98566 July 2015 · Number 5 SUPPORTING INSTITUTIONAL CAPACITY AND EVIDENCE-BASED MACRO/FISCAL POLICYMAKING: SHARING EXPERIENCE FROM INDONESIA Ilsa Meidina and Alex Sienaert1 Close support to the government, including by Country Partnership Strategy for Indonesia. It an embedded core project team, can help to aims to contribute to improved macro and fiscal support improvements in macro-fiscal policymaking through analytical work and policymaking as demonstrated by the institutional capacity strengthening. Launched SEMEFPA program in Indonesia in February 2012, following a predecessor Improving the quality of macroeconomic and program in 2009, SEMEFPA is a Bank-executed fiscal policymaking is central to the World AUS$5 trust fund, financed by the Australian Bank’s poverty reduction mission, and is the Department of Foreign Affairs and Trade. The mandate of its Macroeconomics and Fiscal program primarily supports the Ministry of Policy Management Global Practice. In Finance’s Fiscal Policy Agency (FPA), the Indonesia, a key component of technical Indonesian government’s main locus of fiscal assistance in this area in recent years has been analysis and macroeconomic forecasting. the Support for Enhanced Macroeconomic and Delivering a flexible mix of support, based on a Fiscal Policy Analysis (SEMEFPA) program. clear program logic SEMEFPA provides close support to the Program objectives are to improve both the government, spearheaded by a small core team supply of, and demand for, quality who split their time between the Ministry of macroeconomic policy and fiscal sector Finance and the World Bank’s Jakarta office. analysis. The objectives of SEMEFPA are to This note provides an overview of this improve the capacity of FPA officials in program’s strategies and processes, especially providing sound macroeconomic and fiscal its innovative aspects, with the aim of analysis, and also to stimulate internal and documenting lessons learnt and sharing public policy debates, with the aim of increasing information that may be useful as an input to demand for quality, evidence-based program design and implementation in other macroeconomic and fiscal policies. countries, and stimulating knowledge exchange. Underpinning the overall program logic of The SEMEFPA program is being implemented SEMEFPA is a set of interrelated strategies based by the World Bank as part of its FY2013-2015 1 Prepared by Ilsa Meidina and Alex Sienaert (MFM), under the guidance of Ndiame Diop (Lead Economist, Indonesia) and Shubham Chaudhuri (Practice Manager, MFM). The note 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. on a “theory of change”, whereby SEMEFPA revenue and macroeconomic (real sector, aims to contribute to: prices, external and financial sectors)  “Supply” of advice and information: capacity forecasting and analysis; building for the production of evidence-based 2. Cross-cutting skills and institutional support; macroeconomic and fiscal policy advice. 3. Policy dialogue and outreach, including  “Demand” for advice and information: through the IEQ reports. influencing the policy environment to support increased and better use of evidence …with program planning activities endorsed in policy decisions, including by generating and monitored on a regular basis at the external momentum to address policy governance level… priorities through contributions such as the Overall, the program approach focuses on the Indonesia Economic Quarterly (IEQ) and by supply side on contributing to continual dissemination of information and resources learning and technical improvement at the FPA, to inform and stimulate policy debate. based on close support to FPA staff by the core Within this overall strategy, capacity-building team. On the demand side, the IEQs are a activities are delivered using a graduated primary tool to contribute to the evidence base approach. The graduated (or “staged”) capacity for, and to stimulate, public policy debates on building model involves high levels of initial economic issues and challenges, complemented support and contact, which are gradually by a range of activities including SEMEFPA reduced and scaled down to specific assistance team involvement in public workshops and as the work is increasingly owned and led by seminar events. Activities are planned by the counterparts. Through demonstration effects, implementing team in consultation with FPA demand for continued high quality advice center directors and are discussed and endorsed among senior government officials is at the program governance level by the stimulated. program’s Joint Management Committee (JMC). The JMC meets at least once a year and this …using four modes of delivery… formal forum has contributed to the success of SEMEFPA works to achieve its objectives the program by ensuring ownership from the through four modes of delivery: (1) Embedded top level and facilitating communication as well support through a core team of consultants and as coordination with donors. JMC meetings also staff located partly in the Fiscal Policy Agency, help create a sense of mutual accountability, (2) Highly-specialized technical assistance on with an emphasis on monitoring the program’s specific topics, drawn from the Bank’s extensive progress. This is reinforced also by regular, network, (3) Facilitating linkages between the working level group meetings, providing an government and local research institutes to additional discussion forum for the donor, client conduct evidence-based fiscal policy analysis, and implementing team. (4) Support to the Indonesia Economic Quarterly …and a strong emphasis on maintaining a reports, whereby the core team produce on a flexible approach to work planning and quarterly basis a set of economic projections and implementation, to ensure continued program assessment of recent economic developments relevance and responsiveness and the outlook. There is a natural tension between having …across thematic, institutional strengthening, sufficient flexibility for the program to be and policy dialogue work streams… relevant and responsive, and maintaining a The activities of the SEMEFPA program strategic approach to program delivery, are organized into three program areas: including well-defined timelines for agreed- upon deliverables. Since inception, SEMEFPA 1. Thematic work-streams to support policy has benefited from a flexible program analysis, comprising projects and just-in-time management approach, based on consistent support in the areas of public expenditure, client feedback concerning the need to be nimble July 2015 · Number 5 · 2 and responsive to shifts in policy priorities, and technical support and conduct joint work with also to fluid macro conditions. For example, the junior and mid-level staff. SEMEFPA team change in administration following the 2014 members are approached frequently to provide presidential election was a period when input to work ranging from editing and SEMEFPA received multiple requests for ad-hoc presentations to modelling challenges and the analytical work that required rapid responses, development of various macroeconomic and on issues such as fuel subsidy reform impacts, fiscal monitoring frameworks. infrastructure spending and revenue collection. This continuous on-site presence effectively Responding to these requests meant resources plugs the team into the client environment, had to be diverted from other pre-determined conferring many benefits that maximize SEMEFPA activities. Flexibility in these program effectiveness, including through instances has helped the program maintain its allowing the team to better understand the relevance and the World Bank’s wider standing process, bureaucratic, capacity or technical as a preferred partner of the government for constraints hampering policymaking processes. rapid-response analysis and technical support. For example, in October 2014 the agency was The constructive role of the program in this preparing a public expenditure review of the regard has built trust with counterparts, and country’s agriculture sector. Following 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. Embedded support as a defining mode of delivery Minimizing capacity substitution risks, and monitoring and evaluation Unlike most other technical assistance programs which respond to specific policy issues through Capacity substitution risks are mitigated by a specified time frame and deliverables, the emphasis on joint work planning and SEMEFPA offers embedded support to the client delivery, and close support to government staff. 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 July 2015 · Number 5 · 3 within the counterpart organization are SEMEFPA activities will contribute to-end-of substituted instead of enhanced. To minimize program outcomes, while recognizing the these risks, SEMEFPA employs a number of difficulty of attributing policy reform successes measures. Senior officials are closely involved in and improvements in the evidence base for work planning, to ensure priority needs are policy directly to given program interventions. being met and to secure buy-in and The program logic was developed along with endorsement. The close one-on-one support to the assumptions that need to hold true for government staff provided by the team, and changes to occur. By having a clear program joint work, aims to strengthen internal capacity logic, the monitoring can be focused on over time. Finally, there is a strong emphasis on behavioral changes that occur as the result of training. Pre-training assessments are SEMEFPA activities and, as such, successes can conducted to ensure that training responds to be easily identified. Some of the monitoring and participants’ needs. The feedback received helps evaluation tools employed for this program are the trainers determine the schedule, coverage post-event surveys, event follow-up interviews and pace of training. Training activities include (conducted around four months after training), core practical skills training (“Analyst readership surveys for the IEQs, fortnightly Bootcamps”), also helping to mitigate activities and outputs reporting and monitoring, substitution risks. request tracking, and influence logs. A multi-year program can be expected to This note has provided a very brief overview of undergo many changes in the macroeconomic the SEMEFPA program, supporting capacity for and fiscal policy, and institutional, contexts. and contributing to sound macroeconomic and Over time, this may reduce the relevance of the fiscal policymaking in Indonesia. Novel aspects, initial program design. While this poses including a program design aiming to have program management and adaptation mutually reinforcing impacts on the “demand” challenges, such shifts can be positive to the and “supply” sides of the evidence base for extent that they reflect changes resulting from policymaking, an embedded core team, and a the success of the program itself (e.g. where strong focus on M&E, have been emphasized. capacity is built and where counterparts start to More knowledge-sharing across countries and demand more complex types of support). development partners considering or Analytical support on fuel subsidy reform, for implementing similar approaches could play a example, has shifted from the development and useful role, including to help inform the difficult integration of tools to model the fiscal, pricing questions of how programs of this type can help and poverty impacts of broad reform options, to tackle the deep institutional organization and towards international experiences, and political economy constraints to more effective implementation considerations. To ensure macro- and fiscal policymaking. ongoing program relevance, and that any successes feed into program planning, a About the authors: comprehensive monitoring and evaluation Alex Sienaert, Country Economist, World system therefore needs to be in place. Bank’s Macroeconomics & Fiscal Management Global Practice (GMFDR) email: asienaert@worldbank.org SEMEFPA benefits from a considerable emphasis on monitoring and evaluation (M&E). Ilsa Meidina, Operations Analyst, World The M&E system is based on the program logic Bank’s Macroeconomics & Fiscal Management Global Practice (GMFDR) summarized above, that articulates clearly how email: imeidina@worldbank.org _______________________________________________________________________________________________ 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) July 2015 · Number 5 · 4