98244 July 2015 · Number 5 SUPPORTING INSTITUTIONAL CAPACITY AND EVIDENCE-BASED MACRO/FISCAL POLICYMAKING: SHARING EXPERIENCE FROM INDONESIA* Ilsa Meidina and Alex Sienaert1 policymaking through analytical work and institutional capacity strengthening. Launched Close support to the government, including by an embedded core project team, can help to in February 2012, following a predecessor support improvements in macro-fiscal program in 2009, SEMEFPA is a Bank-executed policymaking as demonstrated by the AUS$5 trust fund, financed by the Australian SEMEFPA program in Indonesia Department of Foreign Affairs and Trade. The program primarily supports the Ministry of Improving the quality of macroeconomic and Finance’s Fiscal Policy Agency (FPA), the fiscal policymaking is central to the World Indonesian government’s main locus of fiscal Bank’s poverty reduction mission, and is the analysis and macroeconomic forecasting. mandate of its Macroeconomics and Fiscal Policy Management Global Practice. In 1. Delivering a flexible mix of support, based Indonesia, a key component of technical on a clear program logic assistance in this area in recent years has been Program objectives are to improve both the the Support for Enhanced Macroeconomic and supply of, and demand for, quality Fiscal Policy Analysis (SEMEFPA) program. macroeconomic policy and fiscal sector SEMEFPA provides close support to the analysis government, spearheaded by a small core team who split their time between the Ministry of The objectives of SEMEFPA are to improve the Finance and the World Bank’s Jakarta office. capacity of FPA officials in providing sound This note provides an overview of this macroeconomic and fiscal analysis, and also to program’s strategies and processes, especially stimulate internal and public policy debates, its innovative aspects, with the aim of with the aim of increasing demand for quality, documenting lessons learnt and sharing evidence-based macroeconomic and fiscal information that may be useful as an input to policies. Underpinning the overall program program design and implementation in other logic of SEMEFPA is a set of interrelated countries, and stimulating knowledge exchange. strategies based on a “theory of change”, whereby SEMEFPA aims to contribute to: The SEMEFPA program is being implemented by the World Bank as part of its FY2013-2015  “Supply” of advice and information: capacity Country Partnership Strategy for Indonesia. It building for the production of evidence-based aims to contribute to improved macro and fiscal macroeconomic and fiscal policy advice. 1 Cleared by Shubham Chaudhuri, Practice Manager (GMFDR).  “Demand” for advice and information: based on close support to FPA staff by the core influencing the policy environment to team. On the demand side, the IEQs are a support increased and better use of evidence primary tool to contribute to the evidence base in policy decisions, including by generating for, and to stimulate, public policy debates on external momentum to address policy economic issues and challenges, complemented priorities through contributions such as the by a range of activities including SEMEFPA Indonesia Economic Quarterly (IEQ) and by team involvement in public workshops and dissemination of information and resources seminar events. Activities are planned by the to inform and stimulate policy debate. implementing team in consultation with FPA center directors and are discussed and endorsed Within this overall strategy, capacity-building at the program governance level by the activities are delivered using a graduated program’s Joint Management Committee (JMC). approach. The graduated (or “staged”) capacity The JMC meets at least once a year and this building model involves high levels of initial formal forum has contributed to the success of support and contact, which are gradually the program by ensuring ownership from the reduced and scaled down to specific assistance top level and facilitating communication as well as the work is increasingly owned and led by as coordination with donors. JMC meetings also counterparts. Through demonstration effects, help create a sense of mutual accountability, demand for continued high quality advice with an emphasis on monitoring the program’s among senior government officials is progress. This is reinforced also by regular, stimulated. working level group meetings, providing an additional discussion forum for the donor, client SEMEFPA works to achieve its objectives and implementing team. through four modes of delivery: (1) Embedded support through a core team of consultants and staff located partly in the Fiscal Policy Agency, There is a natural tension between having (2) Highly-specialized technical assistance on sufficient flexibility for the program to be specific topics, drawn from the Bank’s extensive relevant and responsive, and maintaining a network, (3) Facilitating linkages between the strategic approach to program delivery, government and local research institutes to including well-defined timelines for agreed- conduct evidence-based fiscal policy analysis, upon deliverables. Since inception, SEMEFPA (4) Support to the Indonesia Economic Quarterly has benefited from a flexible program reports, whereby the core team produce on a management approach, based on consistent quarterly basis a set of economic projections and client feedback concerning the need to be nimble assessment of recent economic developments and responsive to shifts in policy priorities, and and the outlook. also to fluid macro conditions. For example, the change in administration following the 2014 The activities of the SEMEFPA program presidential election was a period when are organized into three program areas: SEMEFPA received multiple requests for ad-hoc 1. Thematic work-streams to support policy analytical work that required rapid responses, analysis, comprising projects and just-in-time on issues such as fuel subsidy reform impacts, support in the areas of public expenditure, infrastructure spending and revenue collection. revenue and macroeconomic (real sector, Responding to these requests meant resources prices, external and financial sectors) had to be diverted from other pre-determined forecasting and analysis; SEMEFPA activities. Flexibility in these 2. Cross-cutting skills and institutional support; instances has helped the program maintain its 3. Policy dialogue and outreach, including relevance and the World Bank’s wider standing through the IEQ reports. as a preferred partner of the government for Overall, the program approach focuses on the rapid-response analysis and technical support. supply side on contributing to continual The constructive role of the program in this learning and technical improvement at the FPA, regard has built trust with counterparts, and July 2015 · Number 5·2 facilitated further support and input including discussions on this topic with SEMEFPA team on high-impact and sensitive policy issues (Box members, a 3-day workshop on measuring the 1 provides selected examples). effectiveness of agriculture spending was conducted. Post-training interviews revealed Box 1: Capacity-building: examples of take-up that knowledge and skills obtained during the The success of a capacity building program is marked by the absorption and leverage of skills and knowledge. training matched participants’ needs. An Below are some instances where the SEMEFPA program’s agriculture public expenditure review report uptake has been observed: authored by FPA staff was subsequently  Macro forecasts by the FPA make use of jointly- published. developed GDP and inflation forecasting models. Strong relationships and team presence provide  The FPA has taken ownership of a fuel subsidy reform impacts model originally built by the World Bank, and continual opportunities for FPA staff to ask expanded, updated and operated it. questions or discuss specific technical issues  FPA staff are using skills learned from the fuel subsidy informally. One-one-one support often leads to model to model electricity subsidies, and are looking individual projects being carried out by FPA ahead to costing food and interest rates subsidies.  FPA managers point to staff having improved their staff, a sign of uptake. On-site presence also basic skills, to the point where they now seek feedback provides FPA staff with timely access to on their own analysis from the SEMEFPA team. expertise available within the World Bank’s  SEMEFPA trainings also encompass other agencies, extensive global networks, facilitated by the core providing a platform for information-sharing amongst team, making more knowledge available, more FPA staff and other relevant institutions. quickly, in an often fast-moving policy setting. 2. Embedded support as a defining mode of 3. Minimizing capacity substitution risks, and delivery monitoring and evaluation Unlike most other technical assistance programs Capacity substitution risks are mitigated by which respond to specific policy issues through the emphasis on joint work planning and a specified time frame and deliverables, delivery, and close support to government staff SEMEFPA offers embedded support to the client Technical support and capacity-building government; core team members spend two to programs typically face the risk of skills and three days a week (sometimes more) in the FPA knowledge not being proportionately office. This feature of the program enables assimilated and used, due to lack of institutional SEMEFPA team members to provide support support. Worse, there is a risk of the client not only to senior policymakers, but also growing heavily reliant on the support and dedicate time to build relationships, provide resources provided, such that the existing skills technical support and conduct joint work with within the counterpart organization are junior and mid-level staff. SEMEFPA team substituted instead of enhanced. To minimize members are approached frequently to provide these risks, SEMEFPA employs a number of input to work ranging from editing and measures. Senior officials are closely involved in presentations to modelling challenges and the work planning, to ensure priority needs are development of various macroeconomic and being met and to secure buy-in and fiscal monitoring frameworks. endorsement. The close one-on-one support to This continuous on-site presence effectively government staff provided by the team, and plugs the team into the client environment, joint work, aims to strengthen internal capacity conferring many benefits that maximize over time. Finally, there is a strong emphasis on program effectiveness, including through training. Pre-training assessments are allowing the team to better understand the conducted to ensure that training responds to process, bureaucratic, capacity or technical participants’ needs. The feedback received helps constraints hampering policymaking processes. the trainers determine the schedule, coverage For example, in October 2014 the agency was and pace of training. Training activities include preparing a public expenditure review of the core practical skills training (“Analyst country’s agriculture sector. Following July 2015 · Number 5·3 Bootcamps”), also helping to mitigate behavioral changes that occur as the result of substitution risks. SEMEFPA activities and, as such, successes can be easily identified. Some of the monitoring and A multi-year program can be expected to evaluation tools employed for this program are undergo many changes in the macroeconomic post-event surveys, event follow-up interviews and fiscal policy, and institutional, contexts. (conducted around four months after training), Over time, this may reduce the relevance of the readership surveys for the IEQs, fortnightly initial program design. While this poses activities and outputs reporting and monitoring, program management and adaptation request tracking, and influence logs. challenges, such shifts can be positive to the extent that they reflect changes resulting from This note has provided a very brief overview of the success of the program itself (e.g. where the SEMEFPA program, supporting capacity for capacity is built and where counterparts start to and contributing to sound macroeconomic and demand more complex types of support). fiscal policymaking in Indonesia. Novel aspects, Analytical support on fuel subsidy reform, for including a program design aiming to have example, has shifted from the development and mutually reinforcing impacts on the “demand” integration of tools to model the fiscal, pricing and “supply” sides of the evidence base for and poverty impacts of broad reform options, policymaking, an embedded core team, and a towards international experiences, and strong focus on M&E, have been emphasized. implementation considerations. To ensure More knowledge-sharing across countries and ongoing program relevance, and that any development partners considering or successes feed into program planning, a implementing similar approaches could play a comprehensive monitoring and evaluation useful role, including to help inform the difficult system therefore needs to be in place. questions of how programs of this type can help to tackle the deep institutional organization and SEMEFPA benefits from a considerable political economy constraints to more effective emphasis on monitoring and evaluation (M&E). macro- and fiscal policymaking. The M&E system is based on the program logic summarized above, that articulates clearly how SEMEFPA activities will contribute to-end-of About the authors: program outcomes, while recognizing the Ilsa Meidina, Operations Analyst, World difficulty of attributing policy reform successes Bank’s Macroeconomics & Fiscal and improvements in the evidence base for Management Global Practice (GMFDR) email: imeidina@worldbank.org policy directly to given program interventions. The program logic was developed along with Alex Sienaert, Country Economist, World Bank’s Macroeconomics & Fiscal the assumptions that need to hold true for Management Global Practice (GMFDR) changes to occur. By having a clear program email: asienaert@worldbank.org logic, the monitoring can be focused on _______________________________________________________________________________________________ This note series is intended to summarize good practices and key policy findings on MFM-related topics. The view expressed in the notes are those of the authors and do not necessarily reflect those of the World Bank, its board or its member countries. Copies of these notes series are available on the MFM Web site (http://worldbank.org/macroeconomics) * This note was prepared under the guidance of Ndiame Diop (Lead Economist, Indonesia) and Shubham Chaudhuri (Practice Manager, GMFDR). It draws heavily on program management documentation from the program to date, led from 2012-2015 by Ashley Taylor (Senior Economist, MFM), and to which numerous SEMEFPA-funded and wider MFM colleagues contributed. Ahya Ihsan, Bede Moore and Violeta Vulovic provided valuable comments. For more information, contact Ilsa Meidina: imeidina@worldbank.org. July 2015 · Number 5·4