Report No. PID6673 Project Name Indonesia-ID-Provincial Health Project (@) Region East Asia and Pacific Region Sector Targeted Health Project ID IDPE49545 Borrower(s) GOI Implementing Agency Ministry of Health Environment Category C (Not Required) Date PID Prepared April 10, 2000 Projected Appraisal Date February 16, 2000 Projected Board Date June 15, 2000 1. Country and Sector Background The government reorganization now underway in Indonesia involves opportunities and risks for a health sector still recovering from a serious economic crisis. Budget cuts and other crisis impacts disrupted a sector which had made gradual advances up to 1997. Infant mortality risks fell significantly between the mid 1970s and mid 1990s while most nutrition and family planning indicators increased at varying rates. However, gains were uneven and in some instances limited, e.g., for the poor and in specific regions, and for reproductive health risks and diseases like tuberculosis (TB). Child survival and reproductive risks, and moderate malnutrition and micronutrient disorders remain high in Lampung province especially among the poor. And in Lampung and Yogyakarta, the provinces of particular interest in this project, resurgent TB and other disease threats pose problems, not only for the poor but the public at large. Yogyakarta also must deal with rising non-communicable disease rates. Meanwhile, MOH had only limited success during the 1990s in overcoming managerial and technical skill gaps and input shortages in the country's multi- layered, government-run (and financed) service provision system. To fulfill national integration goals, this network of health centers, satellite sites, and hospitals was set up quickly on a wide front. But the system, which was managed from Jakarta, never achieved visit and contact levels, especially from poor patients and clients, commensurate with its design, and investment and running costs. The generally diffident demand for public services is attributable to interrelated factors such as perverse provider incentives, unprioritized health worker assignments and tasks, ineffective accountability, low responsiveness to local conditions, weak targeting, steep informal fees, scarce inputs, and due to the above, poor service quality. Such performance features are not uncommon, but Indonesia's version of supply-side "syndrome" has been especially persistent. Chronically low funding has been a major causal factor and a consequence in respect to these problems. Health spending did make gains in the 1990s, but then fell during the crisis to levels reached early in the decade. The crisis is receding. However, the health sector faces challenges in the government decentralization mandated in Laws 22 and 25 which were signed by President Habibie in June 1999. These measures could help improve public provider incentives, accountability and sensitivity to local preferences and needs. On the other hand, risks to health service sustainability and continuity evident in decentralization elsewhere will need to be kept in view. For example, decentralization in the Philippines, Colombia and several other Latin American countries brought complaints about weak technical oversight in health and potentially risky ambiguity about public health responsibilities. Government strategy MOH responded in different ways to health problems observed during the 1990s. Prior to the crisis, policy changed incrementally within the centrally guided service delivery paradigm. Staff development and quality assurance were among the priority policy areas. The crisis required refocusing, initially during 1998, on price increases and shortages of drugs and medical supplies. The drug emergency was followed by formulation of JPS-BK, the health safety net, which became GOI's main crisis response in this sector. GOI is considering in what form and scale it should sustain JPS-BK. Meanwhile, a sectoral response to the decentralization legislation is taking shape. This response includes continuing discussions between MOH and the Finance, Home Affairs, and Regional Autonomy ministries and between MOH and the Provinces on how to interpret Laws 22 and 25 in the health field. The sectoral response also includes donor cooperation to optimize assistance during this transitional period. Sector issues to be addressed by the project The proposed project is the third element in the -2 - health sector's response to Laws 22 and 25. This involves taking up various health decentralization issues within an operational framework. The overriding sectoral issue addressed by the Provincial Health Project (PHP) is how to make health sector decentralization successful. In this regard, PHP has several distinguishing features : The scope of activities is broader than that in ongoing health projects. Funds are expected to be spent on primary and secondary curative care, and communicable disease control and other preventive health services including information provision and promotion. And attention will be given to priority setting, resource mobilization, budgeting and funds channeling, regulatory activities, provider incentives and accountability, and quality assurance. Training and other learning experiences for key staff will be supported early on in the project. Emphasis will also be given to the improved information flows, incentive arrangements, and new mechanisms, e.g., for personnel management, accountability and local priority setting and planning, needed to enable newly acquired skills to be applied effectively. PHP supports functions and roles which are best handled by provinces, e.g., technical assistance and quality control for district programs, communicable disease surveillance and control, health promotion, large volume procurement, regulatory tasks and personnel management. A specialized role for the central MOH is fostered as well. Law 22 and its emerging regulations assign leadership and health advocacy, information gathering and analysis, standard setting and some regulatory functions to the Center. PHP will help MOH prepare for this new agenda. Decentralization is seen as an opportunity to carry out a health reform agenda. PHP's program in this regard includes restructuring government health organizations, rationalizing personnel numbers and deployment, and building on JPS-BK accountability mechanisms to make public providers more client responsive, and all providers more quality conscious. Other elements in PHP's eclectic agenda, e.g., increasing consumer awareness of service availability and standards, stimulating demand via health education, and community mobilization, are also expected to influence providers. Institutional and other PHP reforms will proceed within a financing framework which incorporates old -3 - and new funding flows including resources generated locally. 2. Objectives The project's goals are, first, to bring about effective health decentralization in the provinces of Lampung and Yogyakarta. The challenge during this period of institutional change and economic recovery will be to protect health services which are essential for the poor and public at large while initiating key sector reforms and putting health financing on a firm footing. The second objective is to help MOH carry out its new role in a decentralized system. This role encompasses analysis of key issues, advocacy of best practices and standards, and support for local initiative and innovation. 3. Rationale for Bank's Involvement The Bank's major emphasis since 1997 has been on strategy formulation and policy dialogue centering on the post-crisis period. This project is grounded in a Bank health strategy note which has been disseminated widely, and in related work on health spending. Like the strategy paper, PHP draws on project level experiences and a cumulative view of a centrally run system that was faltering even before the crisis. A further Bank contribution is its continuing analysis of decentralization across sectors, including experience in helping Indonesian municipalities become financially viable and self-managing. 4. Description The project's service component will operate through a district ceiling, grant and proposal review process. In order to establish this allocation, targeting, quality control, and accountability mechanism in a robust way, Phase 1 (FY2000-FY2001) emphasizes capacity building including work by Task Forces on institutional development and resource mobilization. In Phase 2, FY2002-FY2005, districts will develop proposals within assigned ceilings for grants to support health improvement. Managing Decentralization Under this component, provincial Task Forces will develop recommendations on critical institutional issues which will then be implemented. Issues to be addressed include finalization of the division of responsibilities between districts and provinces; merging health units; defining a human resource plan covering possible downsizing, contract hiring and -4 - career development; and developing health promotion strategy including setting up a health promotion board in Yogyakarta. During FY2002-FY2005, implementation of recommendations will be funded. The central MOH unit will commission complementary studies, while also carrying out activities aimed at providing useful guidance on decentralization. Findings will be made available to all provinces and districts, with dissemination developing MOH's analytical and advocacy roles in a decentralized setting. The MOH unit will also sponsor workshops on health sector decentralization, conduct social marketing on health, and pilot accountability mechanisms. Mobilizing Resources During FY2000-FY2001, provincial Task Forces will evaluate pre-paid financing mechanisms, expand use of autonomous facilities which rely on cost recovery, and develop tax based cross subsidies. The central Task Force will provide grants to provinces or districts to fund proposals supportive of decentralized health financing systems. Proposals will be solicited from provinces and districts outside Yogyakarta and Lampung. Approved proposals will be funded jointly by the central MOH and the regions. Improving Health Service Access and Quality During FY2000-FY2001, this component will supplement government outlays on essential health services by financing inputs, improved access to facilities, and specific services. In addition, funds will be allocated to quality assurance programs, and intensified health promotion. Grants From FY2002 onwards, districts will be allocated funds through a grant mechanism. Districts will prepare annual proposals for review by Joint Health Councils (JHCs) with the assistance of Technical Review Teams. Proposals would cover goals, poverty and epidemiological characteristics, health priorities and mechanisms, performance indicators, and notional budgets within ceilings set by the JHCs. Proposals for years two, three and so forth will be based on improved health information system findings and experience gained from implementation during previous years. This "rolling" planning feature will encourage districts to take a medium view of priorities and the prepare to find new resources to replace Association funding. District ceilings will be based on the numbers of poor people locally, their pattern of service use, and overall program goals. - 5- Funds will be made available after the proposals are approved by the JHCs. 5. Financing Total ( US$m) Government 41.07 IBRD 0 IDA 38.00 Total Project Cost 79.07 6. Implementation The project will be implemented in the provinces of Lampung and Yogyakarta and the central MOH over five and a half years, made up of phase 1, FY2000-FY2001, and phase II, FY2002-FY2005. The proposed institutional arrangements include: District level: District Implementation Units, DIUs, established by the Bupati (District Project Director) within planning units of reorganized district health offices and headed by the chief of the Bappeda Level II, will be responsible for procurement, disbursement and accounting for district level activities. Procurement and financial management will be carried out in compliance with a Project Management Manual acceptable to the Association. The DIU, which will be supervised by the chief of the district health office operating as Executive Secretary, will draw on existing government personnel for procurement and financial matters. Provincial level: A Joint Health Council, JHC comprising members of Civil Society and the province's Bupatis and chaired by the Vice Governor, has been established in the participating provinces. During FY2002-FY2005, the JHC, taking note of advice from the Technical Review Team, TRT, will award annual Grants for health service improvement, along with grants to fund Task Force recommendations it has endorsed. The TRT comprises existing health professionals located in the provincial health planning unit, reinforced by health specialists hired for short term assignments. Each province has set up a Provincial Coordination and Implementation Unit, PCIU directed by the chief of the Bappeda I and with the head of the provincial health office as Deputy Provincial Project Director. The PCIU will be responsible for procurement, disbursement and accounting for provincial level activities, in accordance with the Project Management Manual. Procurement will be under the supervision of a Pimpro and finance under a treasurer, Bendahara, both government employees, while PCIU activities will be - 6- coordinated by an Executive Secretary employed by the project. Within the PCIU, monitoring and evaluation, procurement, and financial management specialists will be project supported. The PCIU will focus on activities for which greater efficiency and lower units costs can be achieved through implementation at the provincial rather than district level. A Provincial Health Promotion Board, PHPB, has been established by Governor's Decree in Yogyakarta. Made up of highly respected non-government and government figures, the PHPB will fund health promotion work by NGOs and others. Central level : A Central Project Coordination Unit, CPCU, has been established in MOH under the Secretary General who will serve as Project Director. The chief of the Bureau of Planning is Deputy Project Director. The CPCU will be supervised by a full-time unit head with appropriate sector and management experience who will be funded by the project and act as project coordinator. CPCU staff will also include existing government employees; i.e., procurement will be under the supervision of a Pimpro and finance under a treasurer, Bendahara. 7. Sustainability Establishing sustainable financing arrangements is an important dimension of PHP. The two provinces have presented anticipated levels of central and local government support as well as yearly targets for revenue mobilization. The resource mobilization component aims at developing the instruments needed to replace World Bank funding starting in the second half of the project period. The project's grant mechanism with its district-level planning, proposal formulation (against specified ceilings), technical review and related features also has sustainability objectives. 8. Lessons learned from past operations in the country/sector The World Bank has invested in 16 health projects in Indonesia since 1977. Up to the early 1990s, Bank- assistance helped extend the centrally-guided health delivery system. Unsatisfactory project performance then brought recognition of the need for a more decentralized approach. The Third Health Project, which closed in 1996, included local resource mobilization and a larger provincial planning and budgeting role. The ongoing Third Community Health and Nutrition Project (Loan 3550-IND) has supported local level service, training and quality assurance innovations, while the Safe Motherhood Project (Loan 4207-IND) is helping provinces to develop locally -7 - suitable demand and supply side improvements. The Fourth Health Project (Loan 3905-IND) is developing local ownership of quality assurance, and the Fifth Health Project (Loan 4374-IND) focuses on improving the capacity of provincial and district staff. A lesson emerging from this cohort of partially decentralized initiatives is the desirability in terms of sustaining new approaches and building in appropriate incentives of getting the Bupati and other local decision makers fully involved in project design and implementation. This step will be taken once Law 22 goes into operation in roughly one year. 9. Program of Targeted Intervention (PTI) N 10. Environment Aspects (including any public consultation) Issues Environmental category [ ] A [ B [XI C The project will have a positive impact on the environment, through environmental health components proposed in district service delivery plans. Health promotion activities will also contribute to environmental improvement. 11. Contact Points: Task Manager Samuel S. Lieberman The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: 62-21-52993000 Fax: 62-21-52993111 The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Note: This is information on an involving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending May 12, 2000. - 8 -