The Seven Keys to Effective Aid Management


Head Office Jl. Ir. Muhammad Thaher No. 20 Lueng Bata, Banda Aceh Indonesia, 23247 Telp. +62-651-636666 Fax. +62-651-637777 Advisor Author Editor

Nias Representative Office Jl. Pelud Binaka KM. 6,6 Ds. Fodo, Kec. Gunungsitoli Nias , Indonesia, 22815 Telp. +62-639-22848 Fax. +62-639-22035

Jakarta Representative Office Jl. Galuh ll No. 4, Kabayoran Baru Jakarta Selatan Indonesia, 12110 Telp. +62-21-7254750 Fax. +62-21-7221570

: Kuntoro Mangkusubroto : Amin Subekti : Cendrawati Suhartono (Coordinator) Harumi Supit Margaret Agusta (Chief) : Margaret Agusta : Aichida Ul-Aflaha Hal Sullivan Hendro Prasetyo Margaret Mockler Roy Rahendra Terry O’Donnell


: Arif Ariadi Bodi Chandra

Copy Editor Writer

Graphic Design : Bobby Haryanto (Chief) Em Samudra Edi Wahyono Erwin Santoso Mistono Wasito Final Reviewer : Aichida Ul–Aflaha Heru Prasetyo Intan Kencana Dewi Maggy Horhoruw Ricky Sugiarto (Chief) Ratna Pawitra Trihadji

Translation to Indonesian Editor Copy Editor Translator : Harumi Supit : Ihsan Abdul Salam : 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

Chapter 1. Turning Pledges into Commitment
Unprecedented Generosity External Factors that Influenced the Scope and Shape of Giving The Creation of BRR The Challenge Ahead Building Credibility Maintaining Engagement with Donors and Implementing Agencies Conclusion and Observations Large Scale Damage and Large Scale Response Initial strategy Persistent Gaps Shifting to a Guided Facilitation Model Ingredients of the guided facilitation approach Mid-Term Review (MTR) Coordination Mechanisms Conclusion Dissatisfaction with a Slow Beginning The Shortfall of High Expectations Two Types of Constraints on Progress Breakthroughs & Solutions Net Effects on Disbursement 1 3 4 5 6 8 12


Chapter 2. Matching Allocations with Real Needs


17 20 23 27 28 31 33 35 37 38 39 47 55

Chapter 3. Overcoming Disbursement Hurdles


Chapter 4. Delivering Results: Modality of Fund Channeling and Performance
Generous External Support Nearing the End the Reconstruction Phase Different Fund Channeling Mechanisms Conclusion Getting to Trust Mandatory Accountability Value Added Accountability Systems Conclusion

57 58 59 69 71 73 82 84 87 89 91 92 95 96

Chapter 5. Achieving and Upholding Accountability


Chapter 6. Maintaining Integrity Along the Road
A Single Incident, Deadly Consequences Establishing Business Process Integrity Personnel Integrity Integrity Enforcement Proactive Reporting on Integrity Allegations Rigorous Integrity Review and Evaluation


Chapter 7. Ending the Game and Leaving a Lasting Legacy

Strategic Choice: To Close or Extend BRR? General Principles Applied Handing Over Finished Projects Transition of Unfinished Projects Risk Management – Ensuring the Process Stayed Critically On Track Conclusion & Achievements

99 104 106 111 116 118


Notes Bibliography Glossary of Abbreviations Fact Sheet

120 123 125 129

FINANCE: The Seven Keys to Effective Aid Management


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-tomedium 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, 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 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



FINANCE: The Seven Keys to Effective Aid Management

of the program, the World Bank among others concluded that the recovery was an 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 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
people displaced people killed and 93,285 missing small-medium enterprises (SME) destroyed

635,384 127,720

104,500 155,182 195,726

laborers trained SMEs received assistance


houses destroyed hectares of agricultural land destroyed teachers killed

139,195 140,304 73,869 69,979

permanent houses built hectares of agricultural land reclaimed teachers trained fishing boats built or provided religious facilities built or repaired kilometers of road constructed schools built health facilities constructed government buildings constructed birdges constructed ports constructed airports or airstrips constructed

1,927 39,663

fishing boats destroyed religious facilities destroyed

13,828 7,109 1,089 3,781

kilometers of road destroyed

2,618 3,696

schools destroyed health facilities destroyed government buildings destroyed bridges destroyed

3,415 1,759

517 1,115

669 996

119 363 22 23

ports destroyed airports or airstrips destroyed

8 13

Turning Pledges into Commitment
Unprecedented Generosity
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 unprecedented: typically, multilateral donors provide the leading contribution of aid, surpassing amounts committed by national authorities and NGOs. In the case of Aceh and Nias however, ‘good donorship’ was not limited to multilateral donors. This response was not the largest ever; but it was notable for the number of countries that contributed and the speed at which pledges were made. One hundred thirty-three countries provided assistance to the humanitarian mission (Masyrafah and McKeon 2008), many of these whom had never contributed to a disaster before. It is also notable that a


Different with those in other places, the Multi Donor Fund (MDF) for Aceh-Nias is an effective mechanism due to the Co-chairmanship scheme. The scheme places the host government as a decision maker level to the donor group so that alignment between donor projects and government priorities is achieved. Photo: BRR/Arif Ariadi

Chapter 1. Turning Pledges into Commitment


FINANCE: The Seven Keys to Effective Aid Management

substantial portion of this aid was generated at the grass-roots level. The New York Times 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).


The economic landscape: Standard and Poor’s Rating
Standard and Poor’s (S&P) is a leading provider of financial market intelligence. The company publishes financial research and analysis on credit ratings, indices, investment research, risk evaluation and data. Just days before the tsunami hit, S&P raised its rating on Indonesia’s creditworthiness, saying that the improving economy had raised the government revenue and foreign reserves, reduced the country’s debt burden and improved its ability to weather shocks. S&P raised Indonesia’s long-term foreign currency sovereign credit rating from B to B-plus to reflect the country’s successful elections and positive economic outlook, and increased its currency rating from B-plus to BB. These upgrades reflected ongoing progress in Indonesia’s macro-economic stability, steadfast fiscal management, declining debt and favorable external liquidity, despite a widening state budget deficit. In addition, successful legislative and presidential elections in 2004 sent a message of stability that resulted in a better flow of investment.

Indonesia was also given welcome breathing room by the Paris Club of wealthy creditor nations, who decided to let it and other affected countries suspend debt repayments. Some criticized the decision to grant Indonesia a debt moratorium since at the time the tsunami hit, Indonesia had a sound macro-economic environment. On a national scale, interest rates, currency exchange and inflation levels were stable. Indonesia had become a lower middle income country with an improving fiscal economy.2 Nonetheless, the debt moratorium provided welcome breathing room.3 Clearly there was no lack of willingness to help. However, while the international climate was favorable, past experience has shown that goodwill does not necessarily translate into concrete commitment. Often donors hold back from making good on pledges due to a lack of confidence that the money will be wellused. It was crucial to instill donor trust and confidence in order for Indonesia to receive the funds. The following sections examine in detail the process 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.

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 other disasters, nor were givers suffering from “donor fatigue.” (Note that in the year following the tsunami, calamities in New Orleans, Kashmir, and Yogyakarta, put at risk the transference of pledges for Aceh and Nias due to commitment elsewhere.) (ii) Timing and Media Coverage The international scope of the disaster, holiday timing and the resulting intensity of media coverage played a meaningful role in catalyzing pledges. First, during this time there was a lack of other news stories to be covered, resulting in repetitive and intense media coverage. The fact that several international celebrities were involved also contributed to the media fascination. Second, by 2004, technological advances—most prominently, the internet-were sufficiently well-developed and widespread to provide real-time, widely 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 reported disaster to date (TEC 2006). Third, the international context of the disaster was a key factor. The tsunami hit several countries and as mentioned above, involved a number of wellknown 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.

Why was the public so generous?
What impelled the public to give so generously? A study by the Tsunami Evaluation Coalition (2006) that looked at funding from the Spanish public listed the following reasons for private giving, in order of decreasing importance: • • • • • 64.2% always donate after such an event 28.7% the media coverage 17.3% Christmas spirit 8.7% presence of tourists 2.4% familiarity with the affected area
(Source: TEC Funding Response/ General Public/Spain Report, 2006)

Chapter 1. Turning Pledges into Commitment

External Factors that Influenced the Scope and Shape of Giving


FINANCE: The Seven Keys to Effective Aid Management

(iii) Recent Shifts in the International Aid Landscape 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 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 aid delivery should be recast to be more responsive to the frequent emergence of both natural and man-made disasters, and that aid should also serve the agenda of the national authority. Such was the background of the The Paris Declaration on Aid Effectiveness of March 2005 was an 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 and implement their own national development plans, using their own national priorities, planning and implementation systems. The five principles of the Paris Declaration are as follows: •


Paris Declaration on Aid Effectiveness

Ownership-Patner countries exercise effective leadership over their development policies and strategies, and coordinate development actions. Alignment-Donors base their overall support on partner countries’ national development strategies, institutions and procedures. Harmonization-Donor actions are more harmonized, transparent and collectively effective. Managing for Results-Managing and implementing aid in a way that focuses on the desired results and uses information to improve decision-making. Mutual Accountability-Donors and partners are accountable for development results.

The resulting aid architecture was thus propitiously conducive to a governmentdriven reconstruction program. It enabled various breakthroughs and arrangements to take place, as the GOI moved into the reconstruction phase of the recovery.

The Creation of BRR
Taking ownership of the reconstruction, the GOI took the cardinal step of establishing BRR. This new agency had the dual role of implementing its own projects while coordinating the works of others. Donors appreciated the GOI’s move to create a 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.” 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 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
Chapter 1. Turning Pledges into Commitment


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.

FINANCE: The Seven Keys to Effective Aid Management

Meanwhile, BRR had to contend with Indonesia’s reputation for corruption. Out of the 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 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

0.5 USD 2.4B NGO USD 2.2B Donor Agencies

Damage Assessment

Build Back



USD 2.1B Government of Indonesia

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 Jakartabased 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 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 In the midst of the destruction, the tsunami ensuring clean and transparent reconstruction. With the support brought an unexpected legacy of peace to the of the Corruption Eradication Commission (KPK), which opened 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 longalso 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 Yudhoyono’s attempts at reconciliation Comission regional offices, BRR was able to take a strong stance 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.

A Silver Lining

Altogether, the combination of these steps--including the 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.

Source: Sengupta and Mydans, The New York Times, December 25, 2005

Chapter 1. Turning Pledges into Commitment

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 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.


FINANCE: The Seven Keys to Effective Aid Management

Maintaining Engagement with Donors and 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 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. 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 9 Donor 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 25.00 20.72 19.57 18.03 13.93 11.05 10.13 10.00 10.00 8.80 1.20 3.7% 3.6% 3.0% 2.8% 2.6% 2.0% 1.6% 1.5% 1.4% 1.4% 1.3% 0.2% Chapter 1. Turning Pledges into Commitment

Three Financing Options
Three types of financing options were established by BRR in recognition of the considerable diversity among donors in Aceh and Nias: 1) on-budget/on-treasury, 2) on-budget/off-treasury, and 3) off-budget/off-treasury. No one mechanism is superior; each has benefits and drawbacks (more in Chapter 4).

World Bank Sweden Norway Denmark Germany Belgium Finland Asian Development Bank USA New Zealand Ireland

(a) On-budget/on-treasury – In Total Contribution: 691.92 100% line with strengthening * Based on World Bank foreign exchange rates as of government partnership and 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
FINANCE: The Seven Keys to Effective Aid Management


Definition of on- and off-budget, and on- and offtreasury
On-budget funds refer to donor funds channeled through the government budget, while off-budget funds refer to funds channeled directly to the project. The on-budget project expenditures are registered into the GOI national budget through the Issuance of Spending Authority (DIPA).

(b) On-budget/off-treasury – Some donors who traditionally worked with the government preferred that the disbursement of their funds be done outside the Special Purpose Treasury Office, or KPPN-K. These donors, such as the Governments of Germany and Japan, had identified certain sectors and projects to be carried out by their own implementing agencies. In this scheme, while donor 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 typically have implementation mechanisms on the ground. In these cases, BRR allowed them to finance their projects using the offbudget/off-treasury mechanism. The upside is a potentially swifter implementation process since agencies can bypass the long national 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 these mechanisms, the donors, mainly bilateral ones, weighed advantages and challenges to assess which would work best with their strategy, capabilities, and their own development agendas. Most players wound up maintaining the fund channeling mechanisms that they were accustomed to. Table 1.2 outlines the types of players, their sources of funding, preferred method of channeling funds, and implications attached to their choice of funding mechanism. Ultimately, it was hoped that BRR could coordinate and monitor all efforts. However, by being flexible with the financing mechanisms, donors were more comfortable as they could channel their funds using processes they felt safe with. These mechanisms also allowed them to implement using their own procedures and implementation systems, if deemed appropriate. Consequently donors, NGOs and other delivery partners were able to maintain their governance in a way that they were accustomed to.

Table 1.2 - Types of Rreconstruction Players and the Implications of Their Preferred Funding Mechanisms

Government of Indonesia

Indonesian taxpayers and Paris Club debt moratorium


Funds were channeled in accordance to the prevailing GOI regulations created for normal conditions. Bureaucratic systems with lengthy time frames impeded swift implementation. Aid is often tied to specific sectors or to specific implementing agencies to serve donor country’s agenda.

Bilateral Donor

Aid given by the government of one country directly to another. Many dedicated governmental aid agencies dispense bilateral aid, for example AusAID. Aid is given from the government of a country to an international agency, such as the World Bank or the Asian Development Bank, which in turn distributes the aid. Multilateral aid agencies are usually governed by the contributing countries. NGOs, have played an increasingly active role in distributing aid from donations from the private* and public sectors. Many NGOs conduct their own international humanitarian work.

On- and off-budget

Multilateral Donor

On- and off-budget

Streamlined transaction cost of multiple actors. Accountability to multiple nations created procedures that limit speed and flexibility.



Faster speed of aid distribution but limited control as actors function independently of government systems.

* The term ‘private’ covers both the general public and private entities, such as companies, religious groups or associations–i.e., all noninstitutional donors.

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.

Chapter 1. Turning Pledges into Commitment


SoUrCe of fUnDing

fUnD meChAniSm



FINANCE: The Seven Keys to Effective Aid Management

The United Nations Office of the Recovery Coordinator (UNORC) was one such platform. 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 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.

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, 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 project preparation process for that pledges not turning into commitment were more a factor government begins with the development of concern for the NGOs than for the traditional bilateral and of a ministry’s annual work-plan and multilateral donors. budget (RKA-KL), which is informed by the

The DIPA Process

In Indonesia’s case, a government management structure was in place that could review bilateral programs, co-financed multilateral programs and MDF decisions for consistency with Indonesia’s own recovery plan and evolving priorities (TEC 2006). Despite this fact, the GOI elected not to impose an overarching government-led management and structure. It also decided not to compel donors to deliver funds through the government budget. Instead, it created BRR as a separate agency to take ownership of the overall program and assist coordination. BRR’s role at the helm of reconstruction did not come easily. It first had to earn trust and credibility from donors, partners and the community. Steps such as the establishment of the AntiCorruption Unit and the Selection of a respected leader helped

Annual Government Work Plan (RKP) and budgetary ceilings. Implementing agencies submit draft budget plans to the Ministry of Finance for review and approval. With an approved budget plan in hand, the implementing agency then prepares a budget Issuance of Spending Authority (DIPA), against which all disbursements are to be authorized and processed through the Office of State Services and Treasury (KPPN). On-budget projects may be authorized and processed through the KPPN. On-treasury refers to disbursements through the Directorate General of Treasury, or KPPN-K, office in Aceh.

Chapter 1. Turning Pledges into Commitment

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 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.


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. 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 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.
Chapter 1. Turning Pledges into Commitment


Eddy Purwanto, Chief Operating Officer, in discussion with JICA representatives during a field visit to a proposed Final Waste site. Photo: BRR/Arif Ariadi

Matching Allocations with Real Needs
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 off-budget and outside official development assistance flows. This chapter explores how in developing a recovery strategy, BRR sought a balance between responding rapidly to the needs of the people and coordinating the numerous international actors. As time revealed the changing needs on the ground, BRR responded accordingly to the dynamics of the environment.

The Saman Dance is a traditional Acehnese dance that symbolizes a harmonious relationship among humans. In a high-paced and bold rythm, the dancers form an impressive coherence of movement. Photo: BRR/Arif Ariadi

Chapter 2. Matching Allocations with Real Needs


FINANCE: The Seven Keys to Effective Aid Management

The tsunami unleashed unprecedented destruction in modern history. It killed 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 1600 Damage 1400 Losses


Damage and Loss Assessment
Immediately following the tsunami, Indonesia’s National Development Planning Board (Bappenas) alongside international partners conducted a damage and losses assessment intended to provide a preliminary picture of the impact caused by the tsunami. This assessment was made under the standard internationally accepted methodology developed by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). Damage (direct impact) refers to the impact on assets, stock, property and is valued at agreed 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 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 Agriculture and Livestock Enterprises Water and Sanitation Govermance and Administrations Transport & communication Flood control, Irrigation & Sea Protection Culture and Religion Bank and Finance Environment Health Education Fisheries Housing Energy

Losses (indirect impact) refer to flows that will 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

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, 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.

Chapter 2. Matching Allocations with Real Needs

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 sector translated into lost or severely impacted livelihoods (Bappenas and International Community 2005). In Nias, total damage and losses amounted to US$400 million.


FINANCE: The Seven Keys to Effective Aid Management

As mentioned in Chapter 1, in the early months of reconstruction, BRR was a new 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, 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 to: incorporate a comprehensive damage and needs assessment, rapidly mobilize reconstruction funds and activities, focus on the needs of the local population, The Master Plan aimed to, among other things: establish the highest fiduciary standards and an efficient build consensus and commitment among central system for managing the funds, and establish a way to and local governments, donors, and other stakeholders update and monitor needs and results. Each stage of the involved in the reconstruction strategy needed to be shaped by the needs of the local coordinate and synchronize plans from various population. As we have learned from global experiences in sectors and stakeholders to create an integrated 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


Goals of the Master Plan

The Master Plan
Subsequent to the damage and needs assessment, Bappenas in cooperation with international partners developed a Master Plan. This Master Plan confirmed the need for a separate reconstruction agency and laid out guidelines outlining detailed reconstruction targets in Aceh. 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.

develop an effective, transparent, and accountable system and mechanisms to mobilize funding from the national budget, regional budget and donors in accordance with the principles of good governance
Source: Bappenas 2005

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 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

Community & Spatial Planning

Education & Health

Economic and Business Empowerment

Institutional Development Land Titling Religion, Social and Cultural Affairs 2005 2006 2007 2008 2009

Chapter 2. Matching Allocations with Real Needs

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 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.


FINANCE: The Seven Keys to Effective Aid Management

In the absence of a clear reconstruction plan in the Master Plan, BRR, created a broad 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 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.


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. 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.

Chapter 2. Matching Allocations with Real Needs

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 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.


FINANCE: The Seven Keys to Effective Aid Management

Donor proliferation, as witnessed in Aceh, has taken place almost continuously on 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




800 US$ Million




The immediate consequence of aid proliferation is an increase in the transaction costs incurred by recipient governments as they absorb foreign aid (Acharya et al., 2006). The costs can be direct transaction costs or indirect transaction costs (Acharya, Fuzzo and Moore 2004). Direct transaction costs absorb the energy of the recipient government, which is burdened for example by increased reporting costs and other administrative overhead, siphoning off scarce domestic recipient resources such as tax revenue and the time of skilled government officials from directly productive use (Roodman 2006). Further, there is an increased burden on local authorities and coordination structures. Indirect transaction costs take the form of unscrupulous bureaucratic and political behavior stimulated by aid proliferation (Masyrafah and McKeon 2008). Initially, by allowing the chips to fall freely, BRR gave itself room to make sense of the chaos as the free market approach brought to light the real 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 informationsharing taking place. The costs of this ‘free market’ proliferation of agencies became apparent as the allocation of funds across sectors soon became unstable.

0 Community, Culture and Religion Governance and Administrations (incl.Land)
Flood Control and Irrigation Work


Water and Sanitation

Other Infrastructure


Agriculture and Livestock



(Source: BRR and Partners 2005)

Industry, Trade and SMEs



Figure 2.4 - Sectoral Allocations Gaps Versus Key Minimum Needs in December 2005

Misallocation of Funds
The total reconstruction program of US$7.2 billion in Aceh and Nias was the largest reconstruction program in the developing world at the time. By December 2005, US$4.4 billion had been translated into concrete programs that served as the backbone for the first year of reconstruction (BRR and Partners, 2005). Almost half of the funds were allocated to the housing and infrastructure sector, followed by the transport, health, education, community support and governance sectors (Figure 2.3). This section illustrates the gaps in reconstruction that emerged over time and their implications.

US$ Million 400 300 200 100 0 -100 -200 -300 -400
Community, Culture and Religion
Agriculture and Livestock Flood Control and Irrigation Work Health Water and Sanitation Other Infrastructure Communications Enterprise Education Energy Environment Fisheries Governance and Administration (incl.Land) Transport Housing


The initial US$4.4 billion was sufficient to cover the initial damage and loss assessment, but it was not enough to meet minimum needs in some sectors, to build back better, or to account for increased costs. Further, these allocations were only broadly in line with sectoral needs. Due to the varying appeal of sectors and the presence of aid “tied” to certain projects, a year after the tsunami, funding for several sectors had exceeded core minimum needs while other sectors remained heavily underfunded (Figure 2.4). Further, rising inflation rates triggered aid volatility in Aceh and had a direct impact on the ability of international agencies to deliver on their planned promises (Masyrafah and McKeon 2008). According to Masyrafah and McKeon (2008), Aceh hosted around 2,200 projects implemented by over 500 agencies in the reconstruction phase alone. Of these projects, NGOs managed 80 percent, while the

Source: BRR and Partners 2005

A Note on the Definition of ‘Projects’
The true definition of a “project” is unclear due to varying measurements for different partners and the varying tools for recording reconstruction activities. For off-budget activities, BRR used the number of Project Concept Notes (PCNs) as an indicator. As of December 2008, 1,658 PCNs had been approved by BRR (more on the PCN approval process below). However, a PCN can also represent a sectoral program with a collection of project components, in which case the number of off-budget projects would be greater than the number of PCNs. Meanwhile, for on-budget activities, BRR used over 900 Project Implementing Units (PIUs or Satker) during the agency’s lifetime. Each PIU implemented a number of packages composed of a varying number of contracts. As with a PCN, each package and contract may constitute one single project or a group of them. During 2005-2008, there were over 20,000 packages. Needless to say, the divergence in tools of measurement makes it difficult to come up with one clear number for the amount of projects managed in the reconstruction period.

Chapter 2. Matching Allocations with Real Needs



Figure 2.5 - Regional Gaps in Financing in December 2005

FINANCE: The Seven Keys to Effective Aid Management




(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

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 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.
400 300 200 100 0 -100
Agriculture and Livestock Governance and Administrations (incl.Land) Flood Cntrol and Irrigation Work Health Water and Sanitation Other Infrastructure Bank and Finance Communications Energy Community, Culture and Religion Environment Education Enterprise Transport Fisheries Housing

Now, BRR began steering partners to implement projects in the underfunded sectors, filling gaps in needs on the ground that the free market approach had not adequately met. Over the course of reconstruction, the guided facilitation 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

Chapter 2. Matching Allocations with Real Needs

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 accessible, funding flows into these areas increased.


Figure 2.7 - Sectoral Allocations Gaps Versus Core Ninimum Needs in December 2007

USD Million 600 500 400 300 200 100 0 -100 -200
Governance and Administrations (incl.Land) Agriculture and Livestock Health Water and Sanitation Communications Other Infrastructure Enterprise Education Community, Culture and Religion Transport Fisheries Housing


Flood Control and Irrigation Work Bank and Finance Environment Energy


It should be noted that sectoral funding needs to be changed over time; for example the assessment of fund allocations in December 2006 revealed that there was no longer a deficit in the funds for the transportation sector, whereas there was a greater need for funds in the housing sector compared to the previous year. By December 2007, housing had received the appropriate allocations by BRR and partners to surpass the core minimum needs. However, environment and energy sectors were still underfunded. Overall, the gaps in the different sectors narrowed as BRR approached its final year.

FINANCE: The Seven Keys to Effective Aid Management

Ingredients of the Guided Facilitation Approach

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.

Source: World Bank 2007

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
Chapter 2. Matching Allocations with Real Needs

First inaugurated in October 2005, the RAN Database underwent several iterations. It tracked where off-budget funding was and was not being allocated, and also tracked the physical progress of projects as reported by submitted Project Concept Notes (PCNs). This data was then used to more accurately guide partners towards addressing real needs.7 2. On-the-ground presence: BRR Regional Offices Data from the RAN Database was enhanced by information from the BRR regional offices in the field. BRR had established regional offices across Aceh and Nias to oversee on-the-spot execution of projects and foster the active participation of community members and the local government in the planning and execution of projects. Having arms and legs on the ground strengthened the bottom-up approach to reconstruction and provided a clearer picture of what was happening on the ground. Chapter 3 further elaborates on BRR regionalization. The information from the RAN Database and the BRR Regional Offices was instrumental in providing a more accurate picture of the individual parts as well as developing an understanding of the collective whole. Armed with this information, BRR was able to better prioritize. It could sensibly sort through the profusion of organizations and projects to make decisions on fund allocations that maximized delivery. Consequently BRR was able to adjust its management approach to focus on managing at the “big picture” reconstruction portfolio level. Portfolio management is about managing strengths and weaknesses, opportunities and threats, and other tradeoffs in order to achieve a successful outcome 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.

Project Concept Notes (PCNs) are an important part of the RAN Database data gathering process. Each PCN contains information on the goals and objectives of projects, the source of funding, the implementing agency, timeline, location, and exact Key Performance Indicators (KPIs) of the project. PCNs provide a basis for BRR to track projects implemented through off-budget mechanisms, as approved PCNs are registered into the RAN Database. The PCN approval process also substitutes for direct control over the NGOs. BRR held regular PCN Approval Workshops in which BRR sector experts, the local government and relevant external stakeholders we invited to evaluate a batch of submitted PCNs in a transparent fashion. The PCNs we rated as follows: unconditional approval, conditional approval, holding bay, or turned down. The criteria used to evaluate projects include alignment with the Master Plan and sector vision, local community involvement, and project sustainability. This single approval process allowed for maximum coordination between government and non-government projects and avoided overlaps in implementation. The PCN Approval Workshops thus provided a forum where BRR could match proposed projects and partner skills with sectoral and regional demands on the ground. This process helped guide funding towards real needs while maintaining donor and NGO buy-in. As of December 2008, 46 PCN Approval Workshops had been conducted. Of 1,859 PCNs proposed, 1,658 were approved.


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.

FINANCE: The Seven Keys to Effective Aid Management

Complicating the task, some funds were pre-earmarked by donors for specific purposes. 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 shortterm 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 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.


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

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 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 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.
Figure 2.8 - The Four Quadrants of the MTR

Chapter 2. Matching Allocations with Real Needs

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.


FINANCE: The Seven Keys to Effective Aid Management


Public Consultation with National Development Planning Agency in Jakarta regarding revisions to the Master Plan, July 19, 2007. Photo: BRR/Arif Ariadi

The second quadrant contained projects that had inadequately met Master Plan targets. These projects, such as the provision of fishing boats, had been moved down the priority list in deference to other, more urgent needs on the ground. In the third quadrant were projects that had been implemented despite their lack of mention in the Master Plan, in 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 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 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.

Chapter 2. Matching Allocations with Real Needs

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 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.


FINANCE: The Seven Keys to Effective Aid Management

As reported by Masyrafah and McKeon (2008), views on the success of these forums 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, 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
Chapter 2. Matching Allocations with Real Needs

As mentioned, BRR took advantage of existing mechanisms and platforms that other 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.


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.

Overcoming Disbursement Hurdles
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 Unprofessional.” Serambi Indonesia accused BRR of a lack of coordination and of harboring incompetent personnel within the agency. Still harsher criticism came from a noted informal leader of Nias who openly castigated BRR for failing to carry out rehabilitation

Assistance programs for companies and capacity building for employees are important initiatives for the economic and business development. Photo: BRR/Arif Ariadi

Chapter 3. Overcoming Disbursement Hurdles


FINANCE: The Seven Keys to Effective Aid Management

and reconstruction in the area: “During 2005, it may be said that BRR did not seem to 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.


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.

BRR spent its first two months preparing and revising issuance of the Issuance of Spending Authority (Daftar Isian Pelaksanaan Anggaran, DIPA), the state budget 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.)

Chapter 3. Overcoming Disbursement Hurdles

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


FINANCE: The Seven Keys to Effective Aid Management

(i) Line-By-Line Budget Allocations 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 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


Budget Law

Ministry of Finance
Reviewed LM B&WP

Line Ministry Budget & Work Plan

Line Ministry (incl. BRR)

WU Budget & Work Plan Presidential Decision on Budget Details

DG Treasury

Budget Allotment

DG Treasury Regional Office

Copy of Budget Allotment

Work Units

Figure 3.3 – GOI Budget Timetable

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


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.

FINANCE: The Seven Keys to Effective Aid Management

In order for the projects to be continued, a special policy was needed allowing BRR 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 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 scale of the disasters, hundreds of international agencies involving thousands of individuals arrived in Aceh and Nias from all corners of the world. They needed to promptly legitimize their presence in Indonesia in order to be able to open bank accounts, legally hire local staff, obtain appropriate visas for foreign staff, receive tax exemptions and customs 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 types of documents. The sudden upsurge of administrative work handled by the said


Figure 3.4 - Reallocation of Unspent Budget in Subsequent Years

Additional budget from Year 1 Balance


Budget Allocated

Budget Spent Year 1 Year 2

(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 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.

Chapter 3. Overcoming Disbursement Hurdles

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 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.


FINANCE: The Seven Keys to Effective Aid Management

Reconstruction performance in the early months was therefore slower than it would 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 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


worked in the field. The Jakarta Post reported on November 9, 2005, that occasional acts of ‘bureaucratic turf battle’ were apparent as the various agencies struggled to establish a mutually comfortable working relationship. The same could be said of BRR’s relationship with donors and NGOs, who each had their own set of interests and priorities. (iii) Limited Availability of Resources for Reconstruction 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

Said Faisal, the Deputy for Education and Health, speaks in front of NGOs and donors during a coordination meeting at Syiah Kuala University. Banda Aceh, May 13, 2005. Photo: BRR/Arif Ariadi

Chapter 3. Overcoming Disbursement Hurdles


FINANCE: The Seven Keys to Effective Aid Management

the tsunami contracted its economy by 10 percent in 2005.12 Total annual government 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.

Finding Team Spirit
In hindsight, the problems encountered by BRR as leader of the rehabilitation and reconstruction effort follow the patterns of the group development model as first proposed by Bruce Tuckman (1965), who maintained that the phases of forming-storming-norming-performing-adjourning are necessary and inevitable in order for a team to grow, handle problems, find solutions, plan work, and deliver results. BRR and all stakeholders who worked together as a team were initially in the forming stage in which they met and learned about the opportunity and challenges, and then agreed on goals and began to tackle the tasks. Team members at that point tended to behave quite independently. They might be motivated but were usually relatively uninformed of the shared issues and objectives of the reconstruction team. The team then moved to the storming stage in which different ideas compete for consideration. The team addressed issues such as what problems they were really supposed to solve, how they would function independently and together and what leadership model they would accept. Team members opened up to each other and confronted each other’s ideas and perspectives. Several months later, the team of stakeholders entered the norming stage. Team members adjusted their behavior to each other, agreed on rules, shared methods, and working tools. During this phase, team members began to trust each other. Motivation increased as the team became better acquainted with the task. The team finally reached the performing stage, where they could find ways to get the job done smoothly and effectively without inappropriate conflict. Team members became interdependent, motivated and knowledgeable. At the adjourning stage, the team completed the task and BRR gradually shifted responsibilities and handed over assets to other mainstream permanent government agencies. For BRR, this was also a mourning stage in which people were dismayed by the prospect of BRR's closure after working handin-hand with them, sharing “the joys and sorrows” of managing a colossal reconstruction effort.

As a result, the sudden inflow of post-disaster funds overwhelmed these regions beyond their absorption capacity. Moreover, the vast destruction of transportation infrastructure seriously hindered shipment of needed materials. This situation was reflected in the delays of projects due to inavailability of materials and skilled personnel. The proliferation of agencies mentioned in Chapter 2 exacerbated the shortage as they competed for resources. New, not necessarily experienced or competent actors entered the scene. Among these were ex-GAM members reintegrating into society who were eager to take part in the opportunities of the reconstruction program. Meanwhile, established actors ventured into activities outside of their normal area of expertise. Altogether this only worsened the complicated problems caused by inadequate supply of contractors and materials. Theoretically, BRR and other implementing actors could have “imported” contractors from the outside. However, it was BRR's policy that redevelopment of Aceh and Nias should utilize indigenous local capacity where possible, although construction materials and some highly skilled labor were inevitably brought in. This policy aimed to develop local capacity and promote local long-term ownership of project results. From the socio-political perspective, social sensitivity stemming from prolonged government conflict meant that it was imperative to give the Acehnese an active role. BRR had to actively avoid the impression of supporting— as an Acehnese saying goes--“buya krueng teudongdong, buya tamong meuraseuki” (newcomers amass a lot of fortune, while the indigenous can only watch).


Breakthroughs & Solutions
BRR formulated a number of legal, policy and implementation breakthroughs and 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.

Chapter 3. Overcoming Disbursement Hurdles

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 “smalltime” 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.


FINANCE: The Seven Keys to Effective Aid Management

(ii) Budget Carryover & Trust Fund 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 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 timediscipline 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 Absorbed


Balance 3.5T Ceiling 3.9T 2005

Balance 1.5T

2T Absorbed

2T Absorbed

Trust Fund
Ceiling 3.5 2006L (carryover) 2006 Ceiling 2.2T 2007 Trust Fund

Director General of Treasury Regulation in 2007.14 These two decrees contained technical guidelines on the use of funds from the Trust Fund. Later, the closure of the BRR Trust fund was directed by a Director General of Treasury Regulation issued in September 2007.15 The establishment of the Trust Fund shifted the function of the Treasury vis-a-vis BRR in keeping with the specific guidelines outlined by those decrees. Similar to the budget carryover, the Trust Fund allowed unspent 2006 national APBN budget funds to be 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

A number of Project Implementing Unit personnel wait in line to pick up a Fund Disbursement Authorization Letter at the Special Office for State Services and Treasury (KPPN-K). Banda Aceh, December 16, 2008. Photo: BRR/Arif Ariadi

Chapter 3. Overcoming Disbursement Hurdles


FINANCE: The Seven Keys to Effective Aid Management

to review some 3,000 companies who had registered for pre-qualification. BRR directly 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 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 onestop-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


government agencies were afraid that this “special treatment” would set a precedent for others to expect the same service in the future. Fear of losing control over the process to BRR was another (unspoken) reason for their brush-offs. Understanding their concerns, BRR went to great lengths to convince them that the one-stop service would not comprise special treatment. All requirements for obtaining 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

Stacks of wood imported from New Zealand used for housing reconstruction in Teunom, Aceh Jaya, following customs clearance. March 23, 2007. Photo: BRR/Arif Ariadi

Chapter 3. Overcoming Disbursement Hurdles


FINANCE: The Seven Keys to Effective Aid Management

The establishment of Integrated Team also helped boost the rate of registration 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 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 1000 800 600 400 200 2005 2006 2008 2005 2006 2008 2007 2007

1200 1000 800 600 400 200

Head Office

Regional Office

Figure 3.8 - Functions of Regional Offices

• Establish office • Record and report issues arising in stakeholder meeting • Represent BRR with stakeholders in the region • Provide information to stakeholders about BRR

• Communicate reconstruction program to stakeholders • Lead coordination meetings • Assist in avoiding overlaps and filling gaps • Understand and communicate reconstruction needs

• Coordinate disbursement of BRR funds • Monitor and evalube BRR Project Implementing Units • Settle problems faced by BRR projects • Facilitiate release of useable land • Manage Operations center unit in the region • Prepare region’s program for following year’s budget

Capacity building
• Assist local government in establishing policies ang programs • Work to prevent collusion, corruption and nepotism • Work to support and strengthen civil society • Work with the local government in coordination and program implementation • 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.

Chapter 3. Overcoming Disbursement Hurdles




FINANCE: The Seven Keys to Effective Aid Management

Figure 3.9 - Completed Shipment by Commercial Operators Under Coordination of World Food Program Shipping Service (WFPSS)

50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000
7,500 4,659 2,813 16,212 24,120 23,434 20,960 44,971

31,654 29,090


24,812 21,145 14,107




13,706 12,185 11,104


















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

90% 80% 70% 60% 50% 40% 30% Donor 20% 10% NGO GOI







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.

Chapter 3. Overcoming Disbursement Hurdles



Modality of Fund Channeling and Performance
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 Aceh and Nias was the extent to which NGOs came up with substantial sums of their own money.19 A large amount of aid funds flowed through some 992 funding and implementing partners operating on the field rather than directly to the government.20 Roughly half of all donor aid was channeled through the NGOs, many of which operated

Every year, more than 20% of Aceh's GDP comes from agriculture. Some 70 thousand hectares of agricultural land were rehabilitated or newly created in the 4-year recovery period. Photo: BRR/Arif Ariadi

Chapter 4. Delivering Results: Modality of Fund Channeling and Performance

Delivering Results:


FINANCE: The Seven Keys to Effective Aid Management

as both implementing and funding organizations which also supported smaller NGOs 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


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
(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 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 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.
Chapter 4. Delivering Results: Modality of Fund Channeling and Performance

As described in Chapters 1 and 2, BRR set up three main fund channeling mechanisms, or modalities, to accommodate the different needs of donors. They are briefly recapitulated below.


Figure 4.1 - Fund Channeling Mechanisms

Source of Fund


Foreign Govt Multilateral Donors

Organizations and Communities

Trust Fund



Fund Channel

On Budget/ On Treasury

On Budget/ Off Treasury

Off Budget/ Off Treasury


BRR & Other Govt Working Units (Satkers)

Own Implementation Units & NGOs



On Budget Mechanism

Off Budget Mechanism

Figure 4.2 - Fund Modality and Performance

FINANCE: The Seven Keys to Effective Aid Management


(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.

Donor experiences with this modality
Two major donors using the onbudget/on-treasury modality during the reconstruction of Aceh and Nias were the MDF and ADB. The combined contribution of the two multilateral donors was in excess of one billion dollars. Another donor using this modality was the government of Italy, who swapped GOI loans for grants (See Box: Debt Swap with Italy).
800 700 600
US$ million

Figure 4.3 - Disbursement Rates of ADB and MDF as of December 2008
800 700 600 500
65% 83%

Commitment Disbursement

500 400 300 200 100

400 300 200 100



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

Chapter 4. Delivering Results: Modality of Fund Channeling and Performance

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 funds were always aligned with the overall reconstruction agenda. In some cases, onbudget 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 original sector or program was usually impossible.


FINANCE: The Seven Keys to Effective Aid Management

Both the World Bank, as the trustee and partner agency of MDF, and the ADB are 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 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.

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 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 business. Putting it in a larger context, the benefits of faster overall project execution far exceeded its cost. Benefactors by now have long enjoyed project deliverables, and the momentum of recovery could be maintained at a higher speed. (ii) Delegation of Authority (Decentralization) Another principle that ADB’s actions illustrated was the usefulness of decentralizing operations and having a field presence. ADB’s initiative to establish a local office—the Extended Mission in Sumatra—paid real dividends. Given adequate authority to make decisions on its own, the local office was responsive and adaptive to the demands from the field. The time needed for project preparation, appraisal and execution could be shortened to a minimum. Indeed, the importance of speed cannot be overstated in post-disaster reconstruction. Disaster victims need to get back to their normal lives as soon as possible. The longer they have to wait, the greater the social and economic cost. Time planning is a luxury that such circumstances do not afford,

Asian Development Bank
The Asian Development Bank (ADB) was among the first to respond to the tsunami by committing significant grants for the rehabilitation and reconstruction program. On April 7, 2005, ADB approved a support package for rehabilitation and reconstruction of Aceh and Nias, comprising the Earthquake and Tsunami Emergency Support Project (ETESP) for US$290 million, a contribution to the MDF of US$10 million, and a Community Water Services and Health Project (CWSHP) grant of US$16.4 million. ETESP was the largest grant project in ADB’s history and was used to restore essential public services and rebuild infrastructure and promote the resurgence of private economic activity. Although ETESP was approved prior to the formal establishment of BRR, subsequent to its establishment all its subprojects were designed and implemented in close coordination with BRR as the leader for the overall reconstruction. ETESP was funded through the Asian Tsunami Fund (ATF), a trust fund established by ADB in the wake of the tsunami to assemble contributions from ADB and other bilateral and multilateral donors.

Chapter 4. Delivering Results: Modality of Fund Channeling and Performance

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 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 and Nias. This in turn developed their capacity to deliver similar projects in the future.


FINANCE: The Seven Keys to Effective Aid Management

New Structures Foster Urgency
When managing post-disaster reconstruction, it is important for government as well as donors to adopt a structure that is conducive to this high sense of urgency. A new structure may be best. The organizational culture of government and big donors is usually shaped to cope with predictable, regular development challenges with longer time frames. The pace of decision making is typically slow and energy levels are rarely high. The organization structure also is designed to focus people’s attention on narrow technical and functional issues, sometimes at the expense of broader goals. Establishing a high sense of urgency in such a big organization can be extremely difficult (Kotter 1996). The establishment of BRR as an ad-hoc government agency independent of any line ministry provided just such an autonomous structure where a high level of energy and sense of urgency could be maintained until the finish line. The flat organization as structure with a less formal working environment adopted by BRR also promoted the free flow of information. Staff avoided being slotted into organizational silos and instead worked collaboratively on cross-cutting issues to achieve common goals. A higher level of turnover and attrition is expected in such a stressful, fast-paced working environment. Indeed, an agency with a limited lifespan such as BRR should not be expected to yield a stable career path. BRR was more akin to an organization of volunteers than a government agency. Individuals ought to take their leave if their contribution is no longer needed or excessive burnout prevents them from performing. The Extended Mission in Sumatra, a nimble organization unit separated from the mainstream organization structure of ADB, was a good example of an effective ad-hoc organization on the donor side. Armed with sufficient capacity and authority, the office could respond quickly and decisively on various planning and implementation issues of ETESP subprojects without being paralyzed by the limiting structure of the bank’s organization.

and consequently meticulous planning often falls by the wayside. A strong sense of urgency must be maintained throughout the process. While people usually agree on the importance of speed in a post-disaster undertaking, acting accordingly is easier said than done. As time passes and disaster news coverage recedes, after the basic minimum supports have been delivered to victims, it is only human fall back into a “business as usual” mentality. The sense of emergency gradually evaporates. Daily routine kicks back in and activities return to their normal pace. One of the best ways to maintain a high sense of urgency is by decentralizing operations. The government, donors, and other reconstruction actors should delegate authority to the lowest level possible, where capacity exists. Despite the obvious risk of delegation of authority, local management of the reconstruction process has a host of advantages. The scope for interaction and collaboration between the disaster-affected population and the reconstruction actors is greatest at the local level. Armed with better first-hand knowledge about what is going on, the issues that need to be addressed, the aspirations of people and the tradeoff among choices, local management usually makes fast and better decisions than those managing from a distance. Localized authority also avoids the frustration caused by the rigid, hierarchical decisionmaking chains of centralized organizations. Accordingly, the ADB’s decision to delegate authority to its EMS office made great sense. This contrasted sharply with the centralized structure adopted by many other donors in which Jakarta-based decision makers sat far removed from the goings-on in Aceh and Nias, with post-disaster reconstruction being just one of the many “development projects” on the 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


people in the field. Here, decision-making processes went though the usual pipelines in which onerous administrative and technical requirements frequently delayed implementation. Finally, the Indonesia country office sometimes lacked the authority or 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

Vacational High School built by KfW in Banda Aceh. August 22, 2008. Photo: BRR/Arif Ariadi

Chapter 4. Delivering Results: Modality of Fund Channeling and Performance


FINANCE: The Seven Keys to Effective Aid Management

Reducing Transaction Costs Through Collaboration
Transaction costs are not the only consideration in deciding to go it alone or to join a trust fund, nor possibly the most important. However, it is worth throwing in a brief theoretical discussion. Tapscott and Williams (2006) posited a new way of reading the famous Coase Theorem first posited by Nobel prizewinner Ronald Coase as such: “There must be a balance between the costs of the transactions that a company must pay and the opportunity to make everything in-house.” Only if the costs of doing things in-house are higher than performing them in partnership with others, is it better for the company to collaborate. Applied to fund channeling mechanisms in a post disaster reconstruction context, we derive the following axiom: “As long as the transaction costs of going it alone exceed those of working together in a pooled fund, donors will be better off by joining in.” This axiom held true in reality. Government and donors benefitted from reduced transaction costs when government resources were pooled, such as under the BRR or in the case of the integrated “one-stop-shop” of Tim Terpadu. By contrast, in the case of certain non-traditional donors in Aceh such as Kuwait and Saudi Arabia who decided not to channel their funds through multilateral channels or multi-donor funding schemes, the transaction costs incurred by both the donors and the BRR (by spending scarce management time on bilateral courtesy visits, etc) were very high relative to the contributions they made.

and the usage of funds by the end-beneficiaries. For transactions below US$100,000, statement-of-expenditure procedures could be used so long as the appropriate conditions for the use of the procedures were satisfied. This mechanism greatly facilitated the speed of disbursements of ADB grants (ADB 2006). Since the majority of the transactions were paid for out of this imprest account, direct payments only had to be arranged for some very large contracts.

Effectiveness of Players Using the On-Budget/Off-Treasury Modality
The upside of the on-budget/off-treasury modality is that the donor has its own implementing capacity. This helps relieve the burden of implementation from the partner government, whose resources are typically spread thin across sectors and regions affected by the disaster. The downside of this modality is that the partner government has limited influence on the fund allocation and project execution. Donor agencies usually arrive with preconceived notions on the types of project to be funded and the way these projects should be implemented. Donor visibility is among the main reasons why this modality is preferred by certain donors to multilateral arrangements. By going bilateral and off-treasury, the results of aid projects are more visible, quantifiable, and directly attributable to the donors. This can be beneficial when they report back to their home country taxpayers and to the media. Meanwhile, by including aid disbursements in the government state budget reports, they align projects with the partner government’s objectives.


Another reason why big bilateral donors prefer this modality to pooling their funds in a trust fund such as the MDF is the negligible benefit that such a trust fund provides for big donors. 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.

Chapter 4. Delivering Results: Modality of Fund Channeling and Performance

The governments of Germany and Japan were among the donors who selected this modality. (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 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. (ii) The Government of Japan Japanese bilateral assistance to the Aceh-Nias recovery program totaled ¥14.6 billion, which was allocated across 15 projects administered by JICS (Japanese International Cooperation System) as the implementing arm of JICA (Japanese International Cooperation Agency). Projects implemented included support for vocational training centers, schools and universities, rehabilitation of fishing activities, reconstruction of orphanages, roads, markets and health centers, supply of medicine, recovery of water supply and sanitation system. Overall, the bilateral grant projects from Germany and Japan performed satisfactorily, reaching near completion by the end of 2008. Some implementation hurdles were inevitably encountered, which is to be expected when disbursing grants of such a large scale. Confusion regarding the role of BRR marred coordination in the early months (see Box 4.6); uncertainty regarding customs clearance procedures delayed the release of Rp 32 billion worth of school equipment from Germany,22 while land acquisition problems threatened cancellation of a Japanese-funded local marketplace rehabilitation project.23 However, apart from those minor hiccups, implementation generally went smoothly.


Clearing Up Donor Confusion
The Head of Rehabilitation and Reconstruction Agency for Aceh and Nias (BRR) Kuntoro Mangkusubroto said in an interview that donors used to be confused about whom they should talk to if they wanted to get involved in post-tsunami reconstruction. “There seems to be confusion among those wishing to participate in the reconstruction work as to which government agency they should talk to.” “There are always questions about how to participate in the reconstruction process. For example, the one that we received from the German government. They were confused as they were accustomed to approaching ministries in Jakarta before coming to Banda Aceh.” In response, Kuntoro said he asked them to come directly to him or his agency, BRR. “When it comes to coordination, the authority over all reconstruction activities in Aceh and Nias, I always urge international agencies or NGOs to come straight to Banda Aceh. No need to go to Jakarta.” According to Kuntoro, the only agency that still seemed confused was JICA from Japan. “It seems they are not well informed about the BRR. I hope that once they understand that the BRR is the only agency that has been given the authority by the government over the rebuilding of Aceh and Nias, they will come to us to discuss their programs in Aceh and Nias.”
Source: The Jakarta Post, June 11, 2005

CFAN Meetings
FINANCE: The Seven Keys to Effective Aid Management

CFAN meetings focus on resolving major issues faced during the period. CFAN 1 (October 2005). Identified bottlenecks and challenges and discussed a new approach to coordination, i.e., the guided facilitation model. CFAN 2 (May 2006). Focused on the regionalization and establishment of the Joint Secretariat. CFAN 3 (April 2007). Held halfway through the BRR’s mandate, the meeting focused on thematic issues and preparation of a consolidated mid-term report. CFAN 4 (February 2009). The last meeting, a celebratory CFAN to acknowledge achievements, consolidate the lessons learned and give input for the continuation of post-BRR coordination.

Effectiveness of Players Using the Off-Budget/OffTreasury Modality
Proliferation of Agencies
The advantage to off-budget modality was swift implementation, as the aid agencies did not have to follow a long and rigorous national budgetary cycle. However, since the agencies were not legally accountable to the GOI, it was difficult to monitor and evaluate their contributions. In the case of Aceh and Nias, the difficulty was multiplied by the fact that the over 992 funding and implementing agencies, scores of UN agencies and bilateral donors who went off-budget generally had their own funding sources. Therefore, they had little or no incentive for coordination among themselves. The potential cost of redundant resources and duplicate activities was enormous. Fortunately, despite the many actors involved, aid funds were 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.

Over the 44 workshops held during BRR’s tenure, some 1,700 projects were reviewed out, of which 1,540 projects were approved.

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.

Finance Minister Sri Mulyani speaks in front of CFAN 3 participants. Jakarta, April 24, 2007. Photo: BRR/Arif Ariadi

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 4. Delivering Results: Modality of Fund Channeling and Performance


Achieving and Upholding Accountability
Getting to Trust
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 and effectiveness of programs and institutions under its control. Demonstrating accountability therefore requires that accurate performance information be collected and reported in some public venue. Micro, small, and medium enterprises in Aceh revived in a very short period. Not only receiving funding assistance, they also got business management training and consultations. Photo: BRR/Arif Ariadi


Chapter 5. Achieving and Upholding Accountability


FINANCE: The Seven Keys to Effective Aid Management

The agency’s mandate dictated that BRR was legally accountable for financial reporting 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 nonmandatory accountability systems had the added bonus of facilitating BRR’s coordination 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.

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 framework


report Financial Report (composed of: 1. LRA 2. Balance Sheet 3. Notes to Financial Statements)

fund mechanism


Source of information Project Implementing Units and State Treasury disbursement status reports Project Implementing Units and State Treasury disbursement status reports and RAN Database Project Implementing Units and State Treasury disbursement status reports

Submitted to President through MOF Subject to audit by Supreme Audit Agency


On-budget/ontreasury & onbudget/off-treasury

Disbursement levels Financial Status

Presidential Regulation in Lieu of Law No.2/2005 Performance

Performance Report

All fund mechanisms (On-budget/ontreasury; on-budget/ off-treasury, & offbudget/off-treasury) Outputs (KPIs)

President through MOF


On-budget/ontreasury & onbudget/off-treasury

State Ministry of Administrative Reforms (MenPAN)

Chapter 5. Achieving and Upholding Accountability

Accountability for performance has to do with what outputs and outcomes have been produced from inputs. Has the organization achieved the desired result? Was 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.


FINANCE: The Seven Keys to Effective Aid Management

Financial Accountability
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 (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


Project Manager



Figure 5.2 - BRR’s Organizational Financial Reporting Line

BRR Director
Deputy of Finance Deputy of Operations

Sectoral Deputy

Sectoral Deputy

Sectoral Deputy

Sectoral Deputy

Sectoral Deputy

Sectoral Deputy

Sectoral Deputy

Regional I

Regional II

Regional III

Regional IV

Regional V

Regional VI





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.

Chapter 5. Achieving and Upholding Accountability


FINANCE: The Seven Keys to Effective Aid Management

Another difference was that the employees of reconstruction Satkers could be 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 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 loaned or borrowed. On a periodic basis, financial transactions were supposed to match the amount budgeted, unless any changes had been previously approved. Upon its establishment, BRR was mandated by Regulation in Lieu of Law No.2/2005 to submit a Financial Report, similar to other Line Ministries. This financial accountability report follows an orderly and systematic national accounting system for all expenditures from the State Budget, that is the (GOI) Government Accounting Standards are comprised of existing accounting standards modified in 2005 for wider acceptance. BRR must submit a semi-annual, annual, and final Financial Report to the Ministry of Finance (MOF). The MOF in turns consolidates all Ministerial and Local Government Financial Reports to create the National Financial Accountability Report. BRR’s Financial Report consisted of three complementary components. First was the Budget Realization Report. The Budget Realization Report detailed disbursements made against the stated budget commitments. This report was


Accounting for Tender Payments

The PIU, using Technical Assistance where appropriate, reviewed the Tender Committee decision and all being well entered into contract with the successful bidder. BRR set up and implemented the following payment verification process: The first Payment was usually due on signing of the contract and the issuance of a notice to proceed. In Aceh this was reviewed by State Treasury. Subsequent payments were subject to the PIU assessing the physical progress of the contractor and issuing a verification letter attesting to the progress, which then formed the basis for the contractor to issue the invoice. On receipt of the invoice the State Treasury referred to the database of contractors, reviewed the authorizations and verifications and finally checked that there was a budget available to accommodate the payment.

crucial in depicting the spending capacity of the organization during the time period covered and concomitantly, the performance of said organization. Second was the Balance Sheet, a snapshot of the financial status as of a specific date. The last component was comprised of the Notes to the Financial Statement. The first two components provide a numerical picture of progress, while the Notes to the Financial Statement provide a narrative on the numbers that helps explain and clarify the financial status. (c) Financial Targets

Table 5.2 - Rehabilitation and Reconstruction Allocations per Sector

Sector Housing Infrastructure Social Affairs Economic Development Institutional Development Management ToTAl

APbn 880,454 1,423,710 415,866 324,181 203,183 223,846 3,417,240

non-APbn 1,089,411 696,452 1,146,557 482,407 300,997 139,362 3,855,186

Total 1,969,865 2,120,162 1,562,423 806,588 504,180 363,208 7,272,426

579,021 2,208,505 1,566,021 161,182 657,096 0 5,171,825

*Blanket allocation established by DPR-RI in 2005

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 evaluation reports on the accuracy of BRR’s financial statement, with the objective of providing an opinion on the organization’s reporting. Beginning 2006, BRR submitted periodic Financial Reports to the Audit Agency, and audit accordingly issued an opinion on each of those reports.27

Supreme Audit Agency Opinion
For each Financial Report, the Supreme Audit Agency provides one of the following opinions: • • • • Unqualified Opinion Qualified Opinion Disclaimer No Opinion

Chapter 5. Achieving and Upholding Accountability

master Plan* Allocation 2005

master Plan Allocation revisions (2008) including funding mechanism of the rehabilitation of Aceh-naas


FINANCE: The Seven Keys to Effective Aid Management

BRR Trust Fund

Audits are performed to evaluate the validity and reliability of information provided 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 audit. As mentioned in previous chapters, BRR had to deliver quickly under the constraints of prevailing regulations which, designed for normal situations, could not sufficiently accommodate a post-disaster context. Upon auditing BRR’s Financial Report in 2006, BPK issued a Disclaimer, perceiving the BRR Trust Fund (Box 5.3) and fund channeling mechanisms for certain projects as being non-compliant with existing regulations. These projects were: the World Bankfinanced Community-Based Settlement Rehabilitation and Reconstruction Project (ReKompak) as funded through a PMU account; scholarships for continuing healthcare education in NAD, which were channeled through BRR and the Medical Academic Department of Unsyiah; and the Banda Aceh Scholarship Committee Account.


As mentioned in Chapter 3, the BRR Trust Fund was formed based on an MOF authorization letter to allow unspent funding to be disbursed the following year with the purpose of securing funding for delayed projects. Projects funded through the Trust Fund are not exempt from the national standards of accountability and transparency; BRR maintained its commitment to comply with legal standards. The Trust Fund account was established to provide speed, sustainability and flexibility to projects in the post-disaster area. A similar account was created to expedite the post-disaster financing process to facilitate the Yogyakarta earthquake recovery.


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 17 89,373,031.22 11.79% in response to pressing reconstruction needs: the 31 18,279,991.67 2.41% need to sustain leftover 37 649,066,668.52 85.66% budget funds from one year 1 1,016,011.82 0.13% to the next in the case of the former, and the need for swift 86 757,735,703.23 100% 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 postdisaster response.

In maintaining compliance accountability, the framework for accountability must be adjusted to suit the post-disaster context. Under such circumstances, divergence from normal procedures does not necessarily indicate misconduct. Different imperatives are at work. The Supreme Audit Agency's opinion on BRR’s Financial Report in 2006 suggested that the GOI standard auditing procedures were simply not appropriate to a post-disaster context. Upon shifting their paradigm to that of a post-disaster context, the Audit Agency's subsequent audit of the BRR Trust Fund’s utilization indicated no problems of significance. In 2007, BRR was one of 17 out of 86 Line Ministries to receive an Unqualified Opinion on its Financial Report (Table 5.3). The majority of Line Ministries (31 agencies) received a 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.

Head of BRR Executing Agency Kuntoro Mangkusubroto (center), accompanied by the Deputy for Finance and Planning, Amin Subekti (left), witness the Head of the Supreme Audit Agency's representative office in Banda Aceh, Ir. Abdul Rifal Saleh, sign the results of the Audit Agency's. Banda Aceh, November 20, 2008. Photo: BRR/Arif Ariadi

Chapter 5. Achieving and Upholding Accountability


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Performance Accountability
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 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 Infrastructure Institutional Development Economic Development Housing and Settlement Socio-Cultural and Religious Affairs Percentage blUe > 100% 59 106 125 40 265 87.89% green 76-99% 6 3 6 2 12 4.28% 5 1 8 2.36% 5 2.36% yelloW 51-75% 2 orAnge 26%-50% 1 2 8 7 2 9 3.10% reD <25% 3 grand Total 71 111 151 45 299 100.00%

* 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).

(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 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 Land Administration Housing Spatial Planning Total blUe > 100% 20 3 17 40 1 2 1 2 green 76-99% 1 yelloW 51-75% 1 orAnge 26%-50% reD <25% 2 grand Total 24 3 19 46

Chapter 5. Achieving and Upholding Accountability

to improve coordination, BRR had been able to steer reconstruction efforts towards the targets of the GOI Revised Master Plan.


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Master Plan KPI targets from the beginning; later, when partners were asked to report 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 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

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 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, photoverified 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

Chapter 5. Achieving and Upholding Accountability

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 of results over its four years.


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The transfer of Asset Management Applications to the local NAD authorities. October 29, 2008. Photo: BRR/Arif Ariadi

system for asset planning and management and SIMDA system for district level financial planning and management. At provincial and district levels, financial and asset planning and management are regulated by the Ministry of Home Affairs.29 Both the SIMBADA and 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.

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.

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 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 5. Achieving and Upholding Accountability

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 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.


Maintaining Integrity Along the Road
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.” Thanks to the pilot’s decisiveness and the crew’s fantastic handling of the emergency situation, the crippled jet made it down safely into the frigid waters of the Hudson. The body of the plane remained intact and all 155 passengers and crew members survived. Along the Aceh-Nias recovery, BRR prioritized anti-corruption enforcement at the utmost. The BRR Anti-corruption Unit (SAK) was the spearhead. Photo: BRR/Arif Ariadi

Chapter 6. Maintaining Integrity Along the Road


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Preliminary evidence suggested that the incident was caused by a collision with birds. 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 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.


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 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

Chapter 6. Maintaining Integrity Along the Road

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 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.


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legislative and regulatory compliance with the relevant authorities. The internal audit was 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. • • 2. 3. Internal Audits, carried out by BRR’s Internal Audit Financial and Development Supervisory Agency Anti-Corruption initiatives, carried out by BRR’s Anti-Corruption Unit 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 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)

Advisory Board

Bapel Chairman

Supervisory Agent

Supreme Audit Board (BPK)


Internal Audit

Anti Corruption Unit (SAK)

Finance & Development Supervisory Board (BPKP)

Communities and Other Stakeholders

Personnel Integrity
Chapter 6. Maintaining Integrity Along the Road

From the very beginning, it was evident that maintaining integrity and a firm stance 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 Each prospective BRR employee agreed to abide by and sign a political will to ensure they were enforced. two-page Integrity Pact with an eight-page attachment. Other than the This was extremely important; the culture agreed-upon market salary, the first page listed 28 specific financiallyand 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.

BRR Employee Integrity Pact


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. • for activity allowances Recruitment and compensation of BRR 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 principles. compensation was that the employees 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.

as honorariums

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In short, the GOI authorized BRR to offer salaries that were considerably higher than 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: (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 tsunamistricken 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

organization,other government institutions and civil society organizations in carrying out its function. These organizations include NGOs such as Transparency International Indonesia (TII), university groups and international institutions such as the UNDP, the Asian Development Bank, the World Bank and others. In addition to these stakeholders, the Corruption Eradication Commission (KPK) collaborated with the Anti-Corruption Unit as a working partner to assist in the oversight 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.

A public awareness campaign session on anti-corruption culture by Corruption Eradication Comission local government workers of Simeulue. November 14, 2006. Photo: BRR/Ira Damayanti

Chapter 6. Maintaining Integrity Along the Road


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Integrity Success Factor I
BRR was formed as a well-focused, special purpose ministerial-level agency with the organizational flexibility and a finite, four-year term to accomplish its rehabilitation and reconstruction mandate of the tsunami stricken areas of Aceh and Nias, all in accordance with a consensus-developed Master Plan.

The Anti-Corruption Unit's Three Principle Objectives
The approach developed by Anti-Corruption Unit in its mandate to eradicate corruption from the recovery program is illustrated by its three principle objectives: prevention, investigation and education. Figure 6.2 illustrates Anti-Corruption Unit's objectives over time.


Prevention, the first objective, necessitated the flexing of political will and a working environment that could minimize corrupt practices. This objective required--and received--a commitment from BRR’s 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 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 started to increase the number Figure 6.2 - Anti-Corruption Unit Principle Objectives Shift Over Time of complaints registered rose likewise. In 2008, housing procurement was the source of most complaints. At the time that this publication was written, approximately ninety percent of the 1,500 complaints had been investigated while the remainder was still being investigated and processed.



2005 2006 2007 2008 2009

Out of the 1,537 complaints filed, 910 of them, or 60 percent, have been taken up as formal cases. Education, Anti-Corruption Unit's third objective, has been an ongoing effort since BRR’s establishment

Type of Complaints Procurement violation process Administration violation Integrity Charter violation Corruption, Collusion and nepotism indication Rehabilitation and reconstruction implementation obstacles Payment Obligation to State Cashier violation General criminal act Other Total

2005-2006 531 9 21 120 134 2 4 255 1.076

2007 191 5 5 38 20 2 5 30 296

200 8 87 0 1 8 0 0 0 59 155

Total 809 14 27 166 154 4 9 344 1.527

As mentioned above, SAK established a working partnership with BPKP that allowed staff from the latter to be seconded to SAK. In December 2008, 22 BPKP staff assisted across the three areas of Anti-Corruption Unit's mission: prevention, education and investigation. In addition, several Financial Development Supervisory Agency staff assisted SAK with data maintenance and management information reporting. SAK continued to improve BRR’s procedures and work practices, many of which had flaws with potential for misuse. In doing so, SAK successfully stopped a number of fraudulent tender processes from continuing which in turn prevented significant financial losses.

Table 6.2 - Source of Complaints Received by Anti-Corruption Unit, September 2005 - December 2008

Complaint reporting method Letter Facsimile Email SMS Visiting SAK Office Telephone Mass Media Total

number of Complaints 2005-2006 775 8 13 92 78 8 102 1.076 2007 185 2 23 11 47 1 27 296 2008 83 1 1 5 11 1 53 155 Total 1.043 11 37 108 136 10 182 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.

Chapter 6. Maintaining Integrity Along the Road

in 2005. Anti-Corruption Unit plays a key role in BRR’s promotion of good governance, which is usually described as having four fundamental principles: participation, accountability, predictability and transparency. In the education program, SAK collaborated with relevant organizations in the field to encourage the community to understand and reject corrupt practices.

Table 6.1 - Nature of Complaints Received by Anti-Corruption Unit, September 2005 - December 2008

number of Complaints


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Under the amended Law No. 31/99 on “Anti-corruption,” public participation was 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 whose functions and main duties are related to state governance including BRR officials. All corruption allegations are taken seriously, but corruption during times of economic stress and recoveries from natural disasters carries particularly harsh penalties. Under Law No. 28/99, government officials are subject to investigation, prosecution and punishment. The death sentence may even be applied to those found guilty of committing corruption more than once, those involved in major embezzlement cases and to those who take advantage of national disasters, a state of emergency or economic crises.


Integrity Success Factor II

BRR recruited suitably-qualified professionals on short-term, marketoriented employment contracts to assist BRR to pursue its enormous rehabilitation and reconstruction mandate, a human resources strategy that meant BRR had the flexibility to retain, redeploy and terminate 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

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 midJune at the BRR Office in Jakarta to fully consider the recommendation and after detailed 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 6. Maintaining Integrity Along the Road

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 these systems could be further improved.


Ending the Game and Leaving a Lasting Legacy
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 had taken pains to foster many capacity building programs aimed at provincial and local government, the local government’s ability to handle an ongoing development program of this size was still in question. Aceh was now one of the largest recipients of central government allocation funds following a decision to allocate two percent of the total Banda Aceh at night shows a lively and promising outlook. It is a clear sign that the community has risen to a level better than before. Photo: BRR/Arif Ariadi

Chapter 7. Ending the Game and Leaving a Lasting Legacy


FINANCE: The Seven Keys to Effective Aid Management

national General Fund Allocation as Special Autonomy Funds to Aceh in recognition of 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 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)


Trillion Rp (Constant 2006 prices)

16 14 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gains from Law 11/2006

Total revenue with Special Autonomy Funds($60/brl)

Total revenue without Special Autonomy Funds ($60/brl)


80 60 40 20 0
Bener Meriah Aceh Selatan

Score %

81-100% 61-80% 41-60% 21-40% 0-20%

Excellent/Fully acceptable Good/Substantially acceptable Moderate/Partially acceptable Poor/Substantially unacceptable Very poor/unacceptable

Banda Aceh

Aceh Besar

Aceh Barat

A Tenggara


Aceh Barat Daya


Nagari Raya

Aceh Tengah

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 of this choice. Based on the stocktaking exercise that BRR did, more than 94 percent of the Reconstruction and Rehabilitation Key Performance Indicators (KPI) set out by the Master Plan had been completed by the end of Fiscal Year 2008 and thus BRR had already satisfactorily achieved its emergency response objectives. The development works next on the agenda were of a more regular/normal nature, which should not involve BRR. Moreover, extending BRR’s mandate would run counter to broader government objectives of decentralization. A BRR extension could distort government policy in Aceh, have an adverse effect on budget considerations and be demotivating for provincial and district government personnel. Its continued

Figure 7.3 – Average PFM Score by Strategic Area (Source: World Bank 2007)


Aceh Timur

Aceh Utara

Aceh Jaya



Gayo Lues



A Tamiang










Chapter 7. Ending the Game and Leaving a Lasting Legacy

Figure 7.2 – Public Financial Management Scores for 21 Local Governments and the Provincial Government


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% 20% 10% 0% NAD Sumatera Utara Sumatera Selatan Sumatera Barat Riau Kepulauan Riau Kep. Bangka Belitung Jambi Lampung Bengkulu DKI Jakarta Jawa Barat Jawa Tengah Jawa Timur DI Yogyakarta Banten Bali Kalimantan Barat Kalimantan Timur Kalimantan Selatan Kalimantan Tengah Sulawesi Utara Sulawesi Tenggara Sulawesi Tengah Sulawesi Barat Sulawesi Selatan Gorontalo NTT NTB Papua Papua Barat Maluku Maluku Utara
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

Preset Conditions

Stakeholder Involvement

Direct Dialogue

Political/ Organizational willingness to accept assets

Ownership & Sustainability

Asset Management & Tools Policy Dialogue Project & Program Ownership

National Level Ministries


Provincial Government/ Governor Expectations Distric Level Government/Bupati or Wali Kota

Framework for Coordination

New Owners of assets, projects and programs have set roles and resources

Planning for Resources Recipients of assets, project and programs have the required capacity to manage

Lack of Skills & Human Resources Capacity Building Programs

of Indonesia Bank Restructuring Agency which, though legally closed, birthed a miniIBRA 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.

Chapter 7. Ending the Game and Leaving a Lasting Legacy

Figure 7.5 – Elements of the Transition Strategy



FINANCE: The Seven Keys to Effective Aid Management

The Aceh Tsunami Museum is one of the projects funded by BRR. As 2008 drew to a close, contractors worked around the clock to complete the project within BRR’s lifetime. October 13, 2008. Photo: BRR/Arif Ariadi

General Principles Applied
As described in previous chapters, the establishment of BRR was unprecedented for the Government of Indonesia (GOI). BRR was a central government agency located at the provincial level, with the dual function of executing its own budget and coordinating 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.

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. 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





Chapter 7. Ending the Game and Leaving a Lasting Legacy

A transition strategy had to be formulated that would enable a smooth handover, 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.



FINANCE: The Seven Keys to Effective Aid Management

The two government decrees, PP 2/2006 and PP 38/2007, applied to projects regardless 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 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 “offbudget/off-treasury” through international and national NGOs. Transferring the assets was the “end game.”

Table 7.1 – Transition Strategies of Different Players


fund Channeling On-budget on treasury

role of brr • Execute • Transfer the asset • Approve the projects • Records in the Government Budget after project completed • Clearing House for the asset • Approve the projects • Clearing house for the assets

recipients of finished project • Local Government • Line Ministries

Successors of unfinished projects • Local Government for Rupiah funding • Line Ministries for external funding • Local Government for Rupiah funding • Line Ministries for external funding Remain with the agency or implementing partners


Germany (KFW), Japan (JICS)

On-budget off treasury

• Local Government • Line Ministries

UN, Red Cross, NGO

Off budget off treasury

• Local Government • Line Ministries

Figure 7.7 – Key Dates in the Timeline of Transition Soft Closing JAN 1 2008 JUN 30 2008 AUG 10 2008 NOV 1 2008 DEC 31 2008 FEB 27 2009 APR 3 2009 Grand Closing APR 16 2009

• Compossing Presidential Decree on adjustment of the master plan • Setting out 2009 RKP

•Compossing Presidential Decree on PMT Guideline & Symbol RR continuation •Setting out 2009 RKAKL •MoU signings with Line Ministries & Donors

•2009 RKAKL evaluation •Setting out 2009 Line Ministries & Local Govt. Works Groups

•Project Payment • Project Payment Settlement Settlement •Finalization of • Finalization of AP3D AP3D •Writing Work • Writing Work Group Report Group Report

Preliminary finacial report

BRR clossing process

Audit by BPK

Clarification of Supreme Audit Agency finding

Completion of fisical construction by BRR AcehNias

Coordination of RR continuity by the Natioanal Development Planning Board. Implementation by Line Ministries & Local Govt.

Finalizing presidential decree on adjustment of the Perpres Perubahan Rencana Induk

Finalizing presidential decree on PMT Guideline & RR Continuation

Completion of fisical construction of program & project

Submission of unaudited Performaces & Finacial Report

Submission of audited Performaces & Finacial Report to the President

Finalizing Presidential Decree on the clossing of BRR

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

Chapter 7. Ending the Game and Leaving a Lasting Legacy



FINANCE: The Seven Keys to Effective Aid Management

The transfer of assets to the local governments of Nias and South Nias. February 28, 2008. Photo: BRR/Bodi CH

on the assets was required such as the cost of construction, the source of funding and the user of the facility. 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.

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, 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 NGOs Sectoral Deputy Directorate of Accounts and Asset Management

Local Government

line Ministry/ Agency



State Budget

State/Reg Govt Owned Enterprise

Chapter 7. Ending the Game and Leaving a Lasting Legacy

Some rehabilitated and reconstructed assets were not transferred to either the 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.


FINANCE: The Seven Keys to Effective Aid Management

BRR’s strategy was to create an inventory of on- and off-budget assets in conjunction 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 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.


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 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,

Chapter 7. Ending the Game and Leaving a Lasting Legacy

AMIS facilitated BRR’s efforts to transparently and accountably record the existence and 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:


FINANCE: The Seven Keys to Effective Aid Management

quality, or beneficiary disputes.

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 “multiyear” 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. • 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 & Admin Expences
ACC 999

Completion of Reconstruction by BRR

Continuation of Reconstruction by Ministries & Local Goverment

1.788 T (PHLN)

1.663 T (RM)

Line Ministries
Deconsentrations Fund/ Tugas Perbantuan
Depar tmen t Dep ar tmen t Dep ar tment

Local Goverment
ACC 999
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

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 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.

Chapter 7. Ending the Game and Leaving a Lasting Legacy

Reconstruction Financing Facility (IRFF) program financed by the MDF and administered 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.


FINANCE: The Seven Keys to Effective Aid Management

The funding mechanism was a cornerstone of the transition of these multi-year projects 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 Water & Sanitation Water Supply National Roads Provincial Roads District Roads 5 Packages 8 Packages 5 Packages 8 Packages 10 Packages 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 multiyear 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 Discussion started

DEC 2007

OCT 2007 Consultant Mobilized

DEC 2008

JUNE 2006 PCN Released

15 JAN 2007 GA signed

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; 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

MDF Project
Aceh Land Administration System Project (RALAS) Support for Poor and Disadvantage Areas Nias Livelihood and Development Project (Nias LEDP) Economic Development Financing Facility (EDFF) Nias Kecamatan-Based Recovery and Planning (KRRP) Infrastructure Reconstruction Enabling Program Infrastructure Reconstruction Financing Facility Community-Based Settlement Rehabilitation and Reconstruction Project (REKOMPAK) Community Recovery through the Urban Recovery (UPP)

Transferred to Line Ministries
National Land Administration Agency

Ministry of Development of Disadvantaged Areas

Ministry of Home Affairs

Ministry of Public Works

Chapter 7. Ending the Game and Leaving a Lasting Legacy

Agency for the majority of programs/projects and Bappenas becoming the Executing Agency for ADB programs and projects with strong linkage to the Ministry of Public Works.


FINANCE: The Seven Keys to Effective Aid Management

not yet complete at the end of BRR’s tenure. This occurred in the roads and bridges, rural 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.


Table 7.2 – ADB ETESP Project Allocations

Component 1 Agriculture 2 Fisheries 3 Small & Micro Enterprises 4 Health 5 Rural Water Supply & Sanitiation 6 Education 7 Housing 8 Irrigation 9 Spatial Planning & Environment 10 Roads & Bridges 11 Power 12 (a) Fiduciary Oversight (AFT) (b) Fiduciary Oversight (Netherlands) Total

Allocation ($ million) 35.0 28.0 15.0 13.0 7.0 17.5 70.8 30.0 17.0 37.0 9.7 11.0 3.5 294.5

Arrangements for Agence Française de Développement (AFD) and Japan Bank for International Cooperation (JBIC) projects
As with the ADB the transition of these projects was relatively relaxed as they were classified as infrastructure and were transferred to the Executing Agency of Ministry of Public Works under the control of the newly created PMU.

Risk Management – Ensuring the Process Stayed Critically On Track
In its final year BRR introduced a risk management regime to monitor and evaluate the progress towards transition and closure. The following Risk Management Model was used (Figure 7.13). From July 2008 onwards, 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 • 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 Figure 7.13 – The Risk Management Model compliance with both preappraisal and ex post-facto regimes, all in compliance with tand GOI procurement guidelines as Eva ers d lua Un modified by the President for t execution by BRR. • Environmental – ensuring compliance with all guidelines. 4. Political Risk • International – BRR had to ensure an open dialogue and forum 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 vis environment between the central it government and the provincial age Man 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.


Chapter 7. Ending the Game and Leaving a Lasting Legacy



FINANCE: The Seven Keys to Effective Aid Management

Conclusion & Achievements
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 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.


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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). Based on World Bank assessments of per capita gross income, 2007. 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. 2008 interview with contributors 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. Institute of Development Studies, 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. BBC News Asia, “Aceh Restoration ‘Close to Zero,’” May 9, 2005. State Treasury Decree No. 13/2003 on Budget Mechanisms. 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 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) 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. No. S - 9255/Pb/2006 on 22 December 2006 Perdirjen No. 03/PB/2007


2 3

4 5 6 7

8 9 10 11



14 15

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 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,, 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


FINANCE: The Seven Keys to Effective Aid Management

35 36 37 38 39 40 41 42

is the same mechanism applied to loans. District Level Local Government Regional Office of the Directorate General of National Treasury at provincial level. United Nations Office of Recovery Coordinater. United Nations Office of Recovery Coordinator. Computerized Ministry of Finance Financial System: Central, Provincial and District Levels. Planning Board at provincial level. Agence Française de Développement (AFD) Japan Bank for International Cooperation (JBIC)


Chapter 1
Bappenas. The Master Plan for the Rehabilitation and Reconstruction of Aceh and Nias – Main Book. Jakarta: Bappenas, Jakarta, 2005. Harford, T, Hadjimichael, B and Klein, M. The Supply of Aid: How Are Donors Giving, and to Whom?, Public Policy for the Private Sector. http://rru. (2004): Note Number 276 pp 1-4. Hurley R. Managing Yourself: The Decision to Trust’, Harvard Business Review, September 2006. Kim, W.C and Mauborgne, R. ‘Fair Process: Managing in the Knowledge Economy’, Harvard Business Review, July-August 1997. Masyrafah, Harry and McKeon, Jock. Post-Tsunami Aid Effectiveness in Aceh: Proliferation and Coordination in Reconstruction. Washington DC: Wolfhensohn Center for Development, 2008. Scanteam. Review of Post-Crisis Multi-Donor Trust Funds. Olso: Scanteam, 2007 TEC. Joint Evaluation of the International Response to the Indian Ocean Tsunami: Synthesis Report. London: Tsunami Evaluation Coalition, 2006. Transparency International. Corruption Perception Index 2004.


Chapter 2
Acharya, Fuzzo, and Moore 2004 as cited in Masyrafah, H and McKeon, M. Post-Tsunami Aid Effectiveness in Aceh: Proliferation and Coordination in Reconstruction, Washington DC: Wolfhensohn Center for Development, 2008. Acharya, Lima, and Moore. Proliferation and fragmentation: Transactions costs and the value of aid. The Journal of Development Studies 42(1), (2006): 1–21. Bappenas and International Community. Indonesia: Preliminary Damage and Loss Assessment; The December 26, 2004 Natural Disaster, Indonesia: Bappenas, 2005. Birdsall (2005) as cited by Roodman, D. Competitive Proliferation of Aid Projects: A Model, Center for Global Development Working Paper Number 89 ( June 2006). Cialdini, R. Harnessing the Science of Persuasion, Harvard Business Review 79 no. 9 (2001). Conger, J. A. The Necessary Art of Persuasion, Harvard Business Review 76 (1998): 84-96.

FINANCE: The Seven Keys to Effective Aid Management

Hayek cited by Petsoulas, Christian. Hayek’s Liberalism and Its Origins: His Idea of Spontaneous Order and the Scottish Enlightenment.Routledge, 2001-2. Masyrafah, Harry and McKeon, Jock. Post-Tsunami Aid Effectiveness in Aceh: Proliferation and Coordination in Reconstruction. Washington DC: Wolfhensohn Center for Development, 2008. Roodman, D. Competitive Proliferation of Aid Projects: A Model, Center for Global Development Working Paper, Number 89, June 2006. TEC. Joint Evaluation of the International Response to the Indian Ocean Tsunami: Synthesis Report. London: Tsunami Evaluation Coalition, 2006.

Chapter 3
BRR and International Partners. Aceh and Nias One Year After the Tsunami, December 2005. Emerson Communications Consultant. BRR NAD Aceh Reflections in the Media, January 2006. Nazara, Suahasil and Resosudarmo, Budy. Aceh-Nias Reconstruction and Rehabilitation: Progress and Challenges at the End of 2006, ADBI Discussion Paper, June 29, 2007. Tuckman, Bruce. Development seqyunce in small group, Psychological Bulletin 63 (1965): 384-399. Zeithaml, Valarie A., Berry Leonard L. and Parasuraman A. The Nature and Determinants of Customer Expectations of Service, Journal of the Academy of Marketing Science no. 21 Winter (1993): 1-12.


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 ADB AIPRD APBD APBN ASEAN Bakornas (PBP) English Asian Development Bank Australia-Indonesia Partnership for Reconstruction and Development Government of Indonesia’s Regional Annual Budget Government of Indonesia’s National Annual Budget Association of South East Asia Nations National Coordination Agency (for Disaster Mitigation and Refugees), now has became National Agency for Disaster Mitigation Executing Agency Agency for the Planning of Regional Development National Development Planning Agency Direct Community Assistance Supreme Audit Agency Statistic Center Bureau Agency for the Rehabilitation and Reconstruction of the Regions and Community of Nanggroe Aceh Darussalam and the Nias Island of the Province of North Sumatra Coordination Forum for Aceh and Nias Special Autonomy Fund General Allocation Fund Issuance of Spending Authority Director General House of Representative House of Regional Representative Indonesian Bank Pembangunan Asia Kemitraan Australia-Indonesia untuk Rekonstruksi dan Pembangunan Anggaran Pendapatan dan Belanja Daerah Anggaran Pendapatan dan Belanja Negara Perhimpunan Negara-Negara Asia Tenggara Badan Koordinasi Nasional (Penanggulangan Bencana dan Penanganan Pengungsi), sekarang bernama Badan Nasional Penanggulangan Bencana (BNPB) Badan Pelaksana Badan Perencanaan Pembangunan Daerah Badan Perencanaan Pembangunan Nasional Bantuan Langsung Masyarakat Badan Pemeriksa Keuangan Badan Pusat Statistik Badan Rehabilitasi dan Rekonstruksi Wilayah dan Kehidupan Masyarakat Provinsi Nanggroe Aceh Darussalam dan Kepulauan Nias Provinsi Sumatera Utara Forum Koordinasi untuk Aceh dan Nias Dana Otonomi Khusus Dana Alokasi Umum Daftar Isian Pelaksanaan Anggaran Direktur Jenderal Dewan Perwakilan Rakyat Dewan Perwakilan Rakyat Daerah


Bapel Bappeda Bappenas BLM BPK BPS BRR


FINANCE: The Seven Keys to Effective Aid Management

Abbreviations DRR ETESP

English disaster risk reduction Earthquake and Tsunami Emergency Sector Project funded by Asian Development Bank (ADB) Free Aceh Movement Gross Domestic Product Government of Indonesia Presidential Instruction

Indonesian pengurangan risiko bencana Proyek Sektor Bantuan Darurat Gempa Bumi dan Tsunami yang dibiayai oleh Asian Development Bank (ADB) Gerakan Aceh Merdeka Produk Domestik Bruto (PDB) Pemerintah Republik Indonesia Instruksi Presiden


International Organisation of Supreme Organisasi Tertinggi BPK-BPK seAudit Institutions Dunia Infrastructure Reconstruction Enabling Program Infrastructure Reconstruction Financing Facilitiy Japan International Cooperation System Ministry/Institution Head of Executing Agency Kreditanstalt fur Wrederaubau is a German Development Bank acting as the funding management manager on behalf of German Government. Key Performance Indicator Corruption, Collusion, and Nepotism Budget Authority Officer The Village Committee for Housing and Settlement Development Acceleration Corruption Eradication Commission Office for State Services and Treasury Special Office for State Services and Treasury Performance Accountability Report Law on Governing Aceh Non-government Organisation (NGO) Program Pemampuan Rekonstruksi Prasarana Sarana Pendanaan Rekonstruksi Prasarana Badan Jepang mengenai Sistem Kerjasama Internasional Kementerian Negara/Lembaga Kepala Badan Pelaksana Kreditanstalt fur Wrederaubau adalah Bank Pembangunan Jerman yang berperan sebagai pengelola dana atas nama pemerintah Jerman. Indikator Kinerja Utama Korupsi, Kolusi, dan Nepotisme Kuasa Pengguna Anggaran Komite Percepatan Pembangunan Perumahan dan Permukiman Desa Komisi Pemberantasan Tindak Pidana Korupsi Kantor Pelayanan dan Perbendaharaan Negara Kantor Pelayanan dan Perbendaharaan Negara-Khusus Laporan Akuntabilitas Kinerja Instansi Pemerintah Undang-Undang Pemerintahan Aceh (UUPA) Lembaga Swadaya Masyarakat





English Account Code in Indonesian Budgetary System Multi-Donor Fund Ministry of State Apparatus Empowerement Ministry of Finance Mid-Term Review People’s Consultative Assembly Nanggroe Aceh Darussalam Nias Islands Stakeholder Meeting Non-Governmental Organization Regional Income United Nations (UN) Project Concept-Note Gross National Product (GNP) Regional Gross Domestic Product Regional Government District Government Province Government Presidential Regulation Government Regulation in Lieu of Law Foreign Soft Loans/ grant Exit Strategy Project Management Unit National Programme of Community Development Government Regulation Contract Preparation Officer Basic Infrastructure and Facilities Public Works Center for Data and Information Recovery Aceh-Nias Database Recovery Aceh-Nias Trust Fund Community-based Rehabilitation and Reconstruction of Settlements

Indonesian Mata Anggaran Kegiatan Dana Multi-Donor Kementerian Negara Pendayagunaan Aparatur Negara Departemen Keuangan (Depkeu) Evaluasi Paruh Waktu Majelis Permusyawaratan Rakyat Nanggroe Aceh Darussalam Pertemuan pemangku kepentingan Kepulauan Nias Organisasi nonpemerintah/ Lembaga Swadaya Masyarakat (LSM) Pendapatan Asli Daerah Perserikatan Bangsa-Bangsa Nota-Konsep Proyek Produk Domestik Bruto Produk Domestik Regional Bruto Pemerintah Daerah Pemerintah Kabupaten Pemerintah Provinsi Peraturan Presiden Peraturan Pemerintah Pengganti Undang-Undang Pinjaman/Hibah Luar Negeri Pengakhiran Masa Tugas Unit Manajemen Proyek Program Nasional Pengembangan Masyarakat Peraturan Pemerintah Pejabat Pembuat Komitmen Prasarana dan Sarana Dasar Pekerjaan Umum Pusat Data dan Informasi Basis-data Pemulihan Aceh-Nias Dana Perwalian Pemulihan Aceh-Nias Rehabilitasi dan Rekonstruksi Pemukiman Berbasis Komunitas


FINANCE: The Seven Keys to Effective Aid Management

Abbreviations RI RKP Rp RPJM SAK Satker Satkorlak

English Republic of Indonesia Government Work Plan Rupiah (Indonesian currency) Mid-term Development Plan Anti-corruption Unit Project Implementing Unit Unit for Coordinating Implementers of Disaster and Displaced Persons Management Implementer Unit Decree Fund Disbursement Order Letter Management Control System Fiscal Year Indonesian National Army Small and Medium Enterprise (SME) United Nations United Nations Development Programme United Nations Office of the Recovery Coordinator for Aceh and Nias Law Law on the Governing of Aceh Advisory Board Supervisory Board World Bank

Indonesian Republik Indonesia Rencana Kerja Pemerintah Rupiah Rencana Pembangunan Jangka Menengah Satuan Antikorupsi Satuan Kerja Satuan Koordinasi Pelaksana Penanggulangan Bencana dan Penanganan Pengungsi Satuan Pelaksana Surat Keputusan Surat Perintah Pencairan Dana Sistem Pengendalian Manajemen Tahun Anggaran Tentara Nasional Indonesia Usaha Kecil dan Menengah Perserikatan Bangsa-Bangsa (PBB) Program Pembangunan Perserikatan Bangsa-Bangsa (PBB) Badan Perserikatan Bangsa-Bangsa Koordinator Pemulihan khusus untuk Aceh dan Nias Undang-Undang Undang-Undang Pemerintahan Aceh Dewan Pengarah Dewan Pengawas Bank Dunia



UU UUPA Wanrah Wanwas WB

FACt shEEt

FINANCE: The Seven Keys to Effective Aid Management

Table FS. 1 – Preliminary Damage and Loss Assessment (Source: Bappenas 2005)

Total impact Damage Social Sectors Housing Education Health Culture and Religion Infrastructure Transport Communications Energy Water and Sanitation Flood control, irrigation and sea protection Productive Sectors Agriculture and Livestock Fisheries Enterprises Cross Sectoral Environment Governance and administration Bank and Finance Total Impact 1674.9 1398.3 110.8 82.5 83.4 636 390.5 18.9 67.8 26.6 132.1 351.9 83.9 101.5 166.6 257.6 154.5 89.1 14 2920.4 1531.2 240.8 145.4 2.9 0.1 3.2 89.1 830.2 140.9 409.4 280 394.4 losses 65.8 38.8 17.6 9.4 Total 1740.7 1437.1 128.4 91.9 83.4 876.8 535.9 21.8 67.9 29.8 221.2 1182.1 224.8 510.9 446.6 652 154.5 89.1 14 4451.6 Private

Property Public 300.1 28.7 119.4 68.6 83.4 325.9 165.8 8.6 1.1 18.3 132.1 1132 194.7 508.5 428.9 562.9 548.9 89.1 14 3461.4 990.1 550.8 370.1 13.2 66.9 11.4 89.1 50.1 29.9 2.5 17.7 89.1 1440.6 1408.4 9 23.2


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

Commitment year budget revision master Plan Presidential regulation 47/2008 1 2005 2006 2007 2008 2009 TOTAL 66,993,387.00 2 66,993,387.00 Donor off-budget (non-APbn) 4 10,472,599.00 4,727,294.00 1,278,811.00 7,390,948.00 7,390,948.00 31,630,599.00 rm* 5

on-budget government Commitment APbn external loans and/or grants** 6 937,591.00 3,286,635.00 2,487,540.00 6,711,766.00

needs on-budget

Commitment on-budget

Difference on-budget

(APbn) 7 2,497,146.00 7,892,046.00 11,128,664.00 10,011,081.00 3,834,851.00 35,363,788.00

(APbn) 8 2,497,146.00 7,892,046.00 11,128,664.00 7,000,401.00 28,518,257.00

(APbn) 9 = (8 - 7) (3,010,680.00) (3,834,851.00) (6,845,531.00)

2,497,146.00 6,954,455.00 7,842,029.00 7,523,541.00 3,834,851.00 28,652,022.00

Table FS. 3 – Annual Funding for Rehabilitation and Reconstruction Program in Aceh and Nias

Sector Housing Infrastructure Social Affairs Economic Development Institutional Developmnet Management Total

master Plan 5.384.900 21.208.700 14.564.000 1.499.200 6.111.000 48.767.800

APbn 2005 64.399 96.042 152.055 24.631 28.075 49.461 414.663 2006 2.259.255 1.827.479 1.223.192 964.253 898.421 465.410 7.638.014 2007 3.264.490 2.884.490 1.399.755 1.104.581 719.135 866.899 10.239.350 2008 1.752.436 3.413.532 882.908 235.942 133.227 689.175 7.107.220 2009* 847.645 5.018.964 209.649 685.425 110.751 10.825 6.883.260 Total 8.188.225 13.240.507 3.867.559 3.014.832 Fact Sheet 1.889.609 2.081.770 32.282.507


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)

no FINANCE: The Seven Keys to Effective Aid Management


Partner Agency

implementing Agency

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Reconstruction of Aceh Land Administration System Project (RALAS) Community Recovery Through The Kecamatan Development Project (KDP) Community Recovery Through the Urban Poverty Program (UPP) Community-Based Settlement Rehabilitation and Reconstruction Project (REKOMPAK) Infrastructure Reconstruction Enabling Program Nias Kecamatan-Based Recovery and Planning Project Support for Poor and Disadvantaged Areas Infrastructure Reconstruction Financing Facility Off-Budget Projects Technical Support for Badan Rehabilitasi Rekonstruksi (BRR) NAD-Nias Tsunami Recovery Waste Management Programme Support to Strengthen the Role and Capacity of CSOs in the Recovery of Aceh Capacity Building for Local Resource-based Rural Roads Sea Delivery and Logistics Program Aceh Forest and Environment Project Tsunami Recovery Port Redevelopment Programme Banda Aceh Flood Mitigation Project Lamno-Calang Road Maintenance Project Aceh Government Transformation Programme 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**

World Bank World Bank World Bank World Bank World Bank World Bank World Bank World Bank UNDP UNDP UNDP UNDP WFP World Bank UNDP World Bank UNDP UNDP

National Land Administration Agency (BPN) Ministry of Home Affairs Ministry of Public Works Ministry of Public Works BRR/ Ministry of Public Works Ministry of Home Affairs Ministry of Development of Disadvantaged Areas (KPDT) BRR/ Ministry of Public Works UNDP/BRR UNDP/Dinas UNDP ILO WFP Leuser International Foundation/ Fauna and Flora International UNDP Muslim Aid UNDP UNDP


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 Allocated On-Budget Projects 28.50 64.70 17.96 85.00 42.00 25.75 25.00 100.00 22.48 24.41 6.00 11.80 24.70 17.53 3.78 4.50 1.46 9.92 515.49 9.87 50.00 4.06 4.99 20.00 0.33 0.60 89.85 89.23 179.08 691.92 11.70 64.70 17.90 81.66 14.13 10.15 4.08 19.57 22.48 19.43 6.00 11.80 24.70 8.42 3.78 2.05 1.46 9.92 333.92 41 100 100 96 34 39 16 20 100 80 100 100 100 48 100 46 100 100 65 Jun ‘05 Aug ‘05 Aug ‘05 Oct ‘05 Jul ‘06 Nov ‘06 Feb ‘07 Jul ‘06 Jul ‘05 Sep ‘05 Dec ‘05 Jan ‘06 Mar ‘06 Feb ‘06 Dec ‘05 Apr ‘06 Oct ‘06 May ‘08 Dec ‘08 Dec ‘08 Dec ‘09 Feb ‘09 Sep ‘09 Fact Sheet Dec ‘09 Jun ‘10 Dec ‘09 May ‘09 Dec ‘10 Feb ‘10 Dec ‘09 Feb ‘10 Jun ‘10 Dec ‘07 Jun ‘09 Dec ‘07 Dec ‘09 Disbursed* Percent Disbursed (%) Start of Project End of Project


FINANCE: The Seven Keys to Effective Aid Management

Table FS. 5 - ADB ETESP Disbursements as of December 2008


Allocation USD (000)

Committed USD (000) 36,505 36,783 14,377 14,236 21,035 7,636 74,636 35,321 16,055 45,721 11,900 14,500 328,704 % 104.30% 122.61% 106.49% 109.51% 131.47% 109.09% 102.24% 117.74% 100.34% 123.57% 125.26% 100.00% 111.61%

Contracts USD (000) 31,940 25,747 13,877 10,803 11,041 6,005 67,671 29,669 15,980 32,683 9,347 12,318 267,080 % 91.26% 85.82% 102.79% 83.10% 69.01% 85.78% 92.70% 98.90% 99.87% 88.33% 98.39% 84.95% 90.69%

Payments USD (000) 31,555 25,656 5,944 9,392 11,174 4,949 49,348 27,577 11,170 24,177 8,922 10,831 220,695 % 90% 86% 44% 72% 70% 71% 68% 92% 70% 65% 94% 75% 75%

Agriculture Fisheries Micro and Small Enterprises Health Education Rural Water Supply Housing Irrigation Spatial Planning Roads and Bridges Power Fiduciary Oversight Total

35,000 30,000 13,500 13,000 16,000 7,000 73,000 30,000 16,000 37,000 9,500 14,500 294,500


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

USD 6.7B

On-BUDGET (Government funds) Total funds : USD 3.0B GoI : USD 2.1B Donor : USD 0.9B (MDF, WB, ADB, IDB, JBIC) Total disbursed: USD 2.5B (~83%)

Off-BUDGET (Non-government funds)




Total funds : USD 0.32B (JICS and KfW) Total disbursed: USD 0.29B (~90%)

Total funds : USD 0.34B (UN, NGOs, private, others) Total disbursed:

USD 2.7B (~79%)

Table FS.6 - Amount Committed and Disbursed Through theThree Funding Mechanisms

(in million) fUnDing meChAniSm & SoUrCe of fUnDing ON-BUDGET & ON-TREASURY - GOI - BILATERAL & MULTILATERAL ON-BUDGET & OFF-TREASURY - BILATERAL & MULTILATERAL OFF-BUDGET & OFF-TREASURY - BILATERAL & MULTILATERAL - NGO, PRIVATE & OTHERS TOTAL 1,169.54 2,209.17 6,720.00 654.00 2,022.00 5,459.30 55.92% 91.53% 81.24% 321.14 288.00 89.68% 2,100.00 920.15 2,024.30 471.00 96.40% 51.19 Fact Sheet CommiTmenT (USD) DiSbUrSmenTS (USD)



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

no 1 2 3 4 5 DIPA 2005 DIPA-L 2006 DIPA 2006


Category Disbursed Disbursed Disbursed Disbursed Disbursed Total

rm (rupiah) 414,662,762,597.00 2,082,482,891,058.00 4,746,492,669,712.00 1,948,851,905,202.00 5,212,003,413,219.00 14,404,493,641,788.00

Trust Fund BRR DIPA 2007

No 6 7

DIPA DIPA-L 2008 DIPA 2008 Total

Kategori Disbursed Disbursed

RM 2,154,096,450,550.00 3,685,356,419,040.00 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
(* Rupiah Murni = money from “pure” domestic sources)


FINANCE: The Seven Keys to Effective Aid Management

Table FS.8 – 94% of the Overall Key Performance Indicators (KPIs) have been Achieved

Category of Percentage Achieved Sub-Sector Infrastructure Institutional Development Economic Development Housing and Settlement Socio-Cultural and Religious Affairs Percentage blUe > 100% 59 106 125 40 265 87.89% green 76-99% 6 3 6 2 12 4.28% 5 1 8 2.36% 5 2.36% yelloW 51-75% 2 orAnge 26%-50% 1 2 8 7 2 9 3.10% reD <25% 3 grand Total 71 111 151 45 299 100.00%


Table FS.9 – Achieved Key Performance Indicators (KPIs) in the Housing and Settlement Sector

Category of Percentage Achieved Sub-Sector Land Administration Housing Spatial Planning Total blUe > 100% 20 3 17 40 1 2 1 2 green 76-99% 1 yelloW 51-75% 1 orAnge 26%-50% reD <25% 2 grand Total 24 3 19 46

Table FS.10 – Achieved Key Performance Indicators (KPIs) in the Infrastructure Sector

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

Table FS.11 – Achieved Key Performance Indicators (KPIs) in the Economic Development Sector

Category of Percentage Achieved Sub-Sector Industry Forestry and Environment Manpower Tourism Trade Fishery Plantation Farming Animal husbandry Total blUe > 100% 13 14 6 9 20 20 9 20 14 125 2 1 6 1 5 1 2 1 2 2 8 7 1 2 3 2 1 1 1 2 1 green 76-99% yelloW 51-75% orAnge 26%-50% reD <25% grand Total 13 18 7 10 28 12 24 18 152 Fact Sheet 22


Table FS.12 – Achieved Key Performance Indicators (KPIs) in the Institutional Development Sector

Category of Percentage Achieved Sub-Sector Legal Affairs Public Order, Security, and Defense (K3M) Regional Institutions Total blUe > 100% 19 57 30 106 3 green 76-99% 2 1 1 1 2 yelloW 51-75% orAnge 26%-50% reD <25% grand Total 21 59 31 111

Table FS.13 - Achieved Key Performance Indicators (KPIs) in the Socio-cultural Affairs Sector

Category of Percentage Achieved Sub-Sector Religious Affairs Cultural Affairs Health Sports Youth Education Role of Women and Children Social Affairs Total blUe > 100% 18 32 34 25 9 72 30 45 265 12 8 5 1 5 1 2 9 4 3 2 2 green 76-99% 5 yelloW 51-75% 3 1 orAnge 26%-50% 2 reD <25% 2 1 grand Total 30 34 34 25 12 86 31 47 299

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 16,000,000,000,00 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 0

Value of On-Budget s/d 31 December 2008 NAD & Nias


Operations Assets
135,839,230,828 135,839,230,828 135,839,230,828

Program Assets
9,505,213,815,1 9,505,213,815,1 5,339,202,652,3

4,546,164,852,2 4,546,164,852,2 -

In Progress
3,262,221,801,6 3,262,221,801,6 3,262,221,801,6

Total Assets
12,903,274,847 4,546,164,825,2 17,449,439,672,0 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 No Respond to submit Asset From 93 Agencies

PCN +/- Rp.34 T

No KPI Assets 150 Agencies

Disbursed +/- Rp.27 T

Follow Up 513 Agencies

With KPI Assets 363 Agencies

Contacted 317 Agencies

Asset Form Under Processed Filled in 86 Agencies

Estimated Non Asset +/- Rp.13.10 T

Estimated Asset +/- Rp.14.90 T

Already Submitted Asset Data 148 Agencies

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

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

Head of Implementing Agency Deputy Head Executing Agency Secretary of Executing Agency Deputy Head Supervision Deputy Head Finance and Planning Expert Staff Head of Executive Agency Advisor Head of Executing Agency Special Staff Head of Executing Agency

Deputy for Religious Social and Culture

Deputy for Economy and Enterprise

Deputy for Housing and Settlement

Deputy for /Head of Operation

Deputy for Education, Health and Women Empowerment

Deputy for Infrastrucsture, Environment and Maintenance

Deputy for Institutional and Human Resources Development

Head of Representative Office I

Head of Representative Office II

Head of Representative Office III

Head of Representative Office V

Head of Representative OfficeVI

Fact Sheet


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 Center Head Donor Relations and International Stakeholders

Team Work Termination (PMT)

Center Head Finance

Center Head Reporting and Central Government Relations

Center Head Accountant and Asset Management

Head of Financial Affairs Head of Funding

Head of Reporting Head of Central Government Relations Affairs

Head of Monitoring and Evaluation Head of Asset Handover Head of Asset Accounting Head of Accounting and Finance

Table FS. 14 – Laws and Regulations

law / reg / Decree
Presidential Regulation Presidential Decree Presidential Regulation

No. 47/2008 No. 86/M/2006 No. 76 /2006



Presidential Regulation Presidential Regulation Law Presidential Regulation

No. 8 /2006 No. 83/2005 UU No. 10 /2005 No. 69 /2005

Presidential Regulation

No. 70 /2005

Surat Decree Sekretariat Dewan Pengarah BRR

KEP. 34 /MENKO/ zPOLHUKAM/06/2005

Presidential Regulation

No. 34 /2005

Presidential Decree Presidential Regulation Government Regulation in Lieu of Law Decree of Deputy for Regional Autonomy and Regional Development Presidential Instruction Decree of Deputy for Regional Autonomy and Regional Development (Revised) Minister of State Decree. PPN/Head of National Development Planning Board Presidential Decree Law Law Minister of State Decree. PPN/Head of National Development Planning Board

NO 63/M /2005 No. 30/2005 No. 2/2005 KEP.003/D.3/04/2005

Presidential Regulation regarding revisions to the Presidential Regulations August 1, 2006 No. 30/2005 (Master Plan) August 29, 2006 Salinan Presidential Decree Republik Indonesia No. 86/M /2006 Presidential Regulation regarding revisions to Presidential Regulation No. 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 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 January 18, 2006 Agency for Disaster Response November 18, Laws on Government Regulation in lieu of Law No. 2/2005 regarding BRR 2005 region and livelihood of NAD-Nias provinces passed into law Presidential Regulation regarding the role of foreign institutions/individuals November 18, 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, Decree No. 80/2003 on guidelines for government goods/services 2005 procurement Decree of Coordinating Minister for Politics, Legal, and Security Affairs in His Capacity as Chairman of the Advisory Board of the Agency for the July 14, 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 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 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 April 18, 2005 Nias Islands, North Sumatera Agency for the Rehabilitation and Reconstruction of NAD Province and Nias April 15, 2005 Province, North Sumatera April 1, 2005 Establishment of the Team Secretariat of Rehabilitation and Reconstruction Planning of Aceh and Nias Emergency Response Activities and Planning/Preparation of the Rehabilitation and Reconstruction of Post Earthquake and Tsunami Disaster in Nanggroe Aceh Darussalam and North Sumatera Province. Establishment of the Team Secretariat of the Rehabilitation and Reconstruction Planning of Aceh and North Sumatera


March 2, 2005


February 11, 2005


January 10, 2005 November 3, 2003 November 21, 2001 August 9, 2001

Establishment of the Team Secretariat of the Rehabilitation and Reconstruction Planning of Aceh and North Sumatera Presidential Decree regarding guidelines for the implementation of government goods/services procurement Law of the Republic of Indonesia No. 20 Year 2001 regarding revisions to the Law No. 31 Year 1999 on Corruption Eradication Special Autonomy for Aceh Special Province as Nanggroe Aceh Darussalam Province Establishment of Coordinating Team for the Planning of the Rehabilitation and Reconstruction of Aceh and North Sumatera.

Kepres No. 80 Tahun 2003 No. 20 Tahun 2001 No.18/2001


February 1, 2001

Fact Sheet


FINANCE: The Seven Keys to Effective Aid Management

Fact Sheet


FINANCE: The Seven Keys to Effective Aid Management

Fact Sheet


FINANCE: The Seven Keys to Effective Aid Management

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