree No.66/2005. However, in the context of the BRR
implementation, there were a number of differences when compared with ordinary PIUs.
   In a significant departure from Indonesia’s public procurement regulations, the BRR
PIUs were permitted to appoint non-civil servants to the tender committees.25 Fiduciary
responsibility lay with the head of the PIU who in turn reported to the BRR Director of
Finance. Procurement was carried out by an independent Tender Committee appointed
by the PIU. The Tender Committee was tasked with procuring goods and services
in accordance with the applicable GOI law on procurement.26 Box 5.1 explains the
accountability system for the payment of tenders.
                                                                                            Another difference was that the employees of reconstruction Satkers could be
FINANCE: The Seven Keys to Effective Aid Management




                                                                                         contracted for just one year, and that those employees were often sourced from other
                                                                                         government agencies or departments. Each PIU head was under contract to produce
                                                                                         specific deliverables within a fiscal period. The contract could be renewed or terminated
                                                                                         at the end of each fiscal period, while remuneration was based on achievements of the
                                                                                         targets. Upon project completion, the PIU handed over all of the project deliverables,
                                                                                         documents, operational (e.g. furniture, equipment, vehicles) and fixed assets (e.g. roads,
                                                                                         bridges, health centre) constructed under the project to BRR, and its entire staff was then
                                                                                         terminated.
                                                                                           An unfortunate consequence of these short annual contracts was the negative
                                                                                         impact on the institutional memory of each PIU. Coming from different government
                                                                                         agencies, new PIU staff were not yet imbued with a sense of urgency regarding the
                                                                                         delivery reconstruction and rehabilitation needs. As the PIU personnel begin to develop
         76
                                                                                         this urgent post-disaster mentality, the finite contract period would put an end to
                                                                                         their involvement in reconstruction, interrupting the accumulation of knowledge and
                                                                                         acculturation.
                                                                                         (b) Financial Reporting
                                                                                           Accurate and complete records of all financial transactions were needed to show how
                                                                                         the taxpayers’ money had been used. The definition of financial transactions included
                                                                                                                  inflows from the APBN, expenditure, and money that was

                                                      Accounting for Tender                                       loaned or borrowed. On a periodic basis, financial transactions
                                                                                                                  were supposed to match the amount budgeted, unless any

                                                      Payments                                                    changes had been previously approved.
                                                                                                                      Upon its establishment, BRR was mandated by Regulation
                                                        The PIU, using Technical Assistance where                  in Lieu of Law No.2/2005 to submit a Financial Report, similar
                                                      appropriate, reviewed the Tender Committee                   to other Line Ministries. This financial accountability report
                                                      decision and all being well entered into contract with       follows an orderly and systematic national accounting system
                                                      the successful bidder. BRR set up and implemented
                                                      the following payment verification process:                  for all expenditures from the State Budget, that is the (GOI)
                                                                                                                   Government Accounting Standards are comprised of existing
                                                         The first Payment was usually due on signing of
                                                                                                                   accounting standards modified in 2005 for wider acceptance.
                                                      the contract and the issuance of a notice to proceed.
                                                      In Aceh this was reviewed by State Treasury.                 BRR must submit a semi-annual, annual, and final Financial
                                                                                                                   Report to the Ministry of Finance (MOF). The MOF in turns
                                                        Subsequent payments were subject to the PIU
                                                      assessing the physical progress of the contractor            consolidates all Ministerial and Local Government Financial
                                                      and issuing a verification letter attesting to the           Reports to create the National Financial Accountability Report.
                                                      progress, which then formed the basis for the
                                                      contractor to issue the invoice.                               BRR’s Financial Report consisted of three complementary
                                                                                                                   components. First was the Budget Realization Report. The
                                                        On receipt of the invoice the State Treasury
                                                      referred to the database of contractors, reviewed the        Budget Realization Report detailed disbursements made
                                                      authorizations and verifications and finally checked         against the stated budget commitments. This report was
                                                      that there was a budget available to accommodate
                                                      the payment.
crucial in depicting the                                 Table 5.2 - Rehabilitation and Reconstruction Allocations per Sector
spending capacity of                                                                      master Plan Allocation revisions (2008)
                                                               master Plan*




                                                                                                                                            Chapter 5. Achieving and Upholding Accountability
the organization during                                                             including funding mechanism of the rehabilitation
                                            Sector              Allocation                             of Aceh-naas
the time period covered                                            2005
and concomitantly, the                                                                   APbn             non-APbn              Total
performance of said                  Housing                          579,021              880,454            1,089,411         1,969,865
organization. Second was             Infrastructure                 2,208,505             1,423,710             696,452         2,120,162
the Balance Sheet, a snapshot        Social Affairs                 1,566,021              415,866            1,146,557         1,562,423
of the financial status as           Economic
                                                                       161,182             324,181              482,407           806,588
of a specific date. The last         Development
component was comprised              Institutional
                                                                      657,096              203,183              300,997           504,180
of the Notes to the Financial        Development
Statement. The first two             Management                                0           223,846              139,362           363,208
components provide a                                                                                                                                 77
numerical picture of progress,       ToTAl                          5,171,825            3,417,240           3,855,186          7,272,426
while the Notes to the
                                     *Blanket allocation established by DPR-RI in 2005
Financial Statement provide a
narrative on the numbers that
helps explain and clarify the
financial status.
(c) Financial Targets
  At the start of BRR, funds were allocated to sectoral groupings by the government
legislative assembly (DPR-RI) beginning late 2005, in consultation with BRR, the National
Development Planning Agency and local government. Estimates of the damage requiring
reconstruction and rehabilitation were used as a basis to make these allocations. After
a Mid-Term Review in June 2007 and further analysis of demand, the Master Plan was
revised to cover US$7.2 billion instead of US$5.2 billion. The revised Master Plan was
considered at this point to more fully represent the interests of Acehnese communities.
The resulting allocation of funds by sector is shown in Table 5.2.
(d) The Role of Audits
  BRR’s Annual Financial Report is subject to outside
audit by the Supreme Audit Agency. This independent               Supreme Audit Agency
evaluation reports on the accuracy of BRR’s financial
statement, with the objective of providing an opinion             Opinion
on the organization’s reporting.
                                                                    For each Financial Report, the Supreme Audit Agency
   Beginning 2006, BRR submitted periodic Financial               provides one of the following opinions:
Reports to the Audit Agency, and audit accordingly                   •     Unqualified Opinion
issued an opinion on each of those reports.27                        •     Qualified Opinion
                                                                     •     Disclaimer
                                                                     •     No Opinion
                                                                                              Audits are performed to evaluate the validity and reliability of information provided
FINANCE: The Seven Keys to Effective Aid Management




                                                                                            on the organization’s system, process, or projects, and also to assess the financial system.
                                                                                            An audit keeps an entity honest by treating truth as a measurable value and target, using
                                                                                            compliance with the existing standards as the yardstick of honesty. Any discrepancy or
                                                                                                                       inaccuracy must be addressed and repaired. Commonly, an
                                                                                                                       audit will reveal simple accounting mistakes. In other cases,
                                                                                                                       more serious issues, such as fraud, may come to light during an

                                                       BRR Trust Fund                                                  audit.
                                                                                                                            As mentioned in previous chapters, BRR had to deliver
                                                          As mentioned in Chapter 3, the BRR Trust                       quickly under the constraints of prevailing regulations
                                                       Fund was formed based on an MOF authorization
                                                                                                                         which, designed for normal situations, could not sufficiently
                                                       letter to allow unspent funding to be disbursed
                                                       the following year with the purpose of securing                   accommodate a post-disaster context. Upon auditing
                                                       funding for delayed projects. Projects funded                     BRR’s Financial Report in 2006, BPK issued a Disclaimer,
         78                                            through the Trust Fund are not exempt from                        perceiving the BRR Trust Fund (Box 5.3) and fund channeling
                                                       the national standards of accountability and                      mechanisms for certain projects as being non-compliant with
                                                       transparency; BRR maintained its commitment
                                                       to comply with legal standards. The Trust Fund                    existing regulations. These projects were: the World Bank-
                                                       account was established to provide speed,                         financed Community-Based Settlement Rehabilitation and
                                                       sustainability and flexibility to projects in the                 Reconstruction Project (ReKompak) as funded through a PMU
                                                       post-disaster area. A similar account was created                 account; scholarships for continuing healthcare education
                                                       to expedite the post-disaster financing process to
                                                                                                                         in NAD, which were channeled through BRR and the Medical
                                                       facilitate the Yogyakarta earthquake recovery.
                                                                                                                         Academic Department of Unsyiah; and the Banda Aceh
                                                                                                                         Scholarship Committee Account.
                                                                                                                                This perception of noncompliance had to do with the view
                                                                                                                                                             that the BRR Trust Fund,
                                                                   Table 5.3 - Supreme Audt Agency Opinion and Funds for Line Ministries in 2007             ReKompak, and Scholarship
                                                                                                                                                             Committee Account deviated
                                                                                      number of            Amount of funds              Percentage of
                                                              opinion                                                                                        from normal regulations.
                                                                                    organizations             (rp million)                    funds
                                                                                                                                                             These had been designed
                                                      WTP                                           17          89,373,031.22                       11.79%   in response to pressing
                                                      WDP                                           31          18,279,991.67                         2.41%  reconstruction needs: the
                                                                                                                                                             need to sustain leftover
                                                      TMP                                           37        649,066,668.52                        85.66%
                                                                                                                                                             budget funds from one year
                                                      TW                                             1           1,016,011.82                         0.13%  to the next in the case of the
                                                      Total                                        86         757,735,703.23                           100%  former, and the need for swift
                                                                                                                                                             fund channeling mechanisms
                                                                                                                                      Source: BPK 2009       in the case of the latter two
                                                                                                                                                             projects.
                                                                                              At that time, existing regulations could not factor in the urgency of the reconstruction.
                                                                                            Compliance gave way to the need for urgent delivery and flexibility in carrying out a post-
                                                                                            disaster response.
                                                                                                                                     Chapter 5. Achieving and Upholding Accountability
                                                                                                                                              79




   In maintaining compliance accountability, the framework for accountability must be
                                                                                                Head of BRR Executing Agency
adjusted to suit the post-disaster context. Under such circumstances, divergence from
                                                                                                Kuntoro Mangkusubroto (center),
normal procedures does not necessarily indicate misconduct. Different imperatives are at        accompanied by the Deputy for
work. The Supreme Audit Agency's opinion on BRR’s Financial Report in 2006 suggested            Finance and Planning, Amin
that the GOI standard auditing procedures were simply not appropriate to a post-disaster        Subekti (left), witness the Head
context. Upon shifting their paradigm to that of a post-disaster context, the Audit             of the Supreme Audit Agency's
Agency's subsequent audit of the BRR Trust Fund’s utilization indicated no problems of          representative office in Banda
                                                                                                Aceh, Ir. Abdul Rifal Saleh, sign
significance.
                                                                                                the results of the Audit Agency's.
  In 2007, BRR was one of 17 out of 86 Line Ministries to receive an Unqualified Opinion        Banda Aceh, November 20, 2008.
on its Financial Report (Table 5.3). The majority of Line Ministries (31 agencies) received a   Photo: BRR/Arif Ariadi
Qualified Opinion or a Disclaimer (37 agencies). In contrast to BRR, many of the 17 agencies
who received an Unqualified Opinion were newly established and were managing a relatively
small amount of assets and funds, equivalent to approximately 12 percent of the total State
Budget (BPK, Menunaikan Amanat Konstitusi, 2009).
  Getting an Unqualified Opinion on its report was a remarkable achievement for BRR,
especially given that it had to manage the greatest amount of funds (two billion dollars in
reconstruction funds) among all the agencies.
                                                                              Performance Accountability
FINANCE: The Seven Keys to Effective Aid Management




                                                                                 Commitments of government and non-government funds must be translated into
                                                                              real results. As its mandate stated, BRR would be held accountable for its performance
                                                                              in Aceh and Nias. To measure the effectiveness of BRR’s work, the Revised Master Plan
                                                                              provided a set of reconstruction output targets. As a ministerial level agency, BRR was
                                                                              legally accountable for reporting the outputs of funds channeled through on-budget
                                                                              mechanisms. Moreover, its dual role as a coordinating body charged BRR with reporting
                                                                              on the outputs of off-budget funds as well.
                                                                              (i) Performance Targets
                                                                                  In Chapter 2, we discussed the changes made to the Master Plan to better
                                                                              accommodate the demands on the ground. The Revised Master Plan thus became a
                                                                              compass for measuring outputs through the Key Performance Indicators (KPIs) set out in
         80                                                                   it. These predetermined KPIs constituted legally acceptable performance accountability
                                                                              measurements for the effectiveness of efforts by BRR and partners. In total, there were
                                                                              678 KPIs across the five principal sectors.
                                                                                In addition to conducting a Mid-Term Review (MTR), BRR carried out a stocktaking
                                                                              exercise to gauge the progress in each of the sectors. Table 5.4 is an example of the results
                                                                              of the stocktaking process in the housing and settlement sector.
                                                                                It had been established at the outset that satisfactory performance for BRR would
                                                                              be defined as 85 to 100 percent achievement of the overall KPI. By December 2008, 90
                                                                              percent of the Master Plan KPIs had been reached (Table 5.5). The KPI stocktaking exercise
                                                                              showed that having overcoming painful disbursement hurdles and shifted its approach




                                                                            Table 5.4 – 94% of the Overall Key Performance Indicators (KPIs) Have Been Achieved
                                                                                                                           Category of Percentage Achieved
                                                                       Sub-Sector                      blUe          green         yelloW          orAnge            reD           grand
                                                                                                      > 100%         76-99%         51-75%        26%-50%           <25%           Total

                                                      Infrastructure                                         59               6              2               1              3               71
                                                      Institutional Development                            106                3                              2                          111
                                                      Economic Development                                 125                6              5               8              7           151
                                                      Housing and Settlement                                 40               2              1                              2               45
                                                      Socio-Cultural and Religious Affairs                 265              12               8               5              9           299
                                                      Percentage                                       87.89%           4.28%          2.36%           2.36%          3.10%       100.00%
                                                                                             * KPIs not reached during BRR’s tenure were transferred to the Rencana Kerja Pemerintah 2009
                                                                                             RKP or Annual Government Work Plan 2009 (more in Chapter 7).
to improve coordination, BRR had been able to steer reconstruction efforts towards the
targets of the GOI Revised Master Plan.




                                                                                                           Chapter 5. Achieving and Upholding Accountability
(ii) Performance Reporting Process
  As mentioned above, PIUs played a key role in the reporting of project implementation
progress. PIUs acted as BRR’s arms and legs on the ground to monitor and record the
outputs of on-budget funds as they took place. As for off-budget outputs, the KPIs
reached by NGOs and other implementing partners (more below) were monitored
through the RAN Database.
(iii) Performance Report
  According to Regulation in Lieu of Law No.2/2005, BRR must submit a bi-annual, annual
and final Performance Accountability Report. This Performance Accountability Report
was an inclusive report covering all outputs funded by all fund channeling mechanisms.
As the national standard for performance reporting was suited for on-budget funded                                  81
projects only, BRR was tasked with developing its own reporting format that could show
both on- and off-budget performance reporting. The Performance Report format that
BRR came up included a comparison of KPI progress as compared to the targets of the
Revised Master Plan. In so doing, BRR only reported the outputs of all the reconstruction
players, not outcome.
  Constructing this performance report was not without its challenges. While outputs
of on-budget projects could easily be measured in line with the Revised Master Plan
KPIs, off-budget project KPIs were a different story. There were no such widely-accepted
standards for off-budget reporting of progress. The RAN Database, which was the key
tool in recording the financial and performance achievements, did not apply the Revised



         Table5.5 – Achieved Key Performance Indicators (KPIs) in the Housing and Settlement Sector
                                              Category of Percentage Achieved
     Sub-Sector              blUe         green        yelloW        orAnge           reD        grand
                            > 100%        76-99%        51-75%       26%-50%         <25%        Total

 Land Administration               20              1             1                           2        24
 Housing                             3                                                                 3
 Spatial Planning                  17              1                                                  19
 Total                             40              2             1                           2        46
                                                      Master Plan KPI targets from the beginning; later, when partners were asked to report
FINANCE: The Seven Keys to Effective Aid Management




                                                      their KPIs, they often did so according to a different set of KPIs than those specified
                                                      in the RAN Database. Moreover, the accuracy of the RAN Database was subject to the
                                                      compliance of reconstruction partners. Meanwhile PIUs on the ground were reporting
                                                      on the implementation progress in accordance with the government standard, i.e.,
                                                      the Revised Master Plan KPIs. The differing standards of KPI measurement complicated
                                                      the reporting process for BRR, and consequently compromised the completeness and
                                                      accuracy of the reporting.
                                                      (iv) LAKIP
                                                        The Performance Accountability Report is a nationwide Ministerial and Local
                                                      Government-level standard performance report. It reports on the outputs generated
                                                      by on-budget funds. As an established national standard for performance reporting,
                                                      The format was one that BRR could follow for its on-budget activities. Performance
         82                                           Accountability Report are submitted to the Ministry of State Ministry for Administrative
                                                      Reforms annually.
                                                         Experiences in Aceh and Nias demonstrated that the Performance Accountability
                                                      Report, a national accountability reporting system, is too narrow in scope for
                                                      reconstruction purposes; it fails to incorporate off-budget components that have a
                                                      significant impact on the overall results. GOI did not yet have an integrated system of
                                                      accountability for on- and off-budget outputs. While BRR was the first of all Line Ministries
                                                      to be mandated to report on off-budget funded outputs, BRR will not be the last. An
                                                      integrated system of accountability that can handle on- and off-budget outputs with a fair
                                                      standard of recording and reporting is needed on a national level.
                                                      (v) Recognition
                                                         When reviewing submitted Performance Accountability Report, the State Ministry of
                                                      Administrative Reforms compared the performance of each agency against their set of
                                                      targets. In 2006, BRR received an award for its first ranking performance, as shown by
                                                      its Performance Accountability Report. In 2007, although BRR did not receive as high a
                                                      ranking in comparison to other agencies, BRR was still awarded a certificate for submitting
                                                      the Performance Accountability Report on time.


                                                      Value Added Accountability Systems
                                                        BRR provided systems of accountability to stakeholders in the reconstruction and
                                                      rehabilitation program in Aceh and Nias above and beyond that required by Indonesian law.
                                                      These accountability systems also created transparency on the joint reconstruction process.
                                                      Transparency is about openness. It is about being able to see what decisions are being made
                                                      and how they are made, as well as if and how decisions are implemented once they are
agreed to. Access to information is critical to transparency. The following paragraphs give
examples of the transparent information systems that BRR instituted to create transparency




                                                                                                Chapter 5. Achieving and Upholding Accountability
of results over its four years.

RAN Database
   As mentioned in Chapter 2, the RAN Database system was established in late 2005
to register and monitor donor and NGO programs, and to monitor off-budget physical
and financial implementation progress. Developments made to the system allowed
it to monitor commitment and disbursement levels along with the outputs produced
by funding and implementing agencies. The system is labor intensive and overlaps of
information took place, creating a small amount of doubt regarding the accuracy and
completeness of the data. To overcome its shortcomings, the BRR Center for Data and
Information and the Directorate of Accounts and Asset Management undertook outreach
activities to increase its compliance level and ensure agencies confirmed the data they                  83
submitted. As BRR came to a close, the RAN Database had a compliance rate of 92
percent and nearly 70 percent of recorded agencies had confirmed their achievements.28
In 2008 the database was the recipient of a prestigious technology award from the Future
Governance Asia Pacific Consortium.

Asset Management and Information Systems
(i) SIMAS/ SABMN/ AMIS
  The Asset Management Information System, AMIS, was created by BRR as a supporting
application to an existing asset management system called Sistem Akuntabilitas Barang
Milik Negara (SABMN or State-owned Asset Accountability System), which belonged to
the MOF. SABMN recorded important information such as the location, contract number,
types of assets, and the end user of each asset. These details confirmed the existence of
the asset and the condition of the asset (based on 11 classifications).
  In 2008 AMIS was further developed. The System integrated data from the RAN
Database to help BRR (UNDP-MDF) transparently and accountably verify the existence
of assets for handover to local governments. AMIS provided the Provincial Department
of Finance, Provincial Department of Public Works, Provincial Planning Department and
the Provincial and National Archives with access to a geographically-referenced, photo-
verified asset database that could be used for asset management and reporting.
(ii) SIMBADA and SIMDA
  Since AMIS was designed for BRR’s asset handover under the regulatory framework of
the MOF, it was appropriate for National and Provincial level Provincial Departement of
Finance use only. Therefore, to address the needs of provincial and district level Provincial
Departement of Finance and sectoral district departments, BRR developed the SIMBADA
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         84




                                                                  The transfer of Asset   system for asset planning and management and SIMDA system for district level financial
                                                      Management Applications to the      planning and management. At provincial and district levels, financial and asset planning
                                                        local NAD authorities. October    and management are regulated by the Ministry of Home Affairs.29 Both the SIMBADA and
                                                       29, 2008. Photo: BRR/Arif Ariadi
                                                                                          SIMDA systems comply with these regulations and potentially provide end users with
                                                                                          efficient, computerized financial and asset planning and management tools to enhance
                                                                                          local government’s ability to plan and develop, budget, operate and maintain the public
                                                                                          assets they received.


                                                                                          Conclusion
                                                                                            It was important that BRR create and maintain accountability to stakeholders and
                                                                                          beneficiaries. As noted above, this had to do with both financial accountability as well as
                                                                                          performance accountability. In other words, BRR had to be able to answer for its activities.
                                                                                            To do this, BRR had to be able to measure its progress vis-à-vis targets. Setting targets at
                                                                                          the onset that were collectively agreed upon by stakeholders was essential to providing
                                                                                          measurements for BRR’s performance and accountability down the road. These targets,
                                                                                          and the relevant KPI to measure achievement of those targets, were set out in the Master
                                                                                          Plan and fine-tuned in the Revised Master Plan.
   Detailed, on-time reporting from BRR on its performance and financial achievements
clearly indicated its progress to donors and showed where BRR was in relation to




                                                                                              Chapter 5. Achieving and Upholding Accountability
its targets. Audits and anti-corruption initiatives helped to maintain the rigor and
believability of these reporting processes, to the satisfaction of all stakeholders and to
BRR’s benefit.
  These processes helped BRR to successfully track, explain and account for its
funds usage and performance to stakeholders and beneficiaries—the hallmarks of
accountability. Finally it should be noted that efforts to demonstrate BRR’s accountability
produced additional value, by producing a host of other information for the use of
stakeholders.
  These are all lessons to take away from the experience in Aceh and Nias. Accountability
for an endeavor on this massive scale must encompass all of its players and accommodate
the context. BRR’s accountability of on- and off-budget funds and their outputs would                  85
have been strengthened by the existence of a nationally integrated accountability
system to measure its overall efficacy. Meanwhile, the post-disaster context requires an
appropriate post-disaster accountability framework that accommodates the need to
implement quickly and allows for flexibility to respond to changing needs.
                                                                                                                                Chapter 6. Maintaining Integrity Along the Road
Maintaining Integrity
Along the Road                                                                                                                          87




A Single Incident, Deadly Consequences
  IT was 3:27 p.m. on January 15, 2009. US Airways Flight 1549 had just taken off
from New York’s LaGuardia International Airport, heading for Charlotte, North Carolina.
The Airbus 320 had climbed to 3,000 feet (914 meters) when its pilot, Capt. “Sully”
Sullenberger made an emergency call.
  “This is Cactus 1549, hit birds, we lost thrust in both engines,” the flight’s pilot told
controllers at LaGuardia. “We’re turning back towards LaGuardia.”
  Controllers immediately began preparations to clear a runway for emergency landing
but less than a minute later, Sullenberger reported the aircraft wouldn’t make it.
  “We’re unable [to do so]. We may end up in the Hudson.”
  When a controller asked if Sullenberger wanted to try for an airport about six miles
away in New Jersey, the pilot responded, “We can’t do it. We’re gonna be in the Hudson.”
                                                                                              Along the Aceh-Nias recovery,
   Thanks to the pilot’s decisiveness and the crew’s fantastic handling of the emergency
                                                                                              BRR prioritized anti-corruption
situation, the crippled jet made it down safely into the frigid waters of the Hudson. The     enforcement at the utmost. The
body of the plane remained intact and all 155 passengers and crew members survived.           BRR Anti-corruption Unit (SAK)
                                                                                              was the spearhead.
                                                                                              Photo: BRR/Arif Ariadi
                                                        Preliminary evidence suggested that the incident was caused by a collision with birds.
FINANCE: The Seven Keys to Effective Aid Management




                                                      A passenger sitting in the first-class section reported seeing birds hit the jet. Two FAA
                                                      radars spotted vague targets in the path of the jet that were consistent with a bird flock,
                                                      and both pilot and co-pilot also confirmed that a large flock struck the plane shortly after
                                                      takeoff from LaGuardia.30
                                                        Incidents like this convey a profound lesson for all of us.
                                                        Even a small snag—like a bird--can bring a huge, sophisticated engine like the Airbus
                                                      320 to a grinding halt. A single unanticipated blow can bring a strong organization to its
                                                      knees. In a case described by TIME magazine as “the crime of the century,” 28-year-old
                                                      Nick Leeson single-handedly caused the downfall of his employer Barings Bank, the oldest
                                                      bank in Great Britain. Founded in 1762, the bank that had helped finance the Napoleonic
                                                      Wars, the Louisiana Purchase, and the Erie Canal went bankrupt as a result of accumulated
         88                                           losses to the tune of US$1.4 billion stemming from one man’s rogue futures trading
                                                      activities. On March 3, 1995, Barings was sold for a mere £1.00 to the Dutch banking giant
                                                      ING.
                                                         In another high profile case following the implosion of Enron (once a US Fortune
                                                      Top Ten Company) the global accounting firm Arthur Andersen was forced to cease
                                                      operations, its reputation irreparably damaged. Andersen auditors had failed to uncover
                                                      the management fraud committed by Enron’s directors and its own fate was sealed when
                                                      some of its employees shredded paperwork relating to Enron, destroying vital evidence.
                                                      Thousands of employees all over the globe became unwitting victims of the firm’s demise
                                                      in 2001 (Dickstein and Flast 2009).
                                                        The incidents that brought down Flight 1549, Barings and Arthur Andersen are
                                                      examples of acute operational risk. Acute operational risk is to be avoided at all costs, with
                                                      appropriate measures put in place to contain it if we are to sleep soundly at night.
                                                         From the onset, BRR’s management practices were geared to minimize such risk.
                                                      Procedures had to be put in place to deal at once with any risks that emerged. This was
                                                      no easy task: the reconstruction program led by BRR was extremely complex, involving
                                                      thousands of projects worth billions of dollars in value. There was ample room for things
                                                      to go wrong, ranging from the accidental misdirection of funds to deliberate project
                                                      fraud, from inefficient procurement to reputational damage. Any of these incidents
                                                      could have triggered a full-blown crisis. Imagine, for instance, the damage that a high
                                                      profile corruption case committed by one of BRR’s senior officials would have wreaked.
                                                      Stakeholder trust in BRR would have been seriously undermined and BRR’s reputation
                                                      potentially ruined.
                                                        To foster, manage and guard its organizational integrity, BRR needed to create certain
                                                      procedural practices. In other words, it needed to manage for organizational integrity.
  By integrity, we mean adherence to moral and ethical principles; soundness of moral
character; honesty. A second definition of integrity is the state of being whole, entire, or
undiminished as for example ‘to preserve the integrity of an empire’ or ‘to preserve the




                                                                                                 Chapter 6. Maintaining Integrity Along the Road
integrity of a ship’s hull.’ An organization with integrity is a robust organization that can
weather the challenges and risks that it may encounter in the course of its journey.
   This chapter discusses how BRR met these challenges.


Establishing Business Process Integrity
  In establishing BRR’s organizational integrity, it was first of all necessary to establish
a business and operating environment acceptable to the international community
who would be channeling significant sums of money through the reconstruction and
rehabilitation program. Well-known global consulting firms McKinsey & Company                            89
and Ernst & Young were therefore engaged to draw up BRR’s business model, and put
accounting and financial management systems in place. Their expertise helped guide BRR
towards adopting systems that were transparent and incorporated sufficient checks and
balances in support of the agency’s integrity.
  Maintaining integrity throughout BRR’s business process was challenging for a number
of reasons, among them:
1. The large number of procurements and contracts awarded for goods and services,
   some of which had to be awarded on a non-competitive basis due to the emergency
   nature of the requirements;
2. The remote locations of project implementation;
3. Relatively low levels of international trust and a general perception of Indonesia
   as one of the more corrupt countries in the world, as assessed by Transparency
   International (TI) and other international organizations.
   To overcome these issues and preserve the integrity of its business processes in the face
of these challenges, BRR had to establish various mechanisms for checks and balances.
The mechanisms involved audits both internal and external, as well as anti-corruption
initiatives. Indeed, across public sector agencies such as the BRR, efficient and effective
auditing arrangements are essential in ensuring good governance, transparency, and
ultimately, integrity. Public sector auditing arrangements encompass both an external
audit function (independent from the executive arm and submitting reports to the
legislative arm) and an internal audit function (reporting to the executive body arm only).
These two types of audits have different but complementary functions.
  External audits functioned as an outside mechanism that was responsible for helping
to ensure BRR’s full accountability to legislature and through it, to the public. The internal
audit functioned as a sort of self-administered check that helped ensure the agency’s
                                                      legislative and regulatory compliance with the relevant authorities. The internal audit was
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                                                      carried out by BRR itself together with Financial And Development Supervisory Agency . It
                                                      was considered part of BRR’s internal control system, a system which also helped identify
                                                      opportunities to improve management practices.
                                                           In summary, the mechanisms and channels that BRR used to foster integrity were:
                                                      1.    Internal Audits, carried out by
                                                      •	    BRR’s Internal Audit
                                                      •	    Financial and Development Supervisory Agency
                                                      2.    Anti-Corruption initiatives, carried out by BRR’s Anti-Corruption Unit
                                                      3.    External Audits, carried out by the Supreme Audit Agency
                                                         BRR’s Anti-Corruption Unit supplemented the internal and external audit function. The
                                                      Unit received allegations or complaints, carried out internal investigations, and reported
         90                                           illegal activity if merited to law enforcement agencies. The last part of its mandate
                                                      distinguished it from the internal audit.
                                                        Initially, the Anti-Corruption Unit reported directly to the Head of BRR Executing
                                                      Agency (Bapel). Later the responsibility for SAK’s supervision was shifted to the
                                                      Supervisory Board. The Unit was given broad access rights to all areas of BRR’s operations,
                                                      so that it could freely monitor the rehabilitation and reconstruction implementation
                                                      process across the organization, with an emphasis on accounting for the huge amounts
                                                      of funding and assets involved. Figure 6.1 graphically depicts BRR’s integrity structure. It
                                                      includes public awareness of the communities and other stakeholders within NAD and
                                                      Nias as a factor.

                                                                                    Figure 6.1 - BRR’s Integrity Structure


                                                             Badan Rehabilitasi dan Rekonstruksi
                                                                     Aceh - Nias (BRR)


                                                                                                                                  Supreme
                                                               Advisory            Bapel                 Supervisory
                                                                                                                                 Audit Board
                                                                Board             Chairman                 Agent
                                                                                                                                   (BPK)



                                                                                                            Anti                   Finance &
                                                                                   Internal                                      Development
                                                               Deputy                                    Corruption
                                                                                     Audit               Unit (SAK)               Supervisory
                                                                                                                                 Board (BPKP)




                                                              Communities and Other Stakeholders
Personnel Integrity
   From the very beginning, it was evident that maintaining integrity and a firm stance




                                                                                                                              Chapter 6. Maintaining Integrity Along the Road
against corruption would be critical to BRR’s reputation and its ability to function
effectively. The maintenance of integrity lay at the very heart of BRR’s risk management
plan.
  As mentioned earlier, it was crucial that BRR establish a framework that would
encourage and preserve such integrity. In the absence of such a framework, there was no
way that BRR could carry out its mandate properly, particularly the all-important sourcing
of needed public goods and services for the tsunami-stricken areas.
  Good policies and rules were the key to building this framework from the ground up,
to creating transparency and efficiency, and
therefore to managing risk. BRR was able to
articulate clear, consistent and appropriate
policies and rules, and to develop the
                                                   BRR Employee Integrity Pact                                                        91


political will to ensure they were enforced.        Each prospective BRR employee agreed to abide by and sign a
This was extremely important; the culture         two-page Integrity Pact with an eight-page attachment. Other than the
                                                  agreed-upon market salary, the first page listed 28 specific financially-
and performance of government agencies,           related items that the prospective employee had to agree to, including
particularly ad hoc agencies such as the BRR,     the following items (which many Indonesian civil servants do receive).
are profoundly impacted by the policies
                                                    The prospective employee agreed not to request or accept money or
and rules in place. Bad policies and rules        compensation
encourage inconsistent and disruptive
                                                    • for attending meetings
behavior and thus poor outcomes.
                                                      •   as honorariums
  Although BRR was created as a ministerial-
                                                         • as gifts, bribes or bonuses
level agency, it was established outside
                                                         • for transportation subsidies
of the Indonesian civil service system.
Recruitment and compensation of BRR                      • for activity allowances
employees and officials was undertaken in a              • for rice subsidies and
manner similar to a well-functioning private             • for 22 other specific items detailed on the first page of the
sector firm, rather than a bureaucratic                      Integrity Pact.
government agency. BRR’s quid pro quo for                The eight-page attachment then set out the legal and regulatory
providing its employees with market-based             framework governing BRR’s good governance and anticorruption
compensation was that the employees                   principles.
had to abide by a strictly-enforced code
of professional integrity, including the
execution of a compulsory “Declaration of
Integrity and Compliance” statement, also
referred to as an “Integrity Pact.” The signed Integrity Pact was part of all employees’ work
contracts. It outlined a list of various actions considered to fall within the definition of
corruption, which the employees promised to avoid.
                                                        In short, the GOI authorized BRR to offer salaries that were considerably higher than
FINANCE: The Seven Keys to Effective Aid Management




                                                      what other government agencies were paying; however, in exchange for the higher
                                                      rate of compensation, the newly-recruited employee agreed to forego money or
                                                      compensation for employment-related activities that domestic civil servant bureaucrats
                                                      typically received. This type of compensation has a tendency to lead towards corruption,
                                                      conflicts of interest, or inappropriate behavior.
                                                        Corruption within the Indonesian bureaucracy is well known and documented.
                                                      Transparency International has, for more than fourteen years, published an annual
                                                      Corruption Perceptions Index ranking countries according to “the degree to which
                                                      corruption is perceived to exist among public officials and politicians.” The 2007 poll
                                                      surveyed 179 countries, with Indonesia ranking 143rd in the bottom twenty percent.
                                                        The personnel integrity issues BRR faced were threefold:
         92                                           (a) How to stem corruption during the procurement, management and disposal of
                                                          billions of dollars worth of goods and services in the remote regions of tsunami-
                                                          stricken Aceh and Nias;
                                                      (b) How to establish and maintain honesty in all aspects of BRR’s operations, including
                                                          reporting; and
                                                      (c) How to re-build “better.” The tsunami not only took lives but collapsed the economic,
                                                          social, and governmental infrastructure. The government was understandably
                                                          inexperienced and was unprepared to cope with the preternatural scale of the
                                                          disaster. No robust, functional organization existed to mobilize needed resources at
                                                          either local or national or levels. Local capacities in Aceh had been greatly weakened
                                                          by the nearly thirty years of civil war and by the tsunami’s destruction of government
                                                          infrastructure. It was hardly the most conducive environment for fostering a regime
                                                          of integrity—quite the opposite. Exposing this long dysfunctional community to the
                                                          temptation of sudden, almost unimaginable riches was a recipe for corruption.
                                                         BRR’s successful stemming of procurement corruption in the remote regions of
                                                      tsunami-stricken Aceh and Nias was primarily due to BRR’s commitment to integrity as a
                                                      risk management tool. Protecting BRR’s integrity encompassed vigorous anti-corruption
                                                      initiatives, accountability measures as discussed in Chapter 5, high ethical standards and
                                                      honesty in reporting and all business aspects.


                                                      Integrity Enforcement
                                                        BRR is the only Indonesian government agency with both an internal audit organization
                                                      and its own anti-corruption task force, the Anti-Corruption Unit. Each is an important
                                                      part of BRR enforcement, but their functions differ. Internal audit reports to management
                                                      but has no investigatory role, while the Anti-Corruption Unit reports to the Supervisory
                                                      Board, carries out investigations and takes the necessary steps to report corruption to the
                                                      appropriate authorities. The Anti-Corruption Unit works together with BRR’s internal audit
                                                                                                                                 Chapter 6. Maintaining Integrity Along the Road
                                                                                                                                         93




organization,other government institutions and civil society organizations in carrying       A public awareness campaign
out its function. These organizations include NGOs such as Transparency International        session on anti-corruption
Indonesia (TII), university groups and international institutions such as the UNDP, the      culture by Corruption Eradication
Asian Development Bank, the World Bank and others.                                           Comission local government
                                                                                             workers of Simeulue. November
  In addition to these stakeholders, the Corruption Eradication Commission (KPK)             14, 2006. Photo: BRR/Ira
collaborated with the Anti-Corruption Unit as a working partner to assist in the oversight   Damayanti
of the rehabilitation and reconstruction program and to ensure that the Anti-Corruption
Unit itself remained clean. This collaboration was aimed not just at following up on
occurrences or allegations of corruption within BRR’s implementation of the rehabilitation
and reconstruction program, but also to provide preventive anti-corruption education
and socialization. The Anti-Corruption Unit also established a working partnership with
the Financial and Development Supervisory Agency (BPKP).31 This cooperation enabled
the secondment of expert staff from BPKP to assist the Anti-Corruption Unit in the field.
  The Anti-Corruption Unit further established relationships with certain government
institutions that had the authority to pursue corruption cases, including the Corruption
Eradication Commission (KPK), Fair Business Practices Supervisory Commission (KPPU),
local government and the police. These government institutions could provide the
necessary support and channels in the case that the Anti-Corruption Unit wished to
pursue a criminal case.
                                                                                                     The Anti-Corruption Unit's Three Principle
                                                      Integrity Success Factor I
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                     Objectives
                                                         BRR was formed as a well-focused,              The approach developed by Anti-Corruption Unit in its mandate to
                                                      special purpose ministerial-level              eradicate corruption from the recovery program is illustrated by its three
                                                      agency with the organizational                 principle objectives: prevention, investigation and education. Figure 6.2
                                                      flexibility and a finite, four-year term       illustrates Anti-Corruption Unit's objectives over time.
                                                      to accomplish its rehabilitation
                                                      and reconstruction mandate of                     Prevention, the first objective, necessitated the flexing of political
                                                      the tsunami stricken areas of Aceh              will and a working environment that could minimize corrupt practices.
                                                      and Nias, all in accordance with a
                                                                                                      This objective required--and received--a commitment from BRR’s
                                                      consensus-developed Master Plan.
                                                                                                      management and staff to avoid any involvement in corruption. In
                                                                                                      carrying out its second objective, investigation, the Anti-Corruption
                                                                                                      Unit unit focused on ascertaining whether the various processes of
         94                                                                                           the rehabilitation and reconstruction program fulfilled the governance
                                                                                    standards established by BRR. The Anti-Corruption Unit focused in particular the
                                                                                    procurement of goods and services. This objective also investigated allegations of
                                                                                    corruption that were reported by the community.
                                                                                           Since its inception in September 2005, the Anti-Corruption Unit unit received more
                                                                                        than 1,500 complaints from various stakeholders of various kinds (Table 6.1), through a
                                                                                        range of complaint reporting methods (Table 6.2). Starting at the beginning of 2006, as
                                                                                                                                                 housing development tenders
                                                             Figure 6.2 - Anti-Corruption Unit Principle Objectives Shift Over Time
                                                                                                                                                 started to increase the number
                                                                                                                                                 of complaints registered rose
                                                                                                                                                 likewise. In 2008, housing
                                                                                                                                                 procurement was the source
                                                                              Prevention                                                         of most complaints. At the
                                                                                                                                                 time that this publication was
                                                                                                                                                 written, approximately ninety
                                                                                                                                                 percent of the 1,500 complaints
                                                                                                                                                 had been investigated while
                                                                              Education                                                          the remainder was still being
                                                                                                                                                 investigated and processed.
                                                                                                                                                  Out of the 1,537 complaints
                                                                                                                                               filed, 910 of them, or 60 percent,
                                                                                                                                               have been taken up as formal
                                                                              Investigation                                                    cases.
                                                                                                                                                  Education, Anti-Corruption
                                                                                                                                               Unit's third objective, has
                                                      2005             2006              2007           2008              2009                 been an ongoing effort
                                                                                                                                               since BRR’s establishment
in 2005. Anti-Corruption Unit plays a                         Table 6.1 - Nature of Complaints Received by Anti-Corruption Unit,
                                                                               September 2005 - December 2008
key role in BRR’s promotion of good
governance, which is usually described                                                                  number of Complaints




                                                                                                                                               Chapter 6. Maintaining Integrity Along the Road
                                                           Type of Complaints
as having four fundamental principles:                                                         2005-2006        2007      200 8        Total
participation, accountability, predictability     Procurement violation process                         531       191          87        809
and transparency. In the education                Administration violation                                9          5             0      14
program, SAK collaborated with relevant           Integrity Charter violation                            21          5             1      27
organizations in the field to encourage           Corruption, Collusion and nepotism
                                                                                                       120          38             8     166
the community to understand and reject            indication
corrupt practices.                                Rehabilitation and reconstruction
                                                                                                       134          20             0     154
                                                  implementation obstacles
   As mentioned above, SAK established
                                                  Payment Obligation to State Cashier
a working partnership with BPKP that                                                                      2          2             0       4
                                                  violation
allowed staff from the latter to be               General criminal act                                    4          5             0       9           95
seconded to SAK. In December 2008,
                                                  Other                                                255          30         59        344
22 BPKP staff assisted across the three
                                                  Total                                              1.076        296        155       1.527
areas of Anti-Corruption Unit's mission:
prevention, education and investigation.                      Table 6.2 - Source of Complaints Received by Anti-Corruption Unit,
                                                                               September 2005 - December 2008
In addition, several Financial Development
Supervisory Agency staff assisted SAK                                                                   number of Complaints
                                                     Complaint reporting method
with data maintenance and management                                                           2005-2006        2007       2008        Total
information reporting.                            Letter                                               775        185          83      1.043
                                                  Facsimile                                               8          2             1      11
   SAK continued to improve BRR’s
                                                  Email                                                  13         23             1      37
procedures and work practices, many of
                                                  SMS                                                    92         11             5     108
which had flaws with potential for misuse.
                                                  Visiting SAK Office                                    78         47         11        136
In doing so, SAK successfully stopped a
number of fraudulent tender processes             Telephone                                               8          1             1      10

from continuing which in turn prevented           Mass Media                                           102          27         53        182
significant financial losses.                     Total                                              1.076        296        155       1.527



Proactive Reporting
on Integrity Allegations
   BRR set clear and unambiguous policies and rules to maintain integrity and keep the
specter of corruption at bay. One of these policies was to proactively report on corruption
allegations to, and in collaboration with, Financial Development Supervisory Agency,
Supreme Audit Agency, Corruption Eradication Comission, the police, and other law
enforcement agencies.32
  With more than 96 percent percent of tsunami recovery assistance coming from the
international community, BRR had an enormous fiduciary duty, both legal and moral, to
Indonesia’s international donors and to the citizens of the Aceh and Nias.
                                                                                           Under the amended Law No. 31/99 on “Anti-corruption,” public participation was
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                                                                                         permitted in Indonesia’s anticorruption drive, and BRR therefore was within its rights to
                                                                                         report corruption while law enforcers, including the National Police, the Attorney General’s
                                                                                         Office and judges, were permitted to receive information on corruption from all sides,
                                                                                         including parties whose identity remained confidential.
                                                                                           Certain disclosures on the part of BRR’s officials were required under Indonesia’s laws and
                                                                                         regulations, amongst them Law No. 28/99, “State Administrators Clean and Free From
                                                                                         Corruption, Collusion and Nepotism.” Under this law, government officials are required to
                                                                                         disclose their wealth at the time of their appointment, during their term and upon leaving
                                                                                         office. This law established a mechanism for an independent Investigation Commission,
                                                                                         which was subsequently realized in the form of the Corruption Eradication Commission
                                                                                                            (KPK). Government officials subject to this law include all state officials
                                                                                                            performing executive, legislative, or judicial functions, plus other officials
         96
                                                      Integrity Success                                     whose functions and main duties are related to state governance
                                                                                                            including BRR officials.

                                                      Factor II                                              All corruption allegations are taken seriously, but corruption during
                                                                                                           times of economic stress and recoveries from natural disasters carries
                                                         BRR recruited suitably-qualified                  particularly harsh penalties. Under Law No. 28/99, government officials
                                                      professionals on short-term, market-
                                                                                                           are subject to investigation, prosecution and punishment. The death
                                                      oriented employment contracts to assist
                                                      BRR to pursue its enormous rehabilitation            sentence may even be applied to those found guilty of committing
                                                      and reconstruction mandate, a human                  corruption more than once, those involved in major embezzlement
                                                      resources strategy that meant BRR had the            cases and to those who take advantage of national disasters, a state of
                                                      flexibility to retain, redeploy and terminate
                                                                                                           emergency or economic crises.
                                                      staff according to the needs of the
                                                      organization while mitigating corruption.

                                                                                                           Rigorous Integrity Review and
                                                                                                           Evaluation
                                                                                            BRR adopted a continuous and a rigorous review of its integrity system. The agency
                                                                                         was routinely monitored by its internal audit section and periodic Financial Development
                                                                                         Supervisory Agency evaluations. Annually, it was subjected to review by the government’s
                                                                                         external auditor. BRR’s 2007 Statement of Accountability received an unqualified opinion
                                                                                         from BPK, Indonesia’s supreme audit institution.
                                                                                            In addition, BRR was subject to periodic, independent reviews and evaluation of
                                                                                         its overall integrity systems, including any propensities towards false or misleading
                                                                                         statements or misrepresentation of the facts. In late 2006, BRR established a
                                                                                         Memorandum of Understanding (MoU) with Transparency International – Indonesia (TI-I)
                                                                                         with the aim of promoting the integrity of rehabilitation and reconstruction in Aceh and
                                                                                         Nias. The first concrete activity to occur under this MoU was an invitation from BRR for TI-I
                                                                                         to conduct an evaluation, complete with recommendations, of the BRR Integrity System.
                                                                                         This evaluation was conducted by TI-I with technical input from TI Headquarters in Berlin
and with support from bilateral aid donors in England and the United States. The resulting
report was completed in May 2007 and was released to the public. It provides a useful
snapshot of the key systems in place and includes recommendations from TI on how




                                                                                             Chapter 6. Maintaining Integrity Along the Road
these systems could be further improved.
 At the time of this evaluation, the chairman of BRR indicated that all recommendations
would be upheld, a commitment he reiterated when the evaluation results was released.
One of the report’s recommendations was related to the Anti-Corruption Unit, SAK.
   Since its establishment in September 2005, the unit had been part of BRR Executing
Agency and reported to that Head of BRR Executing Agency. TI-I recommended that the
Anti-Corruption Unit be placed instead under the direct authority of the Supervisory
Board. Realizing this step required formal endorsement from the Supervisory Board. A
joint meeting of the Supervisory Board and Executing Agency was conducted in mid-
June at the BRR Office in Jakarta to fully consider the recommendation and after detailed            97
discussion of the implications and modalities of the transfer, the Supervisory Board
agreed to the recommended change. On June 27, 2007, Anti-Corruption Unit began
answering to the Supervisory Board instead of Executing Agency .
   This shift broadened the capacity of the Supervisory Board through the Anti-Corruption
Unit pre-established capabilities, while allowing the Executing Agency to focus more
rigorously on compliance both financial and non-financial. Altogether it provided
a stronger basis for increasing public trust in the integrity of the overall program of
rehabilitation and reconstruction in Aceh and Nias.
                                                                                                                                    Chapter 7. Ending the Game and Leaving a Lasting Legacy
Ending the Game
and Leaving a
Lasting Legacy                                                                                                                                99




Strategic Choice: To Close or Extend BRR?
  FOUR years of operations covering huge challenges, complex dynamics and many
achievements had birthed a multitude of views on how BRR should end. From a legal
point of view, Article 26 of the BRR legislation clearly stated that BRR had a four-year
lifespan that could be extended through a Presidential Decree. Reflective of its dynamic
and planning-oriented management, by November 2007, BRR had already started to
prepare for the closure and transition process.
  There were of course various arguments for the extension of BRR. Ten percent of its
mandate as stipulated in the Master Plan was unfinished. Many believed that the steadily
increasing disbursement over the four years of BRR’s operation had created momentum
for economic growth in long-dormant Aceh, and that closure of BRR could potentially
disrupt this momentum. BRR’s ability to deal with the national government and
international community was also seen as too valuable to be given up.
  Further, while the reconstruction and rehabilitation partners including BRR in particular
                                                                                              Banda Aceh at night shows a
had taken pains to foster many capacity building programs aimed at provincial and local
                                                                                              lively and promising outlook. It is
government, the local government’s ability to handle an ongoing development program           a clear sign that the community
of this size was still in question. Aceh was now one of the largest recipients of central     has risen to a level better than
government allocation funds following a decision to allocate two percent of the total         before. Photo: BRR/Arif Ariadi
                                                                                                                         national General Fund Allocation as Special Autonomy Funds to Aceh in recognition of
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                                         the increasing peace dividend generated after the Helsinksi MoU. Nonetheless, on the
                                                                                                                         financial management and spending side, Aceh’s performance was still among the lowest.
                                                                                                                            In their evaluation of Aceh’s Public Financial Management (PFM), the World Bank found
                                                                                                                         that the financial management capacity varied widely in the province. While Aceh Utara
                                                                                                                         was the highest scoring local government (69 percent), fourteen of its counterparts
                                                                                                                         scored relatively poorly (Figure 7.2). The provincial government scored moderate/
                                                                                                                         partially acceptable. The average score was 41 percent, with average outcomes indicating
                                                                                                                         particular weaknesses in accounting, reporting, cash management and external audit
                                                                                                                         (Figure 7.3).
                                                                                                                           The PFM scores from the World Bank survey are supported by data from Supreme Audit
                                                                                                                         Agency on the spending capacity of the provincial government in 2008. That year, the
100                                                                                                                      Aceh provincial government disbursed just 35 percent of their budget (Figure 7.4).
                                                                                                                            BRR also had a project implementation advantage over the government in that it was
                                                                                                                         able to start projects promptly at the beginning of each year, a rare practice. Commonly
                                                                                                                         government projects begin to be tendered only in March or April of each year. The
                                                                                                                         situation was even worse for the local government budget, which due to the political
                                                                                                                         mechanisms of local parliaments were usually approved halfway through year, leaving
                                                                                                                         only six months for implementation.




                                                                                                                 Figure 7.1 - Effect of the Special Autonomy Funds on Aceh’s Revenues (Source: World Bank 2006)

                                                                                           18
                                                      Trillion Rp (Constant 2006 prices)




                                                                                           16

                                                                                           14                                                                                                   Gains from Law 11/2006


                                                                                           12

                                                                                           10

                                                                                            8

                                                                                            6

                                                                                            4

                                                                                            2

                                                                                            0
                                                                                                1999   2000    2001      2002      2003       2004      2005      2006       2007      2008       2009       2010        2011
                                                                                                   Total revenue with Special Autonomy Funds($60/brl)              Total revenue without Special Autonomy Funds ($60/brl)
                Figure 7.2 – Public Financial Management Scores for 21 Local Governments and the Provincial Government




                                                                                                                                                                                                                                                                                                                    Chapter 7. Ending the Game and Leaving a Lasting Legacy
          100
                                                                                                                                                                                                             SCORE GUIDE
                                                                                                                                                                                         81-100%             Excellent/Fully acceptable
           80
                                                                                                                                                                                         61-80%              Good/Substantially acceptable
                                                                                                                                                                                         41-60%              Moderate/Partially acceptable
                                                                                                                                                                                         21-40%              Poor/Substantially unacceptable
           60                                                                                                                                                                            0-20%               Very poor/unacceptable
Score %




           40


           20


            0
                                                                                                                                                                                                                                                                                                                              101




                                                                                                                                                                                                                                                               Aceh Besar

                                                                                                                                                                                                                                                                            Banda Aceh
                             Bener Meriah




                                                                                                        Aceh Barat




                                                                                                                                          Aceh Selatan

                                                                                                                                                         A Tenggara
                 Aceh Jaya



                                            Aceh Barat Daya

                                                              Lhokseumawe

                                                                            Nagari Raya

                                                                                          Aceh Tengah




                                                                                                                                 Bireun




                                                                                                                                                                                                                                                                                         Aceh Utara
                                                                                                                                                                      Average



                                                                                                                                                                                         Pidie

                                                                                                                                                                                                 Gayo Lues

                                                                                                                                                                                                             NAD



                                                                                                                                                                                                                             Simeulue



                                                                                                                                                                                                                                                  Aceh Timur
                                                                                                                                                                                                                   Singkil



                                                                                                                                                                                                                                         Langsa
                                                                                                                     A Tamiang




                                                                                                                                                                                Sabang



                                                                                                                                                                                                                                        Source: World Bank 2007



                                                                                                                                                                                 Figure 7.3 – Average PFM Score by Strategic Area (Source: World Bank 2007)
   On the other hand, BRR management
 supported by various stakeholders believed
 that closing the agency was the best course of
 action. There were many arguments in support                                                                                                                                                                                            REGULATORY
                                                                                                                                                                                                                                         FRAMEWORK
 of this choice. Based on the stocktaking
                                                                                                                                                                                                                                           100
 exercise that BRR did, more than 94 percent                                                                                                                                                                                                                                                          PLANNING
                                                                                                                                                                                     EXTERNAL AUDIT                                                                                                   & BUDGETING
 of the Reconstruction and Rehabilitation Key                                                                                                                                                                                                     80
                                                                                                                                                                                     & OVERSIGHT
 Performance Indicators (KPI) set out by the                                                                                                                                                                                                      60
 Master Plan had been completed by the end
 of Fiscal Year 2008 and thus BRR had already                                                                                                                                                                                                     40
 satisfactorily achieved its emergency response                                                                                                                       ASSET                                                                       20                                                      CASH
 objectives. The development works next on                                                                                                                            MANAGEMENT                                                                                                                          MANAGEMENT
 the agenda were of a more regular/normal                                                                                                                                                                                                         0
 nature, which should not involve BRR.
   Moreover, extending BRR’s mandate would
 run counter to broader government objectives                                                                                                                                                                                                                                                            PROCUREMENT
                                                                                                                                                                                PUBLIC DEBT
 of decentralization. A BRR extension could                                                                                                                                     & INVESTMENT
 distort government policy in Aceh, have an
 adverse effect on budget considerations
 and be demotivating for provincial and                                                                                                                                                                                INTERNAL                                               ACCOUNTING
                                                                                                                                                                                                                       AUDIT                                                  & REPORTING
 district government personnel. Its continued
                                                                Figure 7.4 - Provincial Governments’ Disbursement Rates as of November 30, 2008
FINANCE: The Seven Keys to Effective Aid Management




                                                      100%

                                                      90%

                                                      80%

                                                      70%

                                                      60%

                                                      50%

                                                      40%

                                                      30%

102                                                   20%

                                                      10%

                                                       0%
                                                                   Sumatera Utara
                                                                Sumatera Selatan
                                                                   Sumatera Barat
                                                                              Riau
                                                                  Kepulauan Riau




                                                                     Maluku Utara
                                                                               NAD




                                                                          Bengkulu
                                                                       DKI Jakarta
                                                                        Jawa Barat




                                                                         Gorontalo
                                                                             Jambi




                                                                      Jawa Tengah
                                                                        Jawa Timur
                                                                     DI Yogyakarta
                                                                            Banten

                                                                 Kalimantan Barat

                                                              Kalimantan Selatan

                                                                    Sulawesi Utara
                                                                Sulawesi Tenggara

                                                                    Sulawesi Barat
                                                                 Sulawesi Selatan




                                                                      Papua Barat
                                                                            Maluku
                                                                               Bali

                                                                 Kalimantan Timur

                                                               Kalimantan Tengah



                                                                  Sulawesi Tengah




                                                                             Papua
                                                                               NTT
                                                                               NTB
                                                             Kep. Bangka Belitung

                                                                          Lampung




                                                                                                                               Source: BPK, Menunaikan Amanat Konstitusi, 2009




                                                                       existence might potentially diminish social capital, trust and participative public service
                                                                       delivery in Aceh’s democratic system as BRR by all definitions was a central government
                                                                       agency. Meanwhile BRR’s Human Resource capacity, competency and capability base for
                                                                       continuing operations would likely erode under an extension scenario, as key staff having
                                                                       achieved personal and organizational goals would pursue career enhancing opportunities
                                                                       elsewhere. Transaction costs of implementing the development budget would also be
                                                                       compounded if both the Provincial Government and BRR were involved.
                                                                         After a long exchange of views, in October 2008 the Regional House of Representative
                                                                       (DPRD) officially issued a recommendation to the government to close BRR by April 2009.
                                                                         There were no precedents in Indonesia for an effective transition and exit strategy
                                                                       applicable to an ad hoc government agency. Quite the contrary, the scene is littered with
                                                                       examples of old ad hoc agencies that took on a life of their own for example the National
                                                                       Family Planning Board, the Investment Coordinating Board and the more recent case
                                  Figure 7.5 – Elements of the Transition Strategy




                                                                                                                 Chapter 7. Ending the Game and Leaving a Lasting Legacy
     Preset
   Conditions                       Issues                             Action                 Result
                                     Stakeholder
                                     Involvement                       Direct Dialogue
                                                                                                 Political/
                                                                                              Organizational
     PARTICIPATION                                                                              willingness
                                                                           Asset             to accept assets
                                    Ownership &                         Management
                                    Sustainability                        & Tools


                                                                      Policy Dialogue
                                    National Level                   Project & Program
                                      Ministries                         Ownership
     ORGANIZATION                                                                                                          103
                                                                                             New Owners of
                                     Provincial                                              assets, projects
                                    Government/                          Framework           and programs
                                      Governor                        for Coordination       have set roles
                                    Expectations                                              and resources

                                    Distric Level
                                 Government/Bupati                        Planning
                                    or Wali Kota                       for Resources

        TRAINING                                                                               Recipients of
                                                                                              assets, project
                                   Lack of Skills &                   Capacity Building       and programs
                                  Human Resources                        Programs            have the required
                                                                                            capacity to manage




of Indonesia Bank Restructuring Agency which, though legally closed, birthed a mini-
IBRA successor called Asset Management Company, which had the job of completing
its predecessor’s work. BRR would have to be innovative in its closure approach if it was
serious about shutting down.
   With this in mind, BRR devised a strategy based on the conceptual framework depicted
in Figure 7.5.
  BRR used this broad framework to devise its transition and end-of-mandate strategy,
with due regard to all levels of the stakeholder spectrum. Where handover of projects
and programs concerned multi-year activities and implementation, funding donors
were consulted as to the appropriate mechanism depending on the national or local
government implementation modality.
FINANCE: The Seven Keys to Effective Aid Management




104




                                                      The Aceh Tsunami Museum is one
                                                      of the projects funded by BRR. As     General Principles Applied
                                                       2008 drew to a close, contractors       As described in previous chapters, the establishment of BRR was unprecedented for
                                                            worked around the clock to
                                                                                            the Government of Indonesia (GOI). BRR was a central government agency located at the
                                                      complete the project within BRR’s
                                                             lifetime. October 13, 2008.    provincial level, with the dual function of executing its own budget and coordinating
                                                                   Photo: BRR/Arif Ariadi   efforts from all the varied international agencies.
                                                                                               BRR had successfully navigated the difficult take-off stage. Subsequent achievements
                                                                                            showed BRR flying high. The most difficult stage was yet ahead, though: the landing
                                                                                            process. No matter how far or high an organization soars, a crash landing will label it a
                                                                                            failure. All aspects of the end-phase therefore had to be carefully assessed to ensure a
                                                                                            smooth touchdown. In BRR’s case, this meant that a variety of stakeholders had to be
                                                                                            intensively involved to avoid information asymmetry and the like.
                                                                                              The closure of BRR did not just denote a bunch of projects closing.33 It embodied the
                                                                                            winding down of a high-level initiative from the national government, one which may
                                                                                            provide a model for ad hoc intervention in the future when facing sizeable national
                                                                                            agendas that ordinary mechanisms cannot cope with.
  A transition strategy had to be formulated that would enable a smooth handover,




                                                                                                                               Chapter 7. Ending the Game and Leaving a Lasting Legacy
especially in light of the unfinished ten percent of BRR’s mandate. In this case, transition
and exit were more or less two sides of the same coin.
  The exit and transition had to address three important elements: accountability, how to
address finished projects, and how to handover unfinished projects.
  The issue of accountability has been explored in Chapter 5 with a detailed description
of the processes by which BRR created and managed accountability vis-a-vis various
stakeholders. In this chapter, we therefore elaborate more on how BRR addressed the
other exit and transition issues, i.e., how to treat finished versus unfinished projects.
   In fact, a well-defined platform for this already existed as set forth by the regulations
governing BRR in particular Article 26, which stated that if BRR closed, management
and implementation of government programs would be shifted to normal mechanisms.
In other words they would be delivered through line ministry and local governments.                                                      105
The division of responsibilities between line ministries (central government) and local
government is further defined by PP 38/2007 on the Delineation of Authority between
Central and Local Government ; the former is responsible for national infrastructure, such
as national-level roads, while the latter is responsible for regional infrastructure such local
roads. Specific to Aceh, the Law of Governing Aceh (LOGA) also applied. LOGA’s principles
were in alignment with that of PP 38/2007. The difference is that LOGA granted more
autonomy at the Provincial Level instead at the lower District Level.
  The exit and transition strategy was also shaped by PP 2/2006 regarding the Regulation
of External State Loans and Funds. This decree ruled that all foreign aid must be
channeled through the central government administration before being transferred
to local government through on-granting and on-lending mechanisms.34 However, the
regulations on the implementation of these on-granting mechanisms had not yet been
established. Nor did most local governments have the capacity to properly handle the
administration of administration of foreign aid.




                                        Figure 7.6 – Core Elements of Exit and Transition


                                                                      Treatment of Finished Projects



     Accountability


                                                                                            Treatment of Unfinished Projects
                                                                                  TION




                                                      R MAN D
                                                                   AT E C O M P
                                                 BR




                                                                              LE
                                                                            The two government decrees, PP 2/2006 and PP 38/2007, applied to projects regardless
FINANCE: The Seven Keys to Effective Aid Management




                                                                         of fund channeling modality, with some differences between project types. For projects
                                                                         channeled through the government i.e., on-budget/ on-treasury and on-budget/ off
                                                                         treasury, these principles applied without exception. As described earlier these types of
                                                                         projects were typically funded by the government, bilateral and multilateral agencies.
                                                                            Some adjustments however applied to off-budget/off-treasury projects that were
                                                                         implemented directly by agencies such as the UN, Red Cross and NGOs. As described in
                                                                         Chapter 6, BRR, although involved in the approval process and funding of such projects
                                                                         (i.e., acting as a clearing house for their asset transfers), played an overall smaller role in
                                                                         off-budget/off-treasury projects. A different transition strategy was needed to manage
                                                                         these projects.
                                                                           Timewise, the transitional strategy was divided into three main phases: (i) a preparatory
106                                                                      phase prior to November 2008, (ii) a period called the “soft-closing” phase to enable BRR
                                                                         to get all its affairs in order and report to the President and Parliament, and (iii) a “grand
                                                                         closing” phase at the end of which the President was to close the door with finality on the
                                                                         highly successful coordination and facilitation of the reconstruction and rehabilitation
                                                                         relief effort.


                                                                         Handing Over Finished Projects
                                                                           Simply put, BRR created assets for the use of others. There were no assets created
                                                                         exclusively for BRR’s use. Similarly, BRR coordinated and recorded assets created “off-
                                                                         budget/off-treasury” through international and national NGOs. Transferring the assets was
                                                                         the “end game.”



                                                                                      Table 7.1 – Transition Strategies of Different Players


                                                                         fund                                                 recipients of          Successors of
                                                          Donors                                role of brr
                                                                       Channeling                                           finished project       unfinished projects
                                                                                                                                               • Local Government for
                                                                       On-budget         • Execute                        • Local Government     Rupiah funding
                                                      MDF, ADB, GOI
                                                                       on treasury       • Transfer the asset             • Line Ministries    • Line Ministries for external
                                                                                                                                                 funding
                                                                                         • Approve the projects
                                                                                         • Records in the                                      • Local Government for
                                                      Germany (KFW),   On-budget           Government Budget              • Local Government     Rupiah funding
                                                      Japan (JICS)     off treasury        after project completed        • Line Ministries    • Line Ministries for external
                                                                                         • Clearing House for the                                funding
                                                                                           asset
                                                                                         • Approve the projects
                                                      UN, Red Cross,   Off budget                                         • Local Government   Remain with the agency or
                                                                                         • Clearing house for the
                                                      NGO              off treasury                                       • Line Ministries    implementing partners
                                                                                           assets
                                                        Figure 7.7 – Key Dates in the Timeline of Transition




                                                                                                                                                               Chapter 7. Ending the Game and Leaving a Lasting Legacy
                                                                                 Soft                                                             Grand
                                                                                Closing                                                           Closing

 JAN 1 2008        JUN 30 2008         AUG 10 2008        NOV 1 2008          DEC 31 2008        FEB 27 2009             APR 3 2009          APR 16 2009




        • Compossing        •Compossing         •2009 RKAKL        •Project Payment • Project Payment       Preliminary            BRR clossing
          Presidential       Presidential        evaluation         Settlement        Settlement            finacial report        process
          Decree on          Decree on          •Setting out       •Finalization of • Finalization of
          adjustment of      PMT Guideline       2009 Line          AP3D              AP3D
          the master plan    & Symbol RR         Ministries &      •Writing Work    • Writing Work
        • Setting out        continuation        Local Govt.        Group Report      Group Report
          2009 RKP          •Setting out 2009    Works Groups                                                Clarification
                             RKAKL
                            •MoU signings                                                                    of Supreme
                             with Line                                                                       Audit Agency
                             Ministries &                                              Audit by BPK
                             Donors                                                                          finding


                                                                                                                                                                         107
                                  Completion of fisical
                              construction by BRR AcehNias
                                                                                        Coordination of RR continuity
                                                                                        by the Natioanal Development
                                                                                       Planning Board. Implementation
                                                                                       by Line Ministries & Local Govt.


                   Finalizing          Finalizing         Completion                              Submission            Submission           Finalizing
                   presidential        presidential       of fisical                              of unaudited          of audited           Presidential
                   decree on           decree on PMT      construction of                         Performaces &         Performaces &        Decree on the
                   adjustment of       Guideline & RR     program & project                       Finacial Report       Finacial Report to   clossing of BRR
                   the Perpres         Continuation                                                                     the President
                   Perubahan
                   Rencana Induk




                               Financial and Development
                            Supervisory Agency endorsment of
                                  BRR accountabilities




  In addition to BRR’s responsibilities for transferring finished assets to beneficiaries, it
had an additional responsibility to ensure that recognition was given to the provider
and funder of the asset. Assets are not merely created and simply handed over at leisure;
there are certain procedures and rules to be followed. These are quite formal and detail
how the transition should take place. The applicable laws governing the management,
maintenance and transfer of state-owned assets (BMN) are the State Finances Law 17/03
and State Treasury Law 01/04. The Minister of Finance issued two key implementing
regulations on the delegation of authority namely, Minister of Finance Regulation
(PMK) 96/07 and Minister of Finance Regulation No. 62/08 on the Procedures for BRR’s
Management of State Owned Assets.
  In order to comply with the strict guidelines set forth by these government laws, BRR
had to make certain preparations to conclude the transfer of assets in an orderly fashion.
The first step was identification of the assets and verification of their existence. Basic data
FINANCE: The Seven Keys to Effective Aid Management




108




                                                      The transfer of assets to the local   on the assets was required such as the cost of construction, the source of funding and the
                                                       governments of Nias and South        user of the facility.
                                                              Nias. February 28, 2008.
                                                                   Photo: BRR/Bodi CH         When BRR’s data systems were constructed, it had not been foreseen BRR would have
                                                                                            a need for a discrete database that could record both on-budget and off-budget items.
                                                                                            The need for this only became apparent in hindsight. Had BRR known what lay ahead in
                                                                                            the reconstruction and rehabilitation process, it would have approached the database
                                                                                            management in a different way. As it was, myriad data systems were in usage including
                                                                                            one system for off-budget and others for on-budget. This meant that the collecting and
                                                                                            verifying basic data was a labor intensive and tedious process.
                                                                                              BRR’s policy on finished projects and any resulting assets was they would be transferred
                                                                                            to the district government as the first choice and priority recipient. The second choice
                                                                                            recipient would be the provincial government. The default position, in the event that
                                                                                            the asset transfer failed to take place between BRR and either of these two destinations
                                                                                            within the period of BRR’s mandate (April 2005-April 2009), was the transfer of assets to an
                                                                                            appropriate line ministry, with the recipient of last resort being the Ministry of Finance.
                                                                                              State assets from bilateral and multilateral donors as well as international and national
                                                                                            NGOs must include an official handover letter with their signature to BRR. BRR in turn
                                                                                            gave recipients of these assets a signed, official handover letter.
   Some rehabilitated and reconstructed assets were not transferred to either the




                                                                                                                    Chapter 7. Ending the Game and Leaving a Lasting Legacy
provincial or district government. These assets were those designated under National Law
to be of national strategic ownership such as airports, ports and major roads. Ownership
along with continued operational and maintenance responsibility of these assets was
transferred directly to the line ministries.
  All assets created through programs and projects acquired and/or constructed under
the auspices of BRR’s Reconstruction and Rehabilitation Mandate, either from on-budget
(APBN, DIPA, loan, grant) or off-budget (International NGO, donor, national NGO) funds are
considered national assets to be managed by the Ministry of Finance (Directorate General
of Asset Management).
 In transferring these assets, BRR’s Deputy of Finance and Planning (Directorate of Asset
Management) was responsible for:
1. inventorying on and off-budget assets (validating the existence, completeness,                                             109
   functionality and ownership);
2. optimizing the utilization of the assets by the relevant government agencies; and
3. Ensuring adequate and valid documentation.




                                            Figure 7.8 – Role of BRR as the Assets Clearinghouse


                                                Clearing House BRR


                                                          BRR Regional                                Local
                                                                                                   Government
                NGOs                                  Sectoral Deputy

                                                  Directorate of                                   line Ministry/
                                                Accounts and Asset                                     Agency
                                                   Management
            GOI/Donors

                                                                                                   Consultancy



            State Budget                                                                            State/Reg
                                                                                                   Govt Owned
                                                                                                    Enterprise
                                                        BRR’s strategy was to create an inventory of on- and off-budget assets in conjunction
FINANCE: The Seven Keys to Effective Aid Management




                                                      with a District Government Team (Pemda TK II35 and BRR Regional Office). The results of the
                                                      district level asset inventories were reviewed by a Provincial Team (Provincial Government,
                                                      BRR and Kanwil I DJKN36) for the handover to Provincial Government.
                                                        Where assets were jointly deemed to be problematic in some way, it was documented
                                                      and the asset was handed over as such to District Government. It was then passed to a BRR
                                                      Clearinghouse (consisting of BRR Regional Office, Sector Deputy and Directorate of Accounts
                                                      and Asset Management) for resolution and subsequent transfer back to District Government
                                                      for hand over.

                                                      Computerized Asset Management Systems
                                                        As mentioned there was a myriad of data systems set up by divisions and sections
                                                      within divisions. In hindsight this should have been managed differently, however, when
110
                                                      the emphasis and demand is on urgent implementation to a population without shelter,
                                                      food and livelihood, databases are probably not high on the list of priorities!
                                                        The source of asset data for the on-budget inventory was the Ministry of Finance
                                                      accounting system (SABMN) which recorded BRR expenditures and was audited by the
                                                      various auditing agencies (Supreme Audit Agency, Financial development Supervisory
                                                      Agency and external audits).
                                                        The source of off-budget asset data was donor/NGO reports to BRR’s RAN Database
                                                      validated against Project Concept Notes, contracts or other documentation from the
                                                      donors/NGOs themselves in their final exit reports to BRR. The accountability and asset
                                                      verification of ownership was supported by UNORC.37
                                                        One major task arising from the consolidation was the reconciliation of data. As each
                                                      KPI might have several inputs from different sources; it was difficult to reconcile financial
                                                      records due to the diverse funding sources for each of the inputs--on-budget/on-treasury,
                                                      on-budget/off-treasury and off-budget/off-treasury.
                                                        An Asset Management and Information System (AMIS) was developed with the
                                                      assistance of AusAID and GTZ to support the handover of public assets to local
                                                      government. It provided asset mapping with a Geographic Information Systems (GIS)
                                                      platform for asset recording, in conjunction with: satellite imagery of assets, geo-spatial
                                                      map of each asset and textual information on each asset.
                                                        AMIS brought together a number of existing databases (as mentioned above) used
                                                      for financial reporting and operational recording of on- and off-budget assets that were
                                                      developed by BRR’s various divisions and sections within divisions. It incorporated the
                                                      results of the inventorying, geo-referencing, asset photographs and satellite imagery of
                                                      public on- and off-budget assets.
  AMIS facilitated BRR’s efforts to transparently and accountably record the existence and




                                                                                              Chapter 7. Ending the Game and Leaving a Lasting Legacy
geo-reference of each on- and off-budget fixed asset for handover to local government.
The AMIS together with the government accounting system (SABMN/SIMBADA38)
provided end users with the following operational and maintenance information:
•	 Ministry of Finance
•	 the Governor’s Office
•	 Regional Office of the Directorate General of Asset Management (Kanwil I DJKN)
•	 Municipal/District and Provincial Asset Management and Finance Office (Dinas
   Keuangan dan Kekayaan Daerah )
•	 Municipal/District and Provincial Department of Public Works
•	 Regional Planning Development Agency,39 and
•	 Operational sectoral departments at Provincial and District levels, particularly Health
   and Education.
  After inventory, validation and preliminary handover had taken place for both on- and
                                                                                                        111
off-budget assets and the results consolidated through the AMIS System, the formal
handover from BRR to the Governor of the System would take place at the end of BRR’s
mandate in April 2009.


Transition of Unfinished Projects
  As described in the Chapter 4, while mandates had largely been achieved and
commitments disbursed, there were some projects and funding commitments that
needed to continue through 2009. This unique situation arose from the divergence
between the legal imperatives to close BRR by April 16, 2009 and operational imperatives
on the ground.
     In this context, BRR had to consider several different transition scenarios:
•	 What to do with multi-year projects that would finish well after BRR’s tenure and how
   would they be financed?
•	 How would BRR reconcile and value the collective efforts of all contributors with the
   mandated targets for reconstruction and rehabilitation?
•	 What types of residual issues or activities might possibly be leftover after BRR closed
   its doors, and how would they be handled and financed in a normalized situation?


   At the time that BRR prepared to wind down, its project portfolio could be categorized
as follows with regard to the above transition scenarios: multi-year projects (drawing
from IRFF, State budget and other funding sources): projects that finished on or around
December 31, 2008 as planned; off-budget assets created by bilateral and international
and national NGOs; and projects that slipped slightly into the first quarter of 2009 plus a
small number of projects omitted from BRR’s four-year reconstruction and rehabilitation
program, including projects that were unfinished by defaults due mainly to contract,
                                                                                      quality, or beneficiary disputes.
FINANCE: The Seven Keys to Effective Aid Management




                                                                                      What to do with multi-year projects? 40
                                                                                         Projects that were ‘unfinished by design’ refer to multi-year projects implemented over
                                                                                      many years which could not be completed within BRR’s tenure. By the very term “multi-
                                                                                      year” one could conclude that these projects are large in nature and would fall under the
                                                                                      term “large infrastructure and strategic projects.” The funding of multi-year projects came
                                                                                      from various sources: the Indonesian government (through its APBN), MDF (administered
                                                                                      by the World Bank), ADB, AFD41 and JBIC.42 These projects needed a new mechanism and
                                                                                      authority to finish after BRR’s closure.

                                                                                         To deal with this issue, the Government prepared a budget to cover the period of
                                                                                      transition in Fiscal Year 2009. It was to be funded through three channels as follows.
112                                                                                   •	 BRR: for General & Administrative Expenses and Project Winding Up
                                                                                      •	 Local Government: for Project Continuation sourced from GOI
                                                                                      •	 Line Ministries: for Project Continuation sourced from Grant and Loan
                                                                                        BRR entered into agreement with the MDF to co-finance the building of large
                                                                                      infrastructure and strategic assets through two avenues: (i) The Infrastructure



                                                              Figure 7.9 – Establishment of the 2009 Budget Arrangements for Multi Donor Trust Fund (MDF) Projects




                                                                                                 RKP 2009
                                                                                                                 3.673 T


                                                      222 M (RM)                           415 M (RM)

                                                            General                            Completion of                              Continuation of Reconstruction
                                                               &                            Reconstruction by BRR                         by Ministries & Local Goverment
                                                         Admin Expences
                                                             ACC 999


                                                                                                   1.788 T (PHLN)                                                                  1.663 T (RM)

                                                                                                             Line Ministries                                 Local Goverment
                                                                              Deconsentrations Fund/
                                                                                Tugas Perbantuan                                                                                         ACC 999
                                                                                                  Depar tmen t   Dep ar tmen t   Dep ar tment       Dep ar tment     Depar tment   Depar tmen t

                                                                                                                 Dinas under the Local Goverment of Aceh and Nias

                                                        Notes for Line Ministries :
                                                        - Regulated Under Goverment Regulation PP No. 2 Tahun 2006
                                                        - Executing Agency is the related Line Ministries
Reconstruction Financing Facility (IRFF) program financed by the MDF and administered




                                                                                              Chapter 7. Ending the Game and Leaving a Lasting Legacy
by the World Bank, and (ii) the Infrastructure Reconstruction Enabling Project (IREP -
Design and Supervision Consultant) which supported IRFF with an emphasis on capacity
building at the local levels.
   The IRFF program was the most significant single partnership undertaking by BRR
in that the program concentrated on large infrastructure projects and was the largest
sectoral program implemented by BRR besides Housing and Settlement; collectively IRFF
projects accounted for 34 percent of all infrastructure projects in 2008 and 30 percent of
all infrastructure projects over BRR’s tenure.
  The implementation of the IRFF program was fraught with complex and protracted
negotiations which, together with cumbersome procurement modalities, impacted the
progress of the proposed infrastructure projects that had been identified for financing.
  The intended program was for a US$300 million injection to the Reconstruction and                     113
Rehabilitation effort funded jointly by GOI and the MDF and managed by the World Bank.
The funding allocation was GOI 70 percent (equivalent to US$200 million) and the MDF 30
percent (equivalent to US$100 million).
  The IRFF program was conceived in January 2006 and within six months Project
Concept Notes (PCN) were produced for priority and selected projects. These projects
were to be significant and of high profile for the people of Aceh and Nias. The expectation
was that project construction would commence in January 2007.
   Due to protracted negotiations, decision-making requiring high ranking consideration
in the World Bank’s Washington DC headquarters, personnel changes at the World Bank
resident mission in Indonesia and protracted World Bank procurement modalities, the
Grant Agreement was not signed until January 15, 2007 and it was not until 18 months
after the PCN that the design and supervision consultant was mobilized.
  In the meantime BRR, due to GOI budget cycles and community pressure to act, had to
use counterpart funds allocated for this program. Failure on the part of BRR to use these
funds would have resulted in a closure of budget lines at year-end and the allocated
funding being lost. In essence BRR used the counterpart funds (approximately US$151
million) to finance urgently required and priority projects under the program using 100%
Government of Indonesia funds. This had the effect of disturbing the agreed funding ratio
of GOI 70 percent MDF 30 percent The sequence is shown in Figure 7.9.
  This meant that BRR had to negotiate a new funding arrangement with the MDF
through its secretariat and trustee the World Bank. The negotiations again became
protracted to the extent that by December 31, 2008, the date of transition, the formal
Grant Agreement Amendments still had not been executed--this despite agreement
between all parties (World Bank, MDF, Ministry of Finance, Bappenas and concerned
ministries) on July 3, 2008 to the finance arrangements and the draft Grant Agreement
Amendment No 2.
                                                                                  The funding mechanism was a cornerstone of the transition of these multi-year projects
FINANCE: The Seven Keys to Effective Aid Management




                                                                                to line ministries, such as Public Works, and any delay in these arrangements hampered
                                                                                the finalization of the transition.
                                                                                   BRR proposed a transitional funding arrangement which was accepted by all parties
                                                                                in July 2008 to provide mechanisms that would ensure funding of multi-year projects to
                                                                                their completion. The ratio of 70 percent to 30 percent was replaced with a ratio of
                                                                                    GOI = US$126.5 million or 55 percent
                                                                                    MDF = US$99.91 million or 45 percent
                                                                                    These funds applied to the following projects (for a total of 59 Packages):
                                                                                    Ports                 -    5 Packages
                                                                                    Water & Sanitation    -    8 Packages
                                                                                    Water Supply          -    5 Packages
114                                                                                 National Roads        -    8 Packages
                                                                                    Provincial Roads      -    10 Packages
                                                                                    District Roads        -    23 Packages


                                                                                  Similarly, there exist discrete strategies for dealing with ADB, AFD and JBIC multi-year
                                                                                projects. BRR was heavily involved in compiling budgets for 2009 funding of the multi-
                                                                                year projects with line ministries.
                                                                                  The transition of these infrastructure projects was in any event negotiated with the
                                                                                concerned ministries, with the Ministry of Public Works taking a lead role as the Executing

                                                                                               Figure 7.10 – IRFF Project Timeline

                                                                                                                     $ 151 mio             $ 226 mio

                                                                                                              IRFF Eligible Project Funded by 100% GOI

                                                                                                                                                      IRFF Project



                                                          JAN 2006              DEC 2007                                             DEC 2008
                                                      Discussion started                                     OCT 2007
                                                                                                         Consultant Mobilized



                                                                      JUNE 2006         15 JAN 2007
                                                                     PCN Released        GA signed
Agency for the majority of programs/projects and Bappenas becoming the Executing




                                                                                                                         Chapter 7. Ending the Game and Leaving a Lasting Legacy
Agency for ADB programs and projects with strong linkage to the Ministry of Public
Works.
   All infrastructure projects financed by MDF/ADB/AFD/JBIC were to be placed under one
Executing Agency in Ministry of Public Works with a dedicated Project Management Unit
(PMU). Additionally, some of them will have a dedicated Project Implementing Unit (PIU)
in other line ministries; for example all IRFF port projects will be managed by the Ministry
of Transportation through a PIU.

Arrangements for Asian Development Bank (ADB) projects
  ADB’s program transition was relatively relaxed with an open and constructive dialogue
throughout the transition period.
  ADB implemented projects in partnership with BRR to the value of US$294.50 million;                                              115
this was in addition to ADB’s contribution to the MDF of US$10 million. The contribution
was allocated to various areas as outlined in Table 7.2 below.
  The transition arrangements provided for Bappenas to become the executing agency
and home for a Project Management Office (PMO) . Only a portion of the program was




                                             Figure 7.11 –Transition Arrangements of MDF Projects

                                                                                                       Transferred
                              MDF Project
                                                                                                    to Line Ministries
   Aceh Land Administration System Project (RALAS)                                 National Land Administration Agency

   Support for Poor and Disadvantage Areas

   Nias Livelihood and Development Project (Nias LEDP)                             Ministry of Development of
                                                                                   Disadvantaged Areas

   Economic Development Financing Facility (EDFF)

   Nias Kecamatan-Based Recovery and Planning (KRRP)                               Ministry of Home Affairs

   Infrastructure Reconstruction Enabling Program

   Infrastructure Reconstruction Financing Facility
                                                                                   Ministry of Public Works
   Community-Based Settlement Rehabilitation and Reconstruction
   Project (REKOMPAK)

   Community Recovery through the Urban Recovery (UPP)
                                                                                             not yet complete at the end of BRR’s tenure. This occurred in the roads and bridges, rural
FINANCE: The Seven Keys to Effective Aid Management




                                                                                             water supply and sanitation, education and the fiduciary oversight components.
                                                                                               Roads and Bridges were classified as infrastructure and therefore would be
                                                                                             implemented by the Ministry of Public Works, who had also been appointed the Executing
                                                                                             Agency for the infrastructure projects of MDF. An additional Project Implementation
                                                                                             Unit (PIU) would be created for ADB projects. Rural water supply and sanitation would
                                                                                             be implemented by the Ministry of Health, where an additional PIU was created which
                                                                                             reported to the PMO in Bappenas. The education component would be implemented
                                                                                             by the Ministry of National Education, where an additional PIU was created which
                                                                                             reported to the PMO in Bappenas.Bappenas would retain the PIU for Fiduciary Oversight
                                                                                             Component.

                                                                                                                            Arrangements for Agence Française de
116                                                           Table 7.2 – ADB ETESP Project Allocations                     Développement (AFD) and Japan Bank for
                                                                                                                            International Cooperation (JBIC) projects
                                                                                                          Allocation
                                                                       Component                                              As with the ADB the transition of these projects was
                                                                                                          ($ million)
                                                       1 Agriculture                                            35.0        relatively relaxed as they were classified as infrastructure
                                                       2 Fisheries                                              28.0        and were transferred to the Executing Agency of Ministry
                                                                                                                            of Public Works under the control of the newly created
                                                       3 Small & Micro Enterprises                              15.0
                                                                                                                            PMU.
                                                       4 Health                                                 13.0
                                                       5 Rural Water Supply & Sanitiation                         7.0
                                                       6 Education                                              17.5        Risk Management – Ensuring
                                                       7 Housing
                                                       8 Irrigation
                                                                                                                70.8
                                                                                                                30.0
                                                                                                                            the Process Stayed Critically On
                                                       9 Spatial Planning & Environment                         17.0        Track
                                                      10 Roads & Bridges                                        37.0
                                                                                                                               In its final year BRR introduced a risk management
                                                      11 Power                                                   9.7        regime to monitor and evaluate the progress towards
                                                      12 (a) Fiduciary Oversight (AFT)                          11.0        transition and closure. The following Risk Management
                                                           (b) Fiduciary Oversight (Netherlands)                 3.5        Model was used (Figure 7.13). From July 2008 onwards,
                                                           Total                                               294.5        bi-weekly management meetings involving everyone in
                                                                                                                            the organization were held which evaluated the current
                                                                                                                            situation versus the model of transition and exit risk
                                                                                                                            management.
                                                                                               BRR evaluated four key areas of risk management:
                                                                                             1. Operational Risk
                                                                                                 •	 Maintaining the commitment to providing quality – the clearing house reported
                                                                                                    on problematic areas.
                                                                                                 •	 BRR had to ensure it delivered on time and within its mandate period.
2. Financial Risk




                                                                                                                                   Chapter 7. Ending the Game and Leaving a Lasting Legacy
    •	 Reporting – ensuring compliance with accountability regime.
    •	 Auditing – providing auditors with timely access to all records and facilitating
       resolution of audit queries.
    •	 Funding – obtaining pledges, and converting these to commitments and
       disbursement to achieve objectives.
3. Legal Risk
    •	 Procurement – ensuring
       compliance with both pre-                                          Figure 7.13 – The Risk Management Model
       appraisal and ex post-facto
       regimes, all in compliance with
                                                                                tand
       GOI procurement guidelines as
                                                                        d  ers                             Eva
       modified by the President for                                 Un                                        lua
                                                                                                                  t
       execution by BRR.                                                                                                                     117




                                                                                                                 e
    •	 Environmental – ensuring
       compliance with all guidelines.
4. Political Risk
    •	 International – BRR had to ensure
                                                      Identity




       an open dialogue and forum




                                                                                                                      Prioritize
       to ensure that donor voices
       were heard and conversely that
       GOI views and strategies were
       interspersed at the appropriate
       levels.
    •	 National – BRR had to consider
       the implications of the political                        Re
       environment between the central                             vis
                                                                       it
                                                                                                          age
                                                                                                    Man
       government and the provincial
       governments. Some ideas were
       in conflict with each other and
       BRR had to identify and maneuver
       between these conflicts.
    •	 Local – Given the government’s Decentralization and Special Autonomy policies,
       BRR was placed in a situation where it had to deal with differing perceptions
       of exactly how these policies were interpreted at the local levels. The risk to a
       smooth, clean and effective transition was extreme as the provincial government
       in particular had a different post-BRR vision than the central government and even
       BRR itself. In addition, local government attempted to apply a selective approach
       to the acceptance of finished assets, procrastinating on who would manage the
       project after the transfer of ownership.
                                                      Conclusion & Achievements
FINANCE: The Seven Keys to Effective Aid Management




                                                        From the onset, it was established that BRR had four years in which to carry out its
                                                      mandate. Clear sunset clauses were critical to prevent the ad hoc agency from taking on a
                                                      posthumous life of its own. The continued involvement of BRR beyond the reconstruction
                                                      phase would have extracted a heavy cost in the lack of local government ownership. A
                                                      comprehensive transition and exit strategy had to be formulated.
                                                        The investments made by partners worldwide need to be maintained in the long run to
                                                      facilitate the economic recovery of Aceh and Nias. During the last phase of its tenure, BRR
                                                      embarked on an unprecedented level of technical and political dialogue with partners at
                                                      international, nation and local levels to ensure a smooth, clean and effective transition.
                                                      Line ministries and local government were engaged in the project design, identification
                                                      and design of funding mechanisms and project implementation organization for projects
118                                                   with lifetimes beyond 2008.
                                                        Identifying the strategy for programs that will be handed over to Local or Central
                                                      government counterparts and associated institutions is only the first step in sustaining
                                                      the physical outcome of reconstruction. The transfer of knowledge, of preserving
                                                      institutional memory and the processes the agency undertook to implement and
                                                      coordinate is equally important, lest the lessons learned be forgotten. Throughout
                                                      reconstruction, BRR provided experiential learning by involving local counterparts in the
                                                      process. The regionalization of BRR offices, for example, paved the way for collaboration
                                                      and involvement with the Local Government. The exchange of knowledge acquired in
                                                      this process is a stepping-stone to managing the development.
                                                         At all stages of the business process adopted by BRR, including set up of its business
                                                      processes, establishing coordination mechanisms, implementing programs and projects,
                                                      managing its finances and finally designing and implementing a transition and exit
                                                      strategy, it sought guidance and direction from world-renowned agencies, consulting
                                                      firms and experts to ensure its management had the best possible advice before making
                                                      final decisions. This ensured that BRR would maintain its integrity and accountability
                                                      throughout its tenure, leaving a lasting legacy behind.
                                                      Notes
FINANCE: The Seven Keys to Effective Aid Management




                                                      1    According to the Tsunami Evaluation Coalition (TEC), the amount pledged to
                                                           Aceh was less than the US$ 9.0 billion pledged to Hurricane Mitch in 1998,
                                                           the US$8.2 billion pledged to Afghanistan for the 2004–2007 period and
                                                           the US$ 9.4 billion committed to Iraq in 2004 (TEC 2006). Iraq received
                                                           nearly US$ 15 billion of Official Development Aid from OECD DAC members
                                                           as debt relief in 2005, while just under half this amount was disbursed
                                                           for the tsunami in the same year. The United Nations (UN) appeal for the
                                                           tsunami was the third largest on record, following the UN appeals for Sudan
                                                           (2005) and Iraq (2003).
120                                                   2    Based on World Bank assessments of per capita gross income, 2007.
                                                      3    Indonesia acquired a moratorium amounting to US$2.7 billion. The debt
                                                           payments, which matured in 2005, were postponed for five years with a
                                                           grace period of one year. The GOI and parliament agreed that US$2.1 billion
                                                           would be allocated to reconstruction in the fiscal year of 2005 while the
                                                           remaining US$600 million would be devoted elsewhere.
                                                      4    2008 interview with contributors
                                                      5    Scanteam conducted reports of Multi Donor Trust Funds around the world
                                                           for which either the UN or the World Bank served as the manager or trustee.
                                                      6    Institute of Development Studies, http://www.ids.ac.uk
                                                      7    In practice, the completeness and accuracy of the RAN Database is
                                                           contingent on the compliance of partners to update their progress on the
                                                           database; monitoring fund flows and physical outputs created additional
                                                           work for an already labor intensive system. Initially low, compliance rates
                                                           reached 92 percent as of December 2008.
                                                      8    www.niasisland.com
                                                      9    BBC News Asia, “Aceh Restoration ‘Close to Zero,’” May 9, 2005.
                                                      10   State Treasury Decree No. 13/2003 on Budget Mechanisms.
                                                      11   According to Indonesian law, foreign donations are tax-exempt as long as
                                                           they are used by the designated recipients or handed over to the government
                                                           at closure of projects, but are liable for taxes if subsequently disposed of
                                                           through the private sector
                                                      12   Absorption capacity' is a term used in development economics to describe
                                                           the capacity of an economy to absorb additional external funding from
                                                           foreign Investment or aid. (World Bank, BRR and BAPPEDA 2008)
                                                      13   Not all the unspent funds were to be carried over, only funds tied to
                                                           outstanding projects. Allocations for routine administrative expenditures
                                                           were generally not carried over.
                                                      14   No. S - 9255/Pb/2006 on 22 December 2006
                                                      15   Perdirjen No. 03/PB/2007
16 Presidential Regulation No. 70/2005
17 Under this regulation, only goods and services provided by the main
   contractors of foreign-grant funded reconstruction are exempt from Value
   Added Tax. The exemption is not applicable for sub-contractors and projects
   funded by domestic grants.
18 WFP Shipping Service, Project Appraisal Document II, June 2006
19 Masyrafah and McKeon 2008
20 This number only takes into account registered NGOs. The actual number is
   slightly higher as some NGOs did not report their activities until the end of
   the reconstruction program.
21 2008 interview conduted by contributors
22 Serambi Indonesia, October 16, 2008.
23 Serambi Indonesia, September, 30, 2007.
24 Masyarafah and McKeon 2008                                                        121
25 Through an amendment to the Presidential Regulation No. 70/05.
26 As articulated by Keppres 80/03, and amended by Presidential Regulation
   No. 70/05 for the Procurement of Goods and Services.
27 BPK began auditing Financial Reports of Line Ministries in 2006. Previously
   it only reviewed the National Financial Accountability Report by the MOF.
28 Despite the best attempts to reach out to all organizations, many players
   had already completed their programs in Aceh and Nias, making it difficult
   for the Pusdatin Outreach Team to contact them for confirmations.
29 Permendagri No. 17/2007 (SIMBADA - Asset) and Permendagri No. 59/2007
   (SIMDA - Financial)
30 CNN, www.cnn.com, January 17, 2009.
31 BPKP, a state agency reporting directly to the President, is responsible
   for auditing specific activities financed by the budgets of the central and
   provincial governments. BPKP has developed a “National Anti-Corruption
   Strategy” based on a two-year study of corruption throughout Indonesia.
32 Law No 20/2001 amended the initial 1999 anti-corruption law.
33 ADB Definition (Guidelines on Project Completion Report): A project is
   deemed complete when its facilities and components are substantially
   completed and are ready to operate (regardless of closure of its financial
   account).
   World Bank Definition (Global Environmental Facility Guidelines): Prior to
   project closeout, a final on-site monitoring visit is conducted. This visit may
   be waived if the project had been previously monitored and found to be in
   substantial compliance.
   World Bank Definition (Tsunami Recovery in Sri Lanka): A newly constructed
   or renovated facility reaches substantial completion, sometimes called
   beneficial occupancy, when it is considered available for full occupancy and
   total active operation.
34 ‘On-granting’ is a process whereby a grant received by central government is
   re-granted to the local government who implements the project. On-lending
                                                           is the same mechanism applied to loans.
FINANCE: The Seven Keys to Effective Aid Management




                                                      35   District Level Local Government
                                                      36   Regional Office of the Directorate General of National Treasury at provincial
                                                           level.
                                                      37   United Nations Office of Recovery Coordinater.
                                                      38   United Nations Office of Recovery Coordinator.
                                                      39   Computerized Ministry of Finance Financial System: Central, Provincial and
                                                           District Levels.
                                                      40   Planning Board at provincial level.
                                                      41   Agence Française de Développement (AFD)
                                                      42   Japan Bank for International Cooperation (JBIC)



122
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                                                      Chapter 4
                                                      Masyrafah, Harry and McKeon, Jock. Post-Tsunami Aid Effectiveness in
                                                         Aceh: Proliferation and Coordination in Reconstruction. Washington DC:
                                                         Wolfhensohn Center for Development, 2008
                                                      Kotter, John P. Leading Change, Harvard Business School Press, January 15,
                                                          1996.
                                                      Tapscott, Don and Williams, Anthony D. Wikinomics: How Mass Collaboration
                                                         Changes Everything. Penguin Portfolio, 2006.

                                                      Chapter 5
                                                      Behn, Robert D. Rethinking Democratic Accountability, Brookings Institution
                                                         Press, 2001
                                                      Wolf, Patrick J. and Hassel, Bryan C. Effectiveness and Accountability (Part 1):
                                                          Alternatives to the Compliance Model,Progressive Policy Institute publication.
                                                          Progressive Policy Institute, May (2001): 53-76.

                                                      Chapter 6
                                                      Dickstein, Dennis I. and Flast, Robert H. No Excuses, A Business Process
                                                          Approach to Managing Operational Risk, Wiley Publishing, January 2009.
Glossary of Abbreviations
Abbreviations                  English                              Indonesian
ADB             Asian Development Bank                 Bank Pembangunan Asia
AIPRD           Australia-Indonesia Partnership for    Kemitraan Australia-Indonesia untuk
                Reconstruction and Development         Rekonstruksi dan Pembangunan
APBD            Government of Indonesia’s Regional     Anggaran Pendapatan dan Belanja
                Annual Budget                          Daerah
APBN            Government of Indonesia’s National     Anggaran Pendapatan dan Belanja
                Annual Budget                          Negara
                                                                                             125
ASEAN           Association of South East Asia         Perhimpunan Negara-Negara Asia
                Nations                                Tenggara
Bakornas        National Coordination Agency (for      Badan Koordinasi Nasional
(PBP)           Disaster Mitigation and Refugees),     (Penanggulangan Bencana
                now has became National Agency for     dan Penanganan Pengungsi),
                Disaster Mitigation                    sekarang bernama Badan Nasional
                                                       Penanggulangan Bencana (BNPB)
Bapel           Executing Agency                       Badan Pelaksana
Bappeda         Agency for the Planning of Regional    Badan Perencanaan Pembangunan
                Development                            Daerah
Bappenas        National Development Planning          Badan Perencanaan Pembangunan
                Agency                                 Nasional
BLM             Direct Community Assistance            Bantuan Langsung Masyarakat
BPK             Supreme Audit Agency                   Badan Pemeriksa Keuangan
BPS             Statistic Center Bureau                Badan Pusat Statistik
BRR             Agency for the Rehabilitation and      Badan Rehabilitasi dan Rekonstruksi
                Reconstruction of the Regions          Wilayah dan Kehidupan Masyarakat
                and Community of Nanggroe Aceh         Provinsi Nanggroe Aceh Darussalam
                Darussalam and the Nias Island of      dan Kepulauan Nias Provinsi
                the Province of North Sumatra          Sumatera Utara
CFAN            Coordination Forum for Aceh and Nias   Forum Koordinasi untuk Aceh dan
                                                       Nias
Dana Otsus      Special Autonomy Fund                  Dana Otonomi Khusus
DAU             General Allocation Fund                Dana Alokasi Umum
DIPA            Issuance of Spending Authority         Daftar Isian Pelaksanaan Anggaran
Dirjen          Director General                       Direktur Jenderal
DPR             House of Representative                Dewan Perwakilan Rakyat
DPRD            House of Regional Representative       Dewan Perwakilan Rakyat Daerah
                                                      Abbreviations                   English                               Indonesian
FINANCE: The Seven Keys to Effective Aid Management




                                                      DRR             disaster risk reduction                  pengurangan risiko bencana
                                                      ETESP           Earthquake and Tsunami Emergency         Proyek Sektor Bantuan Darurat
                                                                      Sector Project funded by Asian           Gempa Bumi dan Tsunami yang
                                                                      Development Bank (ADB)                   dibiayai oleh Asian Development Bank
                                                                                                               (ADB)
                                                      GAM             Free Aceh Movement                       Gerakan Aceh Merdeka
                                                      GDP             Gross Domestic Product                   Produk Domestik Bruto (PDB)
                                                      GOI             Government of Indonesia                  Pemerintah Republik Indonesia
                                                      Inpres          Presidential Instruction                 Instruksi Presiden
                                                      INTOSAI         International Organisation of Supreme Organisasi Tertinggi BPK-BPK se-
                                                                      Audit Institutions                    Dunia
                                                      IREP            Infrastructure Reconstruction            Program Pemampuan Rekonstruksi
126
                                                                      Enabling Program                         Prasarana
                                                      IRFF            Infrastructure Reconstruction            Sarana Pendanaan Rekonstruksi
                                                                      Financing Facilitiy                      Prasarana
                                                      JICS            Japan International Cooperation          Badan Jepang mengenai Sistem
                                                                      System                                   Kerjasama Internasional
                                                      K/L             Ministry/Institution                     Kementerian Negara/Lembaga
                                                      Kabapel         Head of Executing Agency                 Kepala Badan Pelaksana
                                                      KfW             Kreditanstalt fur Wrederaubau is a       Kreditanstalt fur Wrederaubau adalah
                                                                      German Development Bank acting as        Bank Pembangunan Jerman yang
                                                                      the funding management manager on        berperan sebagai pengelola dana
                                                                      behalf of German Government.             atas nama pemerintah Jerman.
                                                      KPI             Key Performance Indicator                Indikator Kinerja Utama
                                                      KKN             Corruption, Collusion, and Nepotism      Korupsi, Kolusi, dan Nepotisme
                                                      KPA             Budget Authority Officer                 Kuasa Pengguna Anggaran
                                                      KP4D            The Village Committee for Housing        Komite Percepatan Pembangunan
                                                                      and Settlement Development               Perumahan dan Permukiman Desa
                                                                      Acceleration
                                                      KPK             Corruption Eradication Commission        Komisi Pemberantasan Tindak Pidana
                                                                                                               Korupsi
                                                      KPPN            Office for State Services and Treasury   Kantor Pelayanan dan
                                                                                                               Perbendaharaan Negara
                                                      KPPN-K          Special Office for State Services and    Kantor Pelayanan dan
                                                                      Treasury                                 Perbendaharaan Negara-Khusus
                                                      LAKIP           Performance Accountability Report        Laporan Akuntabilitas Kinerja Instansi
                                                                                                               Pemerintah
                                                      LOGA            Law on Governing Aceh                    Undang-Undang Pemerintahan Aceh
                                                                                                               (UUPA)
                                                      LSM             Non-government Organisation (NGO)        Lembaga Swadaya Masyarakat
Abbreviations                   English                            Indonesian
MAK             Account Code in Indonesian             Mata Anggaran Kegiatan
                Budgetary System
MDF             Multi-Donor Fund                       Dana Multi-Donor
MenPAN          Ministry of State Apparatus            Kementerian Negara Pendayagunaan
                Empowerement                           Aparatur Negara
MOF             Ministry of Finance                    Departemen Keuangan (Depkeu)
MTR             Mid-Term Review                        Evaluasi Paruh Waktu
MPR             People’s Consultative Assembly         Majelis Permusyawaratan Rakyat
NAD             Nanggroe Aceh Darussalam               Nanggroe Aceh Darussalam
NISM            Nias Islands Stakeholder Meeting       Pertemuan pemangku kepentingan
                                                       Kepulauan Nias
NGO             Non-Governmental Organization          Organisasi nonpemerintah/ Lembaga    127
                                                       Swadaya Masyarakat (LSM)
PAD             Regional Income                        Pendapatan Asli Daerah
PBB             United Nations (UN)                    Perserikatan Bangsa-Bangsa
PCN             Project Concept-Note                   Nota-Konsep Proyek
PDB             Gross National Product (GNP)           Produk Domestik Bruto
PDRB            Regional Gross Domestic Product        Produk Domestik Regional Bruto
Pemda           Regional Government                    Pemerintah Daerah
Pemkab          District Government                    Pemerintah Kabupaten
Pemprov         Province Government                    Pemerintah Provinsi
Perpres         Presidential Regulation                Peraturan Presiden
Perpu           Government Regulation in Lieu of Law   Peraturan Pemerintah Pengganti
                                                       Undang-Undang
PHLN            Foreign Soft Loans/ grant              Pinjaman/Hibah Luar Negeri
PMT             Exit Strategy                          Pengakhiran Masa Tugas
PMU             Project Management Unit                Unit Manajemen Proyek
PNPM            National Programme of Community        Program Nasional Pengembangan
                Development                            Masyarakat
PP              Government Regulation                  Peraturan Pemerintah
PPK             Contract Preparation Officer           Pejabat Pembuat Komitmen
PSD             Basic Infrastructure and Facilities    Prasarana dan Sarana Dasar
PU              Public Works                           Pekerjaan Umum
Pusdatin        Center for Data and Information        Pusat Data dan Informasi
RAND            Recovery Aceh-Nias Database            Basis-data Pemulihan Aceh-Nias
RANTF           Recovery Aceh-Nias Trust Fund          Dana Perwalian Pemulihan Aceh-Nias
ReKompak        Community-based Rehabilitation and     Rehabilitasi dan Rekonstruksi
                Reconstruction of Settlements          Pemukiman Berbasis Komunitas
                                                      Abbreviations                    English                               Indonesian
FINANCE: The Seven Keys to Effective Aid Management




                                                      RI              Republic of Indonesia                   Republik Indonesia
                                                      RKP             Government Work Plan                    Rencana Kerja Pemerintah
                                                      Rp              Rupiah (Indonesian currency)            Rupiah
                                                      RPJM            Mid-term Development Plan               Rencana Pembangunan Jangka
                                                                                                              Menengah
                                                      SAK             Anti-corruption Unit                    Satuan Antikorupsi
                                                      Satker          Project Implementing Unit               Satuan Kerja
                                                      Satkorlak       Unit for Coordinating Implementers      Satuan Koordinasi Pelaksana
                                                                      of Disaster and Displaced Persons       Penanggulangan Bencana dan
                                                                      Management                              Penanganan Pengungsi
                                                      Satlak          Implementer Unit                        Satuan Pelaksana
128                                                   SK              Decree                                  Surat Keputusan
                                                      SP2D            Fund Disbursement Order Letter          Surat Perintah Pencairan Dana
                                                      SPM             Management Control System               Sistem Pengendalian Manajemen
                                                      TA              Fiscal Year                             Tahun Anggaran
                                                      TNI             Indonesian National Army                Tentara Nasional Indonesia
                                                      UKM             Small and Medium Enterprise (SME)       Usaha Kecil dan Menengah
                                                      UN              United Nations                          Perserikatan Bangsa-Bangsa (PBB)
                                                      UNDP            United Nations Development              Program Pembangunan Perserikatan
                                                                      Programme                               Bangsa-Bangsa (PBB)
                                                      UNORC           United Nations Office of the Recovery   Badan Perserikatan Bangsa-Bangsa
                                                                      Coordinator for Aceh and Nias           Koordinator Pemulihan khusus untuk
                                                                                                              Aceh dan Nias
                                                      UU              Law                                     Undang-Undang
                                                      UUPA            Law on the Governing of Aceh            Undang-Undang Pemerintahan Aceh
                                                      Wanrah          Advisory Board                          Dewan Pengarah
                                                      Wanwas          Supervisory Board                       Dewan Pengawas
                                                      WB              World Bank                              Bank Dunia
FACt shEEt
                                                                                          Table FS. 1 – Preliminary Damage and Loss Assessment (Source: Bappenas 2005)
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                                       Total impact                                       Property
                                                                                                      Damage             losses               Total            Private                   Public
                                                                 Social Sectors                           1674.9                65.8             1740.7             1440.6                   300.1
                                                                 Housing                                  1398.3                38.8             1437.1             1408.4                    28.7
                                                                 Education                                 110.8                 17.6             128.4                    9                 119.4
                                                                 Health                                      82.5                 9.4                 91.9               23.2                 68.6
                                                                 Culture and Religion                        83.4                                     83.4                                    83.4
                                                                 Infrastructure                              636               240.8              876.8              325.9                   550.8
                                                                 Transport                                 390.5               145.4              535.9              165.8                   370.1
                                                                 Communications                              18.9                 2.9                 21.8                8.6                 13.2
                                                                 Energy                                      67.8                 0.1                 67.9                1.1                 66.9
130                                                              Water and Sanitation                        26.6                 3.2                 29.8               18.3                 11.4
                                                                 Flood control, irrigation and sea
                                                                                                           132.1                 89.1             221.2              132.1                    89.1
                                                                 protection
                                                                 Productive Sectors                         351.9              830.2             1182.1                  1132                 50.1
                                                                 Agriculture and Livestock                   83.9              140.9              224.8              194.7                    29.9
                                                                 Fisheries                                  101.5              409.4              510.9              508.5                        2.5
                                                                 Enterprises                               166.6                 280              446.6              428.9                        17.7
                                                                 Cross Sectoral                             257.6              394.4                  652            562.9                    89.1
                                                                 Environment                               154.5                                  154.5              548.9
                                                                 Governance and administration               89.1                                     89.1                                    89.1
                                                                 Bank and Finance                                14                                    14                  14
                                                                 Total Impact                             2920.4              1531.2             4451.6             3461.4                   990.1

                                                                                                Table FS. 2 – Funding Needs for Reconstruction 2005-2009

                                                                                  Commitment                      on-budget
                                                                                                                                                 needs            Commitment                 Difference
                                                       year      revision             Donor             government Commitment                   on-budget          on-budget                 on-budget
                                                      budget   master Plan         off-budget                         APbn
                                                               Presidential                                                  external
                                                               regulation         (non-APbn)               rm*            loans and/or
                                                                 47/2008                                                    grants**              (APbn)                 (APbn)                   (APbn)

                                                         1          2                   4                    5                    6                    7                   8                  9 = (8 - 7)
                                                      2005     66,993,387.00      10,472,599.00        2,497,146.00                       -     2,497,146.00        2,497,146.00                            -
                                                      2006                         4,727,294.00        6,954,455.00           937,591.00        7,892,046.00        7,892,046.00                            -
                                                      2007                         1,278,811.00        7,842,029.00          3,286,635.00     11,128,664.00       11,128,664.00                             -
                                                      2008                         7,390,948.00        7,523,541.00          2,487,540.00      10,011,081.00        7,000,401.00            (3,010,680.00)
                                                      2009                         7,390,948.00        3,834,851.00                       -     3,834,851.00                         -      (3,834,851.00)
                                                      TOTAL    66,993,387.00      31,630,599.00      28,652,022.00           6,711,766.00     35,363,788.00        28,518,257.00            (6,845,531.00)
                         Table FS. 3 – Annual Funding for Rehabilitation and Reconstruction Program in Aceh and Nias

                                                                                      APbn
        Sector        master Plan
                                           2005             2006             2007              2008            2009*       Total
Housing                   5.384.900          64.399       2.259.255         3.264.490        1.752.436          847.645    8.188.225
Infrastructure          21.208.700           96.042       1.827.479         2.884.490        3.413.532        5.018.964   13.240.507
Social Affairs          14.564.000         152.055        1.223.192         1.399.755          882.908          209.649    3.867.559
Economic
                          1.499.200          24.631         964.253          1.104.581            235.942       685.425    3.014.832
Development
Institutional
                                             28.075         898.421            719.135            133.227       110.751    1.889.609




                                                                                                                                       Fact Sheet
Developmnet               6.111.000
Management                                   49.461         465.410           866.899             689.175        10.825    2.081.770
Total                    48.767.800        414.663        7.638.014        10.239.350         7.107.220      6.883.260    32.282.507
                                                                                                                                        131



            Figure FS.1 – Breakdown of Commitments of the Major Groups of Players (USD billion)
                                                      Table FS. 4 – MDF Project Allocations and Disbursements as of December 2008 (Source: MDF 2009)

                                                                                                                                            Partner
                                                      no                                     Project                                                          implementing Agency
                                                                                                                                            Agency
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                                                                       National Land Administration Agency
                                                      1     Reconstruction of Aceh Land Administration System Project (RALAS)            World Bank
                                                                                                                                                       (BPN)
                                                            Community Recovery Through The Kecamatan Development Project
                                                      2                                                                                  World Bank    Ministry of Home Affairs
                                                            (KDP)
                                                      3     Community Recovery Through the Urban Poverty Program (UPP)                   World Bank    Ministry of Public Works
                                                            Community-Based Settlement Rehabilitation and Reconstruction
                                                      4                                                                                  World Bank    Ministry of Public Works
                                                            Project (REKOMPAK)
                                                      5     Infrastructure Reconstruction Enabling Program                               World Bank    BRR/ Ministry of Public Works
                                                      6     Nias Kecamatan-Based Recovery and Planning Project                           World Bank    Ministry of Home Affairs
                                                                                                                                                       Ministry of Development of
                                                      7     Support for Poor and Disadvantaged Areas                                     World Bank
                                                                                                                                                       Disadvantaged Areas (KPDT)
                                                      8     Infrastructure Reconstruction Financing Facility                             World Bank    BRR/ Ministry of Public Works
132                                                                                            Off-Budget Projects
                                                      9     Technical Support for Badan Rehabilitasi Rekonstruksi (BRR) NAD-Nias         UNDP          UNDP/BRR
                                                      10    Tsunami Recovery Waste Management Programme                                  UNDP          UNDP/Dinas
                                                            Support to Strengthen the Role and Capacity of CSOs in the Recovery
                                                      11                                                                                 UNDP          UNDP
                                                            of Aceh
                                                      12    Capacity Building for Local Resource-based Rural Roads                       UNDP          ILO
                                                      13    Sea Delivery and Logistics Program                                           WFP           WFP
                                                                                                                                                       Leuser International Foundation/
                                                      14    Aceh Forest and Environment Project                                          World Bank
                                                                                                                                                       Fauna and Flora International
                                                      15    Tsunami Recovery Port Redevelopment Programme                                UNDP          UNDP
                                                      16    Banda Aceh Flood Mitigation Project                                          World Bank    Muslim Aid
                                                      17    Lamno-Calang Road Maintenance Project                                        UNDP          UNDP
                                                      18    Aceh Government Transformation Programme                                     UNDP          UNDP
                                                            Total Allocation to Projects
                                                                      Disaster Risk Reduction-Aceh
                                                                      Economic Development Financing Facility
                                                                      Aceh Government Transformation Programme
                                                                      Sustainable Recovery of Smallholder Farmers Livelihoods
                                                                      and Improved Forest Conservation in Aceh
                                                                      Nias Livelihoods and Economic Development Program
                                                                      Sea Delivery and Logistics Program
                                                                      Support for Poor and Disadvantaged Areas
                                                            Total Commitment to New Projects
                                                            Total Unallocated and Uncommitted funds
                                                            Total Unallocated funds**
                                                                                                                                                               Total Paid in Contributions

                                                       * Disbursement in this case may refer to the funds that have been transferred to implementing
                                                        agencies not necessarily spent on the projects directly
                                                      ** Total unallocated funds may fluctuate depending on exchange rates ,rate of investment and
                                                        actual costs of administration, appraisal and supervision.
                                                                                                   US$ million
                                                    Percent Disbursed
            Allocated           Disbursed*                              Start of Project      End of Project
                                                           (%)
On-Budget Projects

                      28.50              11.70                     41              Jun ‘05             Dec ‘08

                      64.70             64.70                     100              Aug ‘05             Dec ‘08

                        17.96            17.90                    100              Aug ‘05             Dec ‘09

                      85.00              81.66                     96              Oct ‘05              Feb ‘09

                      42.00              14.13                     34               Jul ‘06             Sep ‘09
                      25.75              10.15                     39              Nov ‘06              Dec ‘09




                                                                                                                  Fact Sheet
                      25.00                  4.08                  16              Feb ‘07              Jun ‘10

                     100.00              19.57                     20               Jul ‘06             Dec ‘09
                                                                                                                   133
                      22.48              22.48                    100               Jul ‘05            May ‘09
                        24.41            19.43                     80              Sep ‘05              Dec ‘10

                        6.00                 6.00                 100              Dec ‘05              Feb ‘10

                      11.80              11.80                    100              Jan ‘06              Dec ‘09
                      24.70              24.70                    100              Mar ‘06              Feb ‘10

                        17.53                8.42                  48              Feb ‘06              Jun ‘10

                        3.78                 3.78                 100              Dec ‘05              Dec ‘07
                        4.50                 2.05                  46              Apr ‘06              Jun ‘09
                        1.46                 1.46                 100              Oct ‘06              Dec ‘07
                        9.92                 9.92                 100             May ‘08               Dec ‘09
                     515.49            333.92                      65
                         9.87
                      50.00
                        4.06

                        4.99

                      20.00
                        0.33
                        0.60
                      89.85
                      89.23
                     179.08
                     691.92
                                                                                        Table FS. 5 - ADB ETESP Disbursements as of December 2008
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                       Committed                     Contracts                    Payments
                                                               Sectors            Allocation
                                                                                  USD (000)      USD (000)          %         USD (000)          %          USD (000)         %
                                                      Agriculture                    35,000         36,505       104.30%           31,940       91.26%          31,555            90%
                                                      Fisheries                      30,000         36,783       122.61%           25,747      85.82%           25,656            86%
                                                      Micro and Small
                                                                                      13,500        14,377       106.49%           13,877     102.79%            5,944            44%
                                                      Enterprises
                                                      Health                          13,000        14,236       109.51%         10,803         83.10%           9,392            72%
                                                      Education                       16,000        21,035       131.47%           11,041      69.01%           11,174            70%
                                                      Rural Water Supply               7,000          7,636      109.09%            6,005      85.78%            4,949            71%
                                                      Housing                        73,000         74,636       102.24%           67,671      92.70%           49,348            68%
134                                                   Irrigation                     30,000         35,321        117.74%        29,669        98.90%           27,577            92%
                                                      Spatial Planning                16,000        16,055       100.34%         15,980        99.87%           11,170            70%
                                                      Roads and Bridges               37,000        45,721       123.57%         32,683        88.33%           24,177            65%
                                                      Power                            9,500        11,900       125.26%            9,347      98.39%            8,922            94%
                                                      Fiduciary Oversight             14,500        14,500       100.00%         12,318        84.95%           10,831            75%

                                                      Total                         294,500        328,704       111.61%        267,080        90.69%          220,695            75%



                                                                         Figure FS. 2 – Comparison of Disbursement Rates of the Different Fund Channeling Mechanisms




                                                                                                                              USD 6.7B




                                                                                                     On-BUDGET                                     Off-BUDGET
                                                                                                  (Government funds)                          (Non-government funds)


                                                                                            Total funds : USD 3.0B
                                                                                            GoI         : USD 2.1B
                                                               On-TREASURY                  Donor       : USD 0.9B
                                                                                            (MDF, WB, ADB, IDB, JBIC)                                    N/A

                                                                                            Total disbursed:            USD 2.5B
                                                                                                                         (~83%)



                                                                                            Total funds : USD 0.32B                      Total funds : USD 0.34B
                                                               Off-TREASURY                 (JICS and KfW)                               (UN, NGOs, private, oth-
                                                                                                                                         ers)
                                                                                            Total disbursed:            USD 0.29B                                      USD 2.7B
                                                                                                                                         Total disbursed:
                                                                                                                         (~90%)                                         (~79%)
                     Table FS.6 - Amount Committed and Disbursed Through theThree Funding Mechanisms
                                                                                                                      (in million)


    fUnDing meChAniSm & SoUrCe of                 CommiTmenT                   DiSbUrSmenTS
                                                                                                                     %
               fUnDing
                                                      (USD)                           (USD)
ON-BUDGET & ON-TREASURY
- GOI                                                        2,100.00                        2,024.30                    96.40%
- BILATERAL & MULTILATERAL                                      920.15                          471.00                      51.19




                                                                                                                                     Fact Sheet
ON-BUDGET & OFF-TREASURY
- BILATERAL & MULTILATERAL                                      321.14                         288.00                    89.68%
                                                                                                                                      135
OFF-BUDGET & OFF-TREASURY
- BILATERAL & MULTILATERAL                                   1,169.54                          654.00                    55.92%
- NGO, PRIVATE & OTHERS                                       2,209.17                       2,022.00                     91.53%

TOTAL                                                        6,720.00                        5,459.30                     81.24%




                                Table FS. 7 - GOI`s Annual Disbursement Rates Amount to 96%

    no                 budget                                 Category                                   rm (rupiah)
    1    DIPA 2005                                           Disbursed                                        414,662,762,597.00
    2    DIPA-L 2006                                         Disbursed                                    2,082,482,891,058.00
    3    DIPA 2006                                           Disbursed                                     4,746,492,669,712.00
    4    Trust Fund BRR                                      Disbursed                                     1,948,851,905,202.00
    5    DIPA 2007                                           Disbursed                                     5,212,003,413,219.00
                                       Total                                                             14,404,493,641,788.00


No       DIPA                                  Kategori                                     RM
6        DIPA-L 2008                           Disbursed                                                  2,154,096,450,550.00
7        DIPA 2008                             Disbursed                                                   3,685,356,419,040.00
                                       Total                                                              5,839,452,869,590.00


                                                                        20,243,946,511,378.00                         96%

         in 2009, goi has allocated rp. 2.83 trillion
         (rm*) for the completion of reconstruction                                 +
                                                                                   23,83 T                           113%

                                                          (* Rupiah Murni = money from “pure” domestic sources)
                                                                               Table FS.8 – 94% of the Overall Key Performance Indicators (KPIs) have been Achieved
FINANCE: The Seven Keys to Effective Aid Management




                                                                                                                             Category of Percentage Achieved
                                                                       Sub-Sector                         blUe          green         yelloW        orAnge             reD        grand
                                                                                                         > 100%         76-99%        51-75%        26%-50%            <25%       Total

                                                      Infrastructure                                            59               6             2             1                3        71
                                                      Institutional Development                                106               3                           2                       111
                                                      Economic Development                                     125               6             5             8                7      151
                                                      Housing and Settlement                                    40               2             1                              2       45
                                                      Socio-Cultural and Religious Affairs                     265             12              8             5                9      299
                                                      Percentage                                           87.89%          4.28%         2.36%          2.36%           3.10%     100.00%


136                                                                      Table FS.9 – Achieved Key Performance Indicators (KPIs) in the Housing and Settlement Sector
                                                                                                                             Category of Percentage Achieved
                                                                       Sub-Sector                         blUe          green         yelloW        orAnge             reD        grand
                                                                                                         > 100%         76-99%        51-75%        26%-50%            <25%       Total

                                                      Land Administration                                       20               1             1                              2       24
                                                      Housing                                                     3                                                                       3
                                                      Spatial Planning                                          17               1                                                    19
                                                      Total                                                     40               2             1                              2       46


                                                                               Table FS.10 – Achieved Key Performance Indicators (KPIs) in the Infrastructure Sector
                                                                                                                             Category of Percentage Achieved
                                                                       Sub-Sector                         blUe          green         yelloW        orAnge             reD        grand
                                                                                                         > 100%         76-99%        51-75%        26%-50%            <25%       Total

                                                      Public Buildings                                            6                                                                       6
                                                      Energy and Electricity                                    16               1                                            2       19
                                                      Infrastructure Reconstruction Enabling
                                                                                                                  5                                                                       5
                                                      Project (IREP)
                                                      Roads and Bridges                                           1              2             2             1                            6
                                                      Infrastructure Maintenance                                  7                                                                       7
                                                      Transportation                                              5              1                                                        6
                                                      Postal and Telecommunications                               7              1                                            1           9
                                                      Water Resources                                             7                                                                       7
                                                      Terminals and Road Traffic                                  5              1                                                        6
                                                      Total                                                     59               6             2             1                3       71
                     Table FS.11 – Achieved Key Performance Indicators (KPIs) in the Economic Development Sector
                                                                        Category of Percentage Achieved
                   Sub-Sector                        blUe          green         yelloW        orAnge            reD       grand
                                                    > 100%         76-99%        51-75%        26%-50%          <25%       Total

Industry                                                   13                                                                  13
Forestry and Environment                                   14                             1              2             1       18
Manpower                                                     6                            1                                        7
Tourism                                                      9                                                         1       10
Trade                                                      20               1             1                                    22




                                                                                                                                       Fact Sheet
Fishery                                                    20               2                            2             3       28
Plantation                                                   9                            1                            2       12
Farming                                                    20               2                            2                     24       137
Animal husbandry                                           14               1             1              2                     18
Total                                                     125               6             5              8             7      152

                    Table FS.12 – Achieved Key Performance Indicators (KPIs) in the Institutional Development Sector
                                                                        Category of Percentage Achieved
                   Sub-Sector                        blUe          green         yelloW        orAnge            reD       grand
                                                    > 100%         76-99%        51-75%        26%-50%          <25%       Total

Legal Affairs                                              19               2                                                  21
Public Order, Security, and Defense (K3M)                  57               1                            1                     59
Regional Institutions                                      30                                            1                     31
Total                                                     106               3                            2                    111

                      Table FS.13 - Achieved Key Performance Indicators (KPIs) in the Socio-cultural Affairs Sector
                                                                        Category of Percentage Achieved
                   Sub-Sector                        blUe          green         yelloW        orAnge            reD       grand
                                                    > 100%         76-99%        51-75%        26%-50%          <25%       Total

Religious Affairs                                          18               5             3              2             2       30
Cultural Affairs                                           32                             1                            1       34
Health                                                     34                                                                  34
Sports                                                     25                                                                  25
Youth                                                        9              1                                          2       12
Education                                                  72               5             4              3             2       86
Role of Women and Children                                 30               1                                                  31
Social Affairs                                             45                                                          2       47
Total                                                     265             12              8              5             9      299
                                                                                               Figure FS. 3 – Value of On-Budget Asset as of December 2008
FINANCE: The Seven Keys to Effective Aid Management




                                                              18,000,000,000,00
                                                                                                                 Value of On-Budget s/d 31 December 2008
                                                              16,000,000,000,00                                                NAD & Nias

                                                              14,000,000,000,00


                                                              12,000,000,000,00


                                                              10,000,000,000,00


                                                               8,000,000,000,00


                                                               6,000,000,000,00


                                                               4,000,000,000,00


                                                               2,000,000,000,00


138                                                                            0

                                                                                     Operations                   Program               Housing              In Progress                             Total
                                                                                      Assets                       Assets                                                                           Assets

                                                      PUBLIC ASSETS                 135,839,230,828             9,505,213,815,1               -              3,262,221,801,6                 12,903,274,847

                                                      NON-PUBLIC ASSETS                    -                           -              4,546,164,852,2                   -                    4,546,164,825,2

                                                      TOTAL ASSETS                  135,839,230,828             9,505,213,815,1       4,546,164,852,2        3,262,221,801,6                 17,449,439,672,0

                                                      NOT YET HANDED OVER           135,839,230,828             5,339,202,652,3               -              3,262,221,801,6                 8,737,263,684,9




                                                                                       Figure FS. 4 – Off Budget Asset Data Collection Process and Results as of February 2009


                                                                        Total
                                                                  1024 Agencies*
                                                                    (Funding and
                                                                   Implementing)                                                                         Unreachable
                                                                                                                                                         36 Agencies


                                                                         PCN                                                No KPI Assets                                                     No Respond
                                                                     +/- Rp.34 T                                            150 Agencies                                                    to submit Asset
                                                                                                                                                                                           From 93 Agencies




                                                                                                                                                         Contacted                        Asset Form Under
                                                                      Disbursed            Follow Up                       With KPI Assets
                                                                                                                                                        317 Agencies                      Processed Filled in
                                                                      +/- Rp.27 T        513 Agencies                      363 Agencies
                                                                                                                                                                                             86 Agencies




                                                                                                                                                                                           Already Submitted
                                                                                                                                                                                               Asset Data
                                                                  Estimated Non                  Estimated
                                                                                                                                                                                              148 Agencies
                                                                       Asset                        Asset
                                                                  +/- Rp.13.10 T               +/- Rp.14.90 T


                                                                                                                                             73, 83%                                          Value of Asset
                                                                                                                                                                                               Rp.11.00 T


                                                                                                                                                          * - includes first level implementing agencies, ie, contractors
             Figure FS. 5 – Value of Off-Budget Asset as of Desember 2008




                                                                                                                                       Fact Sheet
                                                                                                                                        139




               Figure FS. 6 – BRR Organizational Structure in Preparation for its Closure


                                                   Head of Implementing
                                                          Agency


                                                       Deputy Head
                                                     Executing Agency

                         Secretary of                                                  Expert Staff
                       Executing Agency                                          Head of Executive Agency


                         Deputy Head                                                      Advisor
                          Supervision                                            Head of Executing Agency

                         Deputy Head                                                  Special Staff
                     Finance and Planning                                        Head of Executing Agency



                                                                             Deputy for                               Deputy for
Deputy for           Deputy for      Deputy for          Deputy for                             Deputy for
                                                                             Education,                            Institutional and
 Religious           Economy          Housing            /Head of                            Infrastrucsture,
                                                                             Health and                                 Human
Social and              and             and              Operation            Women
                                                                                            Environment and
                                                                                                                      Resources
  Culture            Enterprise      Settlement                                                Maintenance
                                                                            Empowerment                              Development



   Head of                      Head of                  Head of                    Head of                        Head of
Representative               Representative           Representative             Representative                 Representative
   Office I                     Office II                Office III                 Office V                       OfficeVI
                                                                               Figure FS. 7 – BRR's Finance and Planing Deputy Organizational Structure in Preparation for its Closure
FINANCE: The Seven Keys to Effective Aid Management




                                                                                            Deputy Finance and Central
                                                                                              Government Relations


                                                                                       Vice Deputy Finance and Central
                                                                                            Government Relations
140

                                                                                                                                    Center Head Donor Relations and
                                                      Team Work Termination (PMT)
                                                                                                                                       International Stakeholders



                                                                                              Center Head Reporting
                                                                                                                                           Center Head Accountant and
                                                       Center Head Finance                   and Central Government
                                                                                                    Relations                                  Asset Management



                                                                                                                                                   Head of Monitoring and
                                                         Head of Financial Affairs                    Head of Reporting
                                                                                                                                                         Evaluation

                                                                                                 Head of Central Government
                                                             Head of Funding                                                                       Head of Asset Handover
                                                                                                      Relations Affairs


                                                                                                                                                  Head of Asset Accounting

                                                                                                                                                   Head of Accounting and
                                                                                                                                                          Finance
                                                       Table FS. 14 – Laws and Regulations

 law / reg / Decree                 number                   Date                                       explanations
                                                                        Presidential Regulation regarding revisions to the Presidential Regulations
Presidential Regulation     No. 47/2008                August 1, 2006
                                                                        No. 30/2005 (Master Plan)
Presidential Decree         No. 86/M/2006              August 29, 2006 Salinan Presidential Decree Republik Indonesia No. 86/M /2006
                                                                        Presidential Regulation regarding revisions to Presidential Regulation No.
Presidential Regulation     No. 76 /2006               July 19, 2006    34 /2005 regarding the organizational structure, work plan and financial
                                                                        responsibilities of BRR NAD-Nias
                                                                        Presidential Regulation No. 8/2006 regarding the Fourth Revision to the
Presidential Regulation     No. 8 /2006                March 20, 2006 Presidential Decree No. 80/2003 on Guidelines for the Implementation of
                                                                        Government Goods/Services Procurement
                                                                        Presidential Regulation No. 83/2005 regarding the National Coordinating
Presidential Regulation     No. 83/2005                January 18, 2006
                                                                        Agency for Disaster Response
                                                       November 18,     Laws on Government Regulation in lieu of Law No. 2/2005 regarding BRR
Law                         UU No. 10 /2005
                                                       2005             region and livelihood of NAD-Nias provinces passed into law
                                                                        Presidential Regulation regarding the role of foreign institutions/individuals
                                                       November 18,




                                                                                                                                                         Fact Sheet
Presidential Regulation     No. 69 /2005                                in the framework of grants aimed for the rehabilitation and reconstruction
                                                       2005
                                                                        of NAD-Nias provinces
                                                                        Presidential Regulation regarding the third revision to the Presidential
                                                       November 18,
Presidential Regulation     No. 70 /2005                                Decree No. 80/2003 on guidelines for government goods/services
                                                       2005
                                                                        procurement                                                                       141
                                                                        Decree of Coordinating Minister for Politics, Legal, and Security Affairs
Surat Decree Sekretariat    KEP. 34 /MENKO/                             in His Capacity as Chairman of the Advisory Board of the Agency for the
                                                       July 14, 2005
Dewan Pengarah BRR          zPOLHUKAM/06/2005                           Rehabilitation and Reconstruction Agency Nanggroe Aceh Darussalam and
                                                                        Nias Islands. Province of North Sumatera
                                                                        Presidential Regulation of the Republic of Indonesia No. 34/2005
                                                                        Regarding Organizational Structure and Working Scheme And Financial
Presidential Regulation     No. 34 /2005               April 29, 2005
                                                                        Right of the Agency for the Rehabilitation and Reconstruction of NAD
                                                                        Province and Nias Islands Province, North Sumatera
                                                                        Membership of the Advisory Board and Supervisory Council and Officials
Presidential Decree         NO 63/M /2005              April 29, 2005   of the Agency for the Rehabilitation and Reconstruction of Nanggroe Aceh
                                                                        Darussalam and Nias Islands, North Sumatera.
                                                                        Master Plan of the Rehabilitation and Reconstruction of NAD Province and
Presidential Regulation     No. 30/2005                April 18, 2005
                                                                        Nias Islands, North Sumatera
Government Regulation in                                                Agency for the Rehabilitation and Reconstruction of NAD Province and Nias
                            No. 2/2005                 April 15, 2005
Lieu of Law                                                             Province, North Sumatera
Decree of Deputy for
                                                                          Establishment of the Team Secretariat of Rehabilitation and Reconstruction
Regional Autonomy and       KEP.003/D.3/04/2005        April 1, 2005
                                                                          Planning of Aceh and Nias
Regional Development
                                                                          Emergency Response Activities and Planning/Preparation of the
Presidential Instruction    No.1/2005                  March 2, 2005      Rehabilitation and Reconstruction of Post Earthquake and Tsunami
                                                                          Disaster in Nanggroe Aceh Darussalam and North Sumatera Province.
Decree of Deputy for
Regional Autonomy and                                  February 11,       Establishment of the Team Secretariat of the Rehabilitation and
                            Kep.001/D.3/02/2005
Regional Development                                   2005               Reconstruction Planning of Aceh and North Sumatera
(Revised)
Minister of State Decree.
PPN/Head of National                                                      Establishment of the Team Secretariat of the Rehabilitation and
                            Kep.001/M.PPN/01/2005      January 10, 2005
Development Planning                                                      Reconstruction Planning of Aceh and North Sumatera
Board
                                                       November 3,        Presidential Decree regarding guidelines for the implementation of
Presidential Decree         Kepres No. 80 Tahun 2003
                                                       2003               government goods/services procurement
                                                       November 21,       Law of the Republic of Indonesia No. 20 Year 2001 regarding revisions to
Law                         No. 20 Tahun 2001
                                                       2001               the Law No. 31 Year 1999 on Corruption Eradication
                                                                          Special Autonomy for Aceh Special Province as Nanggroe Aceh Darussalam
Law                         No.18/2001                 August 9, 2001
                                                                          Province
Minister of State Decree.
PPN/Head of National                                                      Establishment of Coordinating Team for the Planning of the Rehabilitation
                            Kep.007/M.PPN/02/2005      February 1, 2001
Development Planning                                                      and Reconstruction of Aceh and North Sumatera.
Board
      FINANCE: The Seven Keys to Effective Aid Management




142
      Fact Sheet
143
      FINANCE: The Seven Keys to Effective Aid Management




144
      Fact Sheet
145
      FINANCE: The Seven Keys to Effective Aid Management




146

				
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Description: Finance is a simple task of providing the necessary funds (money) required by the business of entities like companies, firms, individuals and others on the terms that are most favourable to achieve their economic objectives."