Interim evaluation : Indonesia municipal finance project

The project's goal is to improve the shelter conditions of the urban poor by developing the means by which municipal governments can more effectively finance shelter-related urban services and infrastructure. The evaluation entailed review of urban sector documentation provided by the Government of Indonesia and written products from the project, and interviews with counterparts, consultants, and trainees. The project has made, and continues to make, substantial progress. Major accomplishments include: decentralizing and coordinating (across sectors) the urban infrastructure programming process; substantially improving the management and yields of the property tax and other local own source revenues; setting a sound base for expanding private sector participation in urban services; establishing the Regional Development Account (RDA) as a major step toward an effective credit finance system for local government; and institutionalizing ministerial coordination at the central level. The TA and training component has been effective in advancing priority program initiatives and interagency collaboration. The project's accomplishments are sustainable. Even so, national urban infrastructure investment is falling behind national targets and decentralization has proceeded slowly in some areas. To respond to this situation the program should give priority to developing a strategy for local finance reform that goes beyond better tax administration, preparing an action plan for building the RDA into a market-based credit system, and establishing an indigenous system for building local capacity in urban management. It is also critical that policies to address urban environmental degradation be added as a high priority. USAID support has played an influential role in the program to date and the potential payoff from further assistance is high. A new HGL program and substantially expanded TA and training efforts are warranted to extend sector progress. USAID should continue to support the integrated urban program as a whole, but give special emphasis to the achievement of new goals in urban environmental management and infrastructure provision, local government finance, and private sector participation. Lessons learned included the following. The project provides a model for operating a policy-based sectoral HGL. It shows how long-term involvement in an integrated program with clearly focused sub-objectives can lead to important and measurable policy change while avoiding the risks of fragmentation inherent in more narrowly defined projects. (Author abstract)