ADB Boosting Indonesia's Local Government Planning and Budgeting for Poverty Reduction

ADB will help improve the decentralized planning and budgeting process of Indonesia's local governments to reduce poverty, through a US$2.1 million technical assistance grant.

The TA, cofinanced by the United Kingdom, will help local governments develop local poverty reduction strategies that are linked to the budget process. The TA will design a capacity development program to assist at least 12 district governments in two provinces to produce local strategies that address resource planning and allocation for poverty reduction and achievement of the Millennium Development Goals.

"Local budgets are the fundamental tool for planning and managing resources in Indonesia's decentralized context," says Karin Schelzig Bloom, an ADB Poverty Reduction Specialist (Social Development). "Ensuring that budget processes are pro-poor and participatory will help boost service delivery and accelerate poverty reduction."

While local planning and pro-poor budgeting are key steps in the fight against poverty, national-level support is also required. The TA will also contribute to institutional development for poverty reduction at the central level, and will support ongoing development of a nationwide conditional cash transfer (CCT) program that will provide income support to the poor while building human capital.

CCT programs, which have been proven effective in Latin America, involve providing money to poor families contingent upon certain behavior, usually investments in human capital such as regularly sending children to school or making periodic visits to health centers. The income support provides immediate relief, while human capital investments reduce the risk of future poverty.

"This component will support the Government's efforts to cushion the impact on the poorest of the October 2005 removal of fuel subsidies and subsequent price increases," explains Ms. Schelzig Bloom.

The total cost of the TA is estimated at $2.625 million, of which the Government of the United Kingdom will provide $300,000 in cofinancing. The Government will shoulder the balance of $525,000 equivalent.

Indonesia's National Development Planning Agency (BAPPENAS) is the executing agency for the TA, which will be carried out over about 18 months beginning May 2006 under the Deputy Minister for Poverty Reduction, Labor, and SMEs (from ADB)