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Performance-based Public Management Reforms:
Experience and Emerging Lessons from Service Delivery
Improvement in Indonesia

Derick W. Brinkerhoff
and
Anna Wetterberg
RTI International

DRAFT: NOT FOR CITATION
WITHOUT AUTHORS’ PERMISSION

Paper presented at the panel on
―Public sector reform in developing and transitional countries:
What have we learnt and where should we go?‖
International Research Society on Public Management
16th Annual Conference
University of Rome Tor Vergata
Rome, Italy
April 11-13, 2012

From both practical and theoretical perspectives, improved public sector performance has
been a major preoccupation of policymakers, managers, and analysts in countries around the
world. Performance improvement initiatives have a long history as elements of public sector
reform in industrialized countries, and a large literature has examined performance-based
reforms, measurement, and management (see, for example, Bouckaert 1992, Kettl et al. 2006).
Beyond the industrialized world, such reforms have been promoted by international donor
agencies both as remedies for weak public sector performance in developing countries (OECD
2005), and more recently as mechanisms to assure concrete results from development assistance
(Savedoff 2011).
Performance-based initiatives are commonly advocated as a remedy for service delivery
failures, including weaknesses in service quantity and quality, responsiveness, and
accountability. While there is enthusiasm in many quarters for such initiatives, definitions that
clarify their conceptual boundaries are often vague, and the empirical evidence base for their
effectiveness is mixed. This paper briefly reviews current thinking regarding service delivery
improvement, and identifies several pathways to improved performance. We explore how these
performance improvement pathways seek to increase service quantity and quality, raise
utilization and access, and improve provider responsiveness and accountability (Brinkerhoff
2005). We examine the pathways Indonesia, a country with a rich experience with public sector
reforms and service delivery improvement, has pursued. We then summarize the most recent
donor-funded initiative aimed at service delivery improvement, the Kinerja project. Indonesia’s

experience sheds particular light on the institutional and political complexities of performancebased initiatives. We close with a discussion of the lessons and implications of the Indonesian
experience for service delivery performance improvement in other settings.

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Diagnosing service provision problems
Political science, public policy, and public administration discourses are replete with
diagnoses of public sector service provision problems and recommendations for solving them,
far too numerous and diverse to summarize here. All of these discourses are fundamentally
concerned with the nature of the relationships among politicians and policymakers, service
managers and providers, and citizens and service users. The classic politics-administration
dichotomy saw public managers and service providers as faithful translators of policies crafted
by politicians into programs and outputs to achieve policy objectives desired by voters. Over a
century of academic analysis, normative discussion, and empirical investigation has fed debates
on the validity and the reality of the dichotomy as representing an oversimplified and/or mythical
vision of public administration (see Svara 2001). According to some, its inherent principal-agent
model of mutual high trust led in practice to the rise of the administrative state, bloated
government, and unaccountable public sector employees.
The predominant perspective on these relationships today is most clearly represented in
the New Public Management (now no longer new, having emerged in the 1980s), which

proposes a view of public management and service delivery organizations as ―a chain of lowtrust principal-agent relationships…, a network of contracts linking incentives to performance‖
(Dunleavy and Hood 1994, 9). NPM embodies both an ideology that values limited government
and a practical reform agenda intended to transform public sector performance through the
application of market mechanisms (see, for example, Ferlie et al. 1996). NPM principles and
practices have been extensively prescribed and implemented as remedies for public sector
performance weaknesses in developing countries, both as accompaniments to IMF and World
Bank structural adjustment and as other donor-supported public sector reforms (see Batley and
Larbi 2004, Manning 2001, OECD 2005).
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Directly targeting service delivery, the World Bank applied the principal-agent
framework to pro-poor service delivery in a widely cited report that elaborates an accountability
triangle connecting citizens/clients to politicians and policymakers, politicians/policymakers to
service providers, and service providers to citizens/clients (World Bank 2004). The three sides of
the accountability triangle represent interlocking and complementary principal-agent relations
that constitute a service delivery accountability chain. A direct service delivery chain between
citizens/clients and providers, where the former exercise power through transactions and
monitoring over the latter, constitutes the short accountability route. When the chain involves
state actors—politicians and policymakers respond to citizens/clients’ voice by designing and
implementing management and oversight systems to signal and control providers—this is the

long route to accountable service delivery. When these chains function effectively,
citizens/clients receive the services they want and need, and both providers and
politicians/policymakers are accountable and responsive. The report offers a review of service
delivery experience, exploring each principal-agent relationship, much of which applies NPM
approaches and tool.
Current pathways to improved service delivery reflect the legacy of NPM and the
predominant impact of the principal-agent perspective on diagnosing performance issues and
designing measures to addressing them. Today’s global economic crisis has renewed the drive
for public performance improvement and NPM-inspired reforms not just in the developing
world, but in industrialized countries as well. Our brief, and of necessity oversimplified, review
below highlights how this perspective and the accountability triangle shape pathways to
improved performance.

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Pathways to improved service delivery
Improved service delivery is the ultimate aim of the various pathways. However, defining
what constitutes service-delivery performance and measuring improvements are major
challenges. The dimensions of performance can be roughly divided into two categories: a)
features of the outputs of the service-delivery activity, and b) features related to the use of those

outputs and to the outcomes achieved. The former include: quantity, quality, cost, efficiency, and
effectiveness. The latter include: utilization rates, availability, access, responsiveness,
accountability, and distribution (e.g., equity and poverty-focus), to name the most common.
Performance metrics seek to identify appropriate and feasible measures for these performance
dimensions, which can vary considerably depending upon the type of service-delivery activity,
the difficulty of measurement, the availability of proxies, and the timeframe within which
performance assessment takes place (see, for example, Heinrich 2002, Kopczynski and
Lombardo 1999). Performance improvement and measurement also need to take account of
external factors beyond the control of the particular service-delivery activity (Camm and Stecher
2010). Such factors can be relatively straightforward, such as the availability of funding in a
given budget cycle; or they can be more complex and systemic, such as the extent of patronage
and elite power in state-society relations.
The pathways discussed here begin with decentralization, a key structural route to service
delivery improvement. We next consider pathways that employ mechanisms and procedural
tools intended to align the interests of principals and agents to better achieve desired
performance, on both the supply and demand sides. On the supply side, these comprise:
standard-setting, results-based management, performance-based payment, and increased
information flows and transparency. On the demand side, the participation pathway includes
tools and processes that engage citizens, and extends to empowered collective action and service
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co-production. This latter pathway can include performance-based payment to service users
intended to stimulate demand, for example, in the form of vouchers.
Several caveats are in order. First, we make no claim that our list of pathways is
exhaustive. Second, real-world applications incorporate multiple pathways. Rarely is there
simply a single route to improved service delivery, although international donor assistance may
concentrate on one or another pathway more than others. Third, an important question, beyond
the scope of this paper, is which combinations of pathways work best and are cost-effective
under which circumstances to improve service delivery?

Decentralization
Decentralization is a major pathway to improved service delivery, widely argued to
enable performance gains by moving government closer to the people it serves.1 In terms of the
principal-agent accountability triangle, decentralization creates additional subnational nodes of
state actors, and devolves service delivery to local entities (public, non-profit, or private) thereby
shortening the long route to accountability.2
Major analytic streams in the extensive literature focus on how decentralization improves
allocative efficiency through matching services with citizen preferences, increases service
production efficiency and cost recovery, and aligns resources with service delivery
responsibilities through various combinations of intergovernmental transfers and own-source

revenues (see, for example, the review in Birner and von Braun 2009). Related streams explore
decentralization’s impacts on service providers’ incentives for accountability, innovation, and
equitable distribution, and issues of local elite capture and of corruption (e.g., Bardhan and
Mookherjee 2000, Crook and Manor 1998, Dillinger 1994).
1
2

Decentralization can serve more purposes than just better service delivery; see Eaton et al. (2011).
Some definitions of decentralization include privatization as an explicit variant (see Rondinelli 1981).

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Much analysis has addressed gaps in translating decentralization into practice, and has
identified contextual factors that constrain the achievement of decentralization’s theorized
benefits in developing countries. For example, Azfar et al. (2001) examined the preference
matching argument and found that public officials at the intermediate level (districts in Uganda
and provinces in the Philippines) showed no evidence of having better knowledge of the
preferences of local residents, and that local officials at lower levels of government (subcounties
in Uganda and municipalities in the Philippines) had only weak knowledge of what citizens
wanted. Devarajan et al. (2009) assess the negative effects of what they call ―partial

decentralization‖ on service delivery, where perverse incentives, capacity weaknesses, and
limited accountability are created when central government entities fail to transfer full
authorities, responsibilities, and resources to lower levels.
A subset of the decentralization path is granting autonomy to individual service
provision facilities. This path has been extensively pursued in health and education, where
hospital and school autonomy reforms have devolved responsibility, authority, and revenue
generation and expenditure. In some cases, this has meant privatization of public facilities.

Standard-setting
The setting of service-delivery standards, translated into regulations and/or specified in
performance contracts, is one route to addressing a common problem with service delivery: lack
of clarity regarding the constituent elements of acceptable quality services. Poor quality connects
directly to underutilization of services and failure to achieve outcomes. The development of
minimum performance standards, or of so-called ―best practice‖ standards (i.e., benchmarking)
serves to establish clearer depictions of the elements of performance along with metrics.
Principals can use these to frame expectations and targets for agents, which can be incorporated

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into administrative and/or legal requirements for service delivery and into specifications for

performance contracting. Standards become the metrics that create incentives for agents to
improve services (e.g., Rowan 1996).
Studies offer several caveats regarding this pathway to improved services. These include
the temptation for agents to select those service recipients most likely to contribute to achieving
the standards for which agents are held accountable (―creaming‖), and the difficulty in crafting
short-term measurable standards that are reliably associated with desired long-term outcomes
(e.g., Heckman et al. 2002). Such problems notwithstanding, in most developing countries
standard-setting is a commonly employed route to service delivery improvement, frequently
driven by planning and/or monitoring and evaluation systems, many of them donor-supported.
A common standard-setting item in the NPM toolkit is the citizen charter, a frequently
employed means of clarifying service delivery expectations and specifying standards. Charters
can be developed at various levels; for example, for sectoral ministries and departments, or for
individual facilities, such as schools or health clinics. In many developing countries, such
charters are posted in the public areas of ministries or facilities, thus contributing to the
information-flow and transparency pathway discussed below.

Results-based management
This route to improved service delivery involves public organizational systems and
procedures that formally combine target-setting, budgeting that links targets to funding,
performance measurement and monitoring against targets, and accountability for results. Internal

to the organization, managers use the information generated by these systems and procedures to
make decisions that lead to improved performance. External to the organization, principals use
the information for purposes of oversight, accountability, and directives for reforms. In

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industrialized countries, results-based management has a long history, beginning with such tools
as zero-based and performance-based budgeting, and a variety of legislatively mandated
accountability programs (see Dubnick and Frederickson 2011). NPM-inspired public sector
reforms in developing countries have tackled organizational change with the aim of injecting
performance-oriented management into the civil service, with mixed results (see Lodge and
Kalitowski 2007).
In South Africa, for example, where citizens have been frustrated by poor public service
delivery, the Zuma administration created a Ministry of Performance Monitoring and Evaluation
in 2009 to respond to the problem. The new ministry established a system that set policy goals
and measurable targets for sectoral ministries, and tracked their performance annually against the
targets. The targets served as the basis for performance agreements signed between ministers
and President Zuma. The terms of the agreements were not required to be made public, though
several ministers opted to do so (Friedman 2011).
Rwanda has pursued a similar results-based management pathway. Rebuilding service

delivery capacity of the state was a key objective of the government following the genocide. The
Kagame administration introduced performance-based agreements that reference a traditional
Rwandan rite where groups or individuals would make public commitments to particular actions
and then strive to live up to their pledges, with failure being associated with shame and dishonor.
This customary practice is called imihigo. Since 2006, mayors and President Kagame have
signed annual imihigo agreements that are tracked and publicly reported on quarterly, with an
annual ranking of districts (Brinkerhoff et al. 2009).

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Performance-based payment
NPM led to major attention to contracting as a means to increase performance and
accountability and to motivate agents to fulfill the objectives of their principals. This path to
service delivery performance improvement has also proven increasingly popular in developing
countries, where it has long been used in the infrastructure sectors. For services, donors have
supported experimentation with contractual mechanisms that link payment to the achievement of
specified service outputs and/or outcomes. These mechanisms are known variously as PBP
(performance-based payment), P4P (pay for performance), RBF (results-based financing), among
other labels.
PBP seeks to solve the principal-agent problems inherent in service delivery. By creating
positive incentives for performance, such schemes can more closely align the interests of agents
(service providers) with those of their principals. As Eichler et al. note regarding their use in the
health sector, ―performance-based payment establishes indicators of performance that make clear
what principals want and give agents financial incentives for achieving defined performance
targets‖ (2007, 3). The design of performance verification measures, which trigger the
distribution of rewards (monetary and/or other), aims to address the information asymmetry
problem.
PBP mechanisms vary in terms of: a) which entities are making payments and which are
receiving them, b) how performance targets are specified and the extent to which payment is
based on performance, and c) which entities are involved in monitoring and verification and how
those functions are carried out (see, for example, Eldridge and Palmer 2009). Within the public
sector, PBP can operate between different levels of government, for example, intergovernmental
transfers for service delivery purposes with funds releases contingent upon reaching specified
targets. A well known example from the US is in the education sector, where the No Child Left
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Behind legislation mandates public schools to achieve improvements in student test scores or
risk losing federal funding. In the health sector, Rwanda experimented with a District Incentive
Fund that rewarded district governments with grants for achieving a combination of increased
capacity and service delivery targets (Brinkerhoff et al. 2009). PBP can take the form of
performance contracts between public sector entities (sometimes referred to as contracting in),
for instance between health financing agencies and facilities (see the examples in Eichler and
Levine 2009).
There are numerous examples of PBP mechanisms between the public sector and nonstate providers (contracting out) for health, education, infrastructure, and municipal services. The
extent to which performance targets constitute contractual elements in PBP mechanisms varies
considerably, as does the percentage of contract value placed at risk. Some schemes with local
NGO providers use bonus payments on top of a base level of grant funding, with pay-outs
triggered according to phased achievement of targets (see Eldridge and Palmer 2008, Eichler and
Levine 2009).
Arrangements for monitoring and verification of the achievement of performance targets
vary as well. Public audit agencies, contracting out to private audit entities, internal review
units, legislative review committees, professional associations and boards, citizen/community
and NGO monitors are all common means of tracking and verifying performance. These are
often found in combination. In principal-agent terms, they all share the common challenge of
seeking sufficient information from agents to assure that the intended performance that principals
want to achieve is realized. Without reliable and accurate verification of performance, the
benefits of PBP will not be realized.

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Information flows and transparency
The availability and dissemination of information regarding policies, programs, resource
allocations, and results relative to services are the core elements of another pathway to improved
service delivery. The good governance agenda prioritizes information flows and transparency as
hallmarks of increased accountability and improved governance (Brinkerhoff 2005). In terms of
governance, the state’s legal and institutional structures play a role both in creating and
supporting this pathway. These include laws and procedures that make information available
and transparent, such as freedom of information acts (FOIAs), so-called sunshine legislation that
mandates government to disseminate budget and program documents, and procedural
requirements for open hearings on matters of concern to citizens.
In terms of improved service delivery, expanded information flows address first the
technical dimensions of service delivery by generating the data and knowledge on need, demand,
quantity, quality, distribution, and outcomes and impacts required by policymakers, program
designers, and service providers. This pathway contributes to better service forecasting, resource
allocation, and utilization through mechanisms such as management information systems, results
reporting frameworks, and/or participatory planning and budgeting exercises. When applied to
service users, the provision of information, for example through targeted social marketing and
communication campaigns, can enhance service uptake and utilization rates.
Second, this pathway addresses the information asymmetry problem in principal-agent
interactions, which enables increased accountability and better incentives on the part of
providers. Expanded information availability and dissemination feed into performance
monitoring and the enforcement of standards, whether for contract purposes or for more general
oversight. For example, the information in citizen charters helps to clarify what service users can
expect from providers, and sets the benchmarks for judging performance. In Rwanda, local
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governments hold Open House and Accountability days (Journées des Portes Ouvertes), where
local officials provide information to citizens, and citizens have a regular opportunity to question
them and become informed about district development plans and sectoral services (Brinkerhoff
et al. 2009). Information availability and dissemination are key to giving effect to the citizen
participation pathway.

Citizen participation
This pathway concentrates on the demand-side of service delivery, incorporating voice
and demand aggregation (citizen satisfaction surveys), empowerment and collective action
(citizen/community monitoring), market power (e.g., vouchers), and service co-production.
Among the best-known examples is Tendler’s (1997) widely cited study of participatory health
service delivery in the Brazilian state of Ceará, where state health officials set and enforced the
standards for hiring and performance of community health workers (which avoided clientelism in
hiring), while establishing local structures and procedures that engaged local health service users
as active participants in assessing health worker performance. However, citizens’ ability to judge
performance can limit their contribution to motivating service providers. For example, Banerjee
et al. (2006), in a study in India, find that parents’ ability to assess the educational achievements
of their children was low.
Citizen report cards and user satisfaction surveys are another mechanism that can serve to
generate information on what kinds of services communities want, and what quality levels they
expect. When used as input to results-based management and/or performance contracting, such
citizen-based evaluations can provide incentives for responsive and accountable service delivery.
Citizen satisfaction is often taken at face value to directly approximate the objective quality of
services, using tools such as citizen report cards and user satisfaction surveys. Research has

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shown, however, that perceptions of service quality are influenced by a range of factors,
including the overall quality of governance, prior expectations, how equitably services are made
available, and the type of service evaluated (Deichmann & Lall 2007, Van Ryzin 2007).
The extent to which citizens perceive their local governments to be transparent and
responsive to their needs can significantly influence their views on service delivery. In their
analysis of citizen responses to dissatisfaction, Lyons and Lowery (1989) show that serviceusers’ with low levels of political efficacy – defined as feeling that one can influence
government and have officials care about one’s opinions – are significantly more likely to
respond to unsatisfactory services by disengaging with government (―neglect‖ in their model),
rather than actively expressing their dissatisfaction.
Another intervening factor is citizens’ prior experiences with services. Through
expectancy confirmation, the degree to which current outcomes exceed or fall short of those
expectations has been shown to influence current satisfaction (James 2009, Van Ryzin 2007). If
current service delivery exceeds expectations (positive disconfirmation), citizens’ satisfaction
will be higher than if the same objective quality were delivered in a context with raised
expectations. A study looking at satisfaction with services and trust in government in Iraq noted
the effects of citizens’ expectations, based on prior service experience, on satisfaction levels with
current services (Brinkerhoff et al. 2012).
Finally, the correlation between users’ satisfaction and objective service quality has been
shown to vary with the specific service under consideration. User satisfaction may therefore be a
more reliable measure of performance for some services than for others. In the United States,
empirical analysis has shown close correspondence between citizen satisfaction and objective
measures of urban sanitation services, such as street and public space maintenance (Van Ryzin

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2007). In a study in India, Deichmann and Lall (2007) demonstrate that a generally positive
relationship holds between household satisfaction with water service and daily duration of water
availability in Bangalore. Israel (1987) offers an explanation of which services are more likely
to be accurately judged by users: those that have high degrees of specificity. He defines
specificity in terms of ―the degree to which it is possible to specify the objectives of a particular
[service delivery] activity, the methods for achieving them, and the ways of controlling
achievement‖ (1987, 48) along with the extent to which the results of the activity have
immediate, identifiable, and targeted effects on service users.
The use of community empowerment mechanisms is a well-recognized means to align
service delivery to local needs and preferences. Parents’ associations, health committees, and
community-based natural resources management arrangements bring communities into
partnership with public providers precisely for the purpose of assuring that services meet user
needs. The literature on state-society synergies for co-production of services highlights this
outcome, as well as the benefits for efficiency and effectiveness (see, for example, Evans 1996).
The empowerment aspect of these co-production partnerships emerges most strongly when the
information provision on needs and preferences that feeds into alignment is joined with oversight
and accountability.
For example, in the Philippines, a demonstration project on the island of Mindanao
established Quality Assurance Partnership Committees in local health facilities explicitly to
serve both service quality assurance and citizen empowerment functions (Brinkerhoff 2011). On
the service side, the QAPCs offered facilities feedback on client satisfaction. On the
empowerment side, the QAPCs aimed to channel community voice to enhance health service
provider responsiveness, oversight, and accountability. Through collaboration and consensus, the

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QAPCs sought to provide review and problem-solving to identify actions to improve facility
services.
Such empowerment mechanisms, in the ideal, lead service providers to pay attention to
performance. They serve as sources of demand and capacity not just for efficient service
provision but also for performance that is accountable and responsive. Several constraints limit
whether citizens can, in practice, fulfill these functions. First is technical expertise; particularly
in situations where engaging with service providers calls for technical competence, citizens may
face information asymmetries and knowledge barriers. Second, there is some degree of role
conflict between citizens as co-producers of services in partnership with providers and as
accountability monitors.

Summary
Our rapid review of pathways to improved service delivery has demonstrated the
hypothesized benefits of each pathway, noted the major constraints and limitations they face, and
provided some country examples. Table 1 offers a summary. The discussion also revealed the
connections among the pathways. The decentralization pathway shapes in many cases the
institutional and structural landscape upon which other pathways are pursued. Similarly,
information flows and transparency support the other pathways, as well as constituting a reform
route that is often taken up by reformers in its own right. We now turn to an exploration of
Indonesia’s experience with these pathways.
INSERT TABLE 1 HERE

Pathways experience in Indonesia
When the Soeharto regime was swept from power in 1998 due to the combined effects of
the 1997-98 Asian financial crisis and widespread public dissatisfaction spearheaded by student
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groups and civil society organizations, Indonesia entered a transition period of intense reform
(referred to as the era of reformasi ). The first two post-Suharto administrations, the Habibie and
Wahid governments, loosened controls on the press, paved the way for independence in East
Timor, initiated an ambitious program of decentralization, established special autonomy
packages for Aceh and Papua, began reforming the electoral system, and took important first
steps to reduce the role of the military in politics and the economy. Free and fair general
elections were held in 1999 and 2004. Reforms continued, though at a slower pace, under the
Sukarnoputri government (2001-2004), and subsequently under President Susilo Bambang
Yudhoyono, who won a decisive electoral victory in 2004, and was re-elected in 2009.
The international donor community mobilized to support Indonesia’s transition to
democracy and good governance. Public sector reform programs aimed to support the country’s
ambitious decentralization program, increase administrative efficiency and effectiveness, and
reorient the public administration toward responsiveness to its citizens. Numerous initiatives
targeted performance improvement in key sectors, such as health and education. The following
discussion reviews a selected set of these reforms.

Decentralization
Indonesia embarked on a rapid decentralization program beginning in 1999. Through a
series of reforms, the bulk of authority for fiscal and legislative decisions, as well as service
delivery, were transferred to the district level.3 Decentralization has had a significant impact on
subnational public expenditure. The World Bank (2006) estimates that 40 percent of public

3

Subnational administrative levels of government in Indonesia include the propinsi (province), kabupaten/kota
(regency/municipality, both considered districts), and desa (village). Since 2004, the kecamatan (sub-district) has
been subsumed under the kabupaten , but this level retains important functions in some of the country’s largest
development programs, including the Program Nasional Pemberdayaan Masyarkat (PNPM, National Community
Empowerment Program) discussed below. See Rapp et al. (2006) for a comprehensive review of Indonesia’s
decentralization.

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spending is currently the responsibility of subnational governments. As the majority of these
resources come from central transfers, the efficiency and effectiveness of the intergovernmental
transfer system are critical. While the central government has retained the potential to use budget
transfers as incentives for performance, these possible channels for influencing the quality and
orientation of service delivery at more local levels have not been used effectively (Buehler 2011,
Ferrazzi 2005, Lewis & Smoke 2011).
Fiscal incentives are weak, and their effectiveness is not maximized by national
policymakers. For example, general revenue allocations (Dana Alokasi Umum or DAU) cover
over a third of provincial budgets and two thirds of district budgets, on average, and even larger
proportions in some districts, as Table 2 shows. The size of the DAU is partly determined using
a fiscal equalization formula and partly calculated to cover the subnational wage bill, without
taking into account past years’ utilization or existing reserves. In spite of surpluses in many
districts, the central government has refrained from varying DAU allocations to encourage
districts to invest in service improvements (Lewis & Smoke 2011). The central government’s
coverage of the district wage bill4 also discourages districts from experimenting with different
models of service delivery, as overhauling staffing patterns and streamlining wage structures
would produce no gains to district budgets (Heywood & Choi 2010). The smaller specific
purpose grants (Dana Alokasi Khusus, or DAK) have been structured to include a matching grant
to encourage capital investment, but these funds have been shown to crowd out capital spending
from other sources, diluting their effect (Lewis and Smoke 2011).
INSERT TABLE 2 HERE
Further, the central government has not provided reliable information on the amounts and
timing of transfers. A recent study in Aceh (Morgan et al. 2012), confirmed that district
4

Table 2 shows the proportion of the wage bill relative to the DAU in a selection of districts.

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governments are not always aware of the amounts of central and provincial transfers they can
count on receiving, and during a given fiscal year, transfers are often delayed (World Bank
2006).
Because the central government imposes few controls on intergovernmental transfers,
local officials have wide leeway to decide on spending targets. In health, local discretion on
spending targets has resulted in some degree of sub-optimal resource allocation in terms of
health priorities. Spending does not always target the health needs of the poor, and local
parliamentarians have in some cases favored investment in visible infrastructure in support of
increased curative care rather than in prevention (Heywood & Choi 2010). In Aceh, such
spending patterns are reinforced by the power of well-off former members of the armed
resistance movement (GAM) who head construction firms to influence budgeting votes in local
parliaments, as well as by the desire of local politicians to be associated with visible results of
their budgeting decisions (Morgan et al. 2012).
After transfers are made, district use of sectoral budgets is also largely unmonitored. For
example, a study of health services in four districts found that no data were available on how
health budgets had been spent. Interviewed doctors reported that although budget allocations
had increased since decentralization, the promised funds had failed to materialize. The lack of
financial transparency and accountability was evident across the districts studied (Kristiansen &
Santoso 2006). A range of efforts are underway to increase the transparency of district budget
allocations, some involving citizen participation through participatory budgeting, budget analysis
software, and tools that clarify allocations to service providers (as discussed below regarding the
information transparency pathway).

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Standard-setting
The Indonesian legal framework for decentralization incorporates minimum
service standards (MSS). A year after the launch of its aggressive decentralization program in
1999, the central government introduced MSS for nine sectors: public works, health, education
and culture, agriculture, industry and trade, investment, environmental affairs, land affairs,
cooperatives and labor affairs. Because the MSS were ill-defined and complex, and the roles of
central and local agencies in their implementation conflicted, however, they were often ignored
by district service providers who found them overwhelming and confusing (Ferrazzi 2005,
World Bank 2008, 2010).
In spite of subsequent laws to clarify content and implementation (Law 32/2004 and
Government Regulation 65/2005) and to enhance the role of citizens in holding service providers
accountable (Law 25/2009), meeting MSS remains a challenge for service providers. Some of
the obstacles are linked to budget planning processes, which remain divorced from MSS (APiH
2008). For political reasons, the central government has also refrained from directing portions of
the DAU to meeting MSS, as the general purpose block grant has become popular with districts
(Ferrazzi 2005). Because of the poor definition of standards, districts rarely apply them as local
budget or program criteria. It is also unclear how progress on MSS is monitored, and what
incentives subnational governments have to implement them (Lewis and Smoke 2011). A
review of Indonesia’s progress towards Millennium Development Goals 4 (reducing child
mortality) and 5 (improving maternal health), found that ―the shortcomings of the health
information system cast serious doubt on the extent to which the MSS can effectively be used to
monitor and evaluate the performance of local governments‖ (Trisnantoro et al. 2009, 15). As a
combined result, inadequate funding prevents civil servants from delivering adequate and
appropriate services (Buehler 2011), local health officials are often unaware of MSS
19

requirements (Morgan et al. 2012), and higher-level offices have little information on where the
bottlenecks lie.
In the education sector, recent efforts have aimed to improve providers’ understanding of
MSS and the real costs of achieving them. After new standards were approved in 2010, the
Ministry of National Education calculated aggregate costs of achieving standards, but did not
break costs down for individual districts. Efforts are underway to help district officials calculate
the locally relevant cost to meet standards. A tool entitled, Calculation of Costs to Achieve
Minimum Service Standards and Universal Access (Penghitungan Biaya Pencapaian Standar
dan Akses Pendidikan, or PBPSAP), relies on data collected through the ministry’s management

information system. It provides analysis and guidance for local governments to determine policy
alternatives to meet standards and targets most efficiently. By September 2011, the PBPSAP had
been applied in 26 districts (RTI International 2011a).

Results-based management
In Indonesia, the results-based management pathway has been pursued on several fronts.
Performance-based budgeting regulations for subnational governments were instituted in 2000
and 2002 to improve the links between planning, budgeting and levels of services (ADB 2004,
78). The results orientation is also reflected in efforts to improve accountability and transparency
of DAK funds by subdistricts. By shifting the central government’s orientation from financing
inputs to reimbursing for independently verified outputs, the World Bank’s Local Government
and Decentralization Project seeks to hold kabupaten governments responsible for meeting their
planned expenditures on irrigation, roads, and water and sanitation. It also puts more pressure on
all levels of government to complete necessary steps for timely DAK transfers, as delays could
jeopardize reimbursements. Transparency will be improved as reimbursement of DAK grants

20

are tied to completion of outputs verified by the State Finance and Development Auditing
Agency (Badan Pengawasan Keuangan dan Pembangunan, BPKP) (Ellis et al. 2011).
As the project has been operational only since January 2011, the results of the first
verification are not expected until April 2012. A critical element of the project is BPKP’s
independent verification, given the ubiquitous weak information systems that present challenges
to all pathways for improving service delivery and enhancing accountability of local
governments. Project data also indicate, however, that substantial bottlenecks persist in the
accountability of central agencies for providing promised funding. While 63 of 78 participating
kabupaten had passed budgets on time (by Feb. 28, 2011) to ensure receipt of DAK transfers by

March 31, only 44 of the participating districts received transfers by this deadline (World Bank
2011).

Performance-based payment
In Indonesia, several experiments with performance-based payment schemes have
focused on the health sector. From 2000 to 2003, the Ministry of Health, the National Family
Planning Coordination Board (BKKBN), and the World Bank collaborated on a pilot program in
Central and East Java that gave poor women vouchers to encourage visits to private village
midwives for maternal and child health, and family planning services. Although a full and
rigorous evaluation was not feasible for the pilot, the available evidence indicated that 74% of
poor women in Central and East Java who received the vouchers (in 2000) used them for skilled
deliveries, compared to 26.1% of poor women who had skilled deliveries at baseline (December
1999) in Central Java (World Bank 2005, 5-6). The increased demand expressed through poor
women’s use of vouchers doubled the number of midwives in the pilot districts, with midwife
coverage increasing to 95% of villages (Hopkins & Nachuk 2006).

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During its short implementation period, the voucher pilot demonstrated ―that demandside incentive payment mechanisms using government funding‖ are a logistically feasible way to
improve service delivery to the poor in Indonesia (World Bank 2005, 12, 15).5 However, the
pilot also highlighted the challenges of sustaining performance-based payment, given weak
district-level capacity for implementation and weak support at the provincial level (Brenzel et al.
2009). The pilot also raised concerns that the increased demand could exceed health system
capacity, resulting in overcrowded hospital delivery facilities (Gorter et al. 2003).
A more recent performance-based financing experiment was carried out by the Dutch
non-governmental organization, CORDAID, which has implemented similar programs in
Rwanda (Soeters et al. 2006). Working in two remote, predominantly poor districts on the island
of Flores, the project collaborated with provincial, district, and local health officials (as well as
with a Jakarta-based private firm) to identify a series of service quantity and quality indicators
(Schoffelen et al. 2011). Starting in 2009, local health facilities and district hospitals were given
financial rewards for increases in the number of new consultations, referrals, complete
immunizations, new and cured TB cases, safe deliveries, and treatment of low birth weights,
among other quantity indicators (fifteen for health facilities, eleven for district hospitals).
Quantity indicators were verified monthly, through inspections of a sample of health facility
records, and visits to patients to verify that treatment had taken place. Quality was gauged
quarterly, using an extensive list of indicators of hygiene and sanitation, regular consultation,
emergency service, delivery care, etc.
As of August 2010, project records showed that the number of patients accessing medical
services had increased in both districts. Compared to a June 2009 baseline survey, quality
5

According to World Bank (2005, 6-13), there has been additional experimentation with vouchers based on the pilot
in both health and education, the Bank’s Support for Poor and Disadvantaged Areas (SPADA) Project in Aceh and
Nias , and a USAID Aceh reconstruction project.

22

indicators in the project districts had increased by an average of 18%, compared to 1% in a
neighboring control district (Schoffelen et al. 2011). Although these results are impressive, it
should be noted that inspections of both quantity and quality were carried out by teams trained
and funded by CORDAID. Concerns about sustaining the performance-based incentives, given a
prior lack of record-keeping and supervision by district and provincial health authorities
(Schoffelen et al. 2011) are thus similar to those for the voucher pilot implemented through the
Safe Motherhood project.

Information flows and transparency
Over the past decade, significant advances have been made in information transparency
and dissemination as a means of improving service delivery, particularly in combination with
citizen participation. While these achievements have often been limited to specific jurisdictions,
rather than changes across Indonesia, their importance should not be discounted in a context
where, until very recently, citizens had no information on, or say in, how services were delivered
and budgets spent (see, among others, Hopkins & Nachuk 2006, MacLaren et al. 2011, RTI
International 2009).
One prominent development has been the emerging budget analysis movement in
Indonesia, led by Sekretariat Nasional Forum Indonesia Untuk Transparansi Anggaran
(National Secretariat of the Indonesian Forum for Budget Transparency, abbreviated SekNas
FITRA). Since 2000, SekNas FITRA and its civil society and donor partners have worked to
analyze budget allocations, availability of budget information, and, in some cases,
correspondence between local budgets and citizen priorities (Antlöv & Wetterberg 2011). The
organization has developed budget analysis software that can be widely applied to gauge the propoor orientation of district and provincial budgets (PSF Local Governance Team 2011), and has

23

complemented these efforts with collection of a range of indicators of the quality of district
governance (including indicators for accountability, participation, gender equality, and
transparency). This work has garnered widespread support6 and has been used as input to citizen
prioritization of budgets, benchmarking for district governments and as baselines for service
delivery interventions.7
Notably, it is not only citizens that require more information on the funding and
administrative arrangements for service delivery. After decentralization, the level of funding for
education increased at the district and school levels. However, local education officials did not
know what resources they could expect to receive as the information on transfers was dispersed
across a range of sectoral budgets and financing mechanisms, making planning difficult. To
make the decentralization of funds effective, local officials needed financial analysis tools to
clarify available resources. For instance, USAID’s Decentralized Basic Education program’s
District Education Financial Analysis (Analisa Keuangan Pendidikan Kabupaten/Kota , or
AKPK) condenses and reworks information from various government budget documents into a
transparent picture of where funding comes from and on what the money is spent. The analysis
helps to inform decision-making, set priorities among district development sectors and within the
education sector, and assess fairness of funding allocations (through per-student expenditure by
level of education). The information can also be applied to compare performance among
districts, match expenditures to key performance indicators, link results to inputs, and
disseminate clear information for use in public policy debate. AKPK has been used in more

6

See
http://www.seknasfitra.org/index.php?option=com_content&view=category&layout=blog&id=76&Itemid=151&lan
g=in for a current listing of projects and sponsors.
7
Budget analysis for the Kinerja-provided data presented in Table 2.

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than 70 districts and has been transferred by USAID to other education projects (RTI
International 2010a).

Citizen participation
Involving citizens in service improvements can take many forms. One way is to invite
users to assess services through satisfaction surveys and citizen report cards, but as noted above
satisfaction ratings can have tenuous relationships with objective indicators of service delivery,
as user satisfaction may be colored by a range of factors. In Indonesia, the correlation between
indicators of facility quality and satisfaction has been found to vary across services and is much
weaker for public schools than for public health facilities (Dasgupta et al. 2009, 27). In line with
these findings, Lewis and Pattinasarany (2008) find that objective indicators are significant
predictors of satisfaction with education in 89 districts, but that their overall contribution is small
relative to governance and control variables.8 In particular, transparency in local budget matters
and school administrations’ responsiveness to stated problems significantly improved
satisfaction, while awareness of corruption in the school administration reduced satisfaction (p.
16). Though objective indicators (such as student-teacher ratios and classroom conditions) were
also important to users’ perceptions, satisfaction was clearly colored by more general
experiences with local gover