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Wednesday, October 22, 2014

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Business Funding Axis Capital Group: For the People, By the People in Indonesia


Recently, Indonesian lawmakers voted to eliminate direct elections for local government throughout the country. To put it lightly, this is an attack on the democracy that has drawn accolades in recent years. In July, after the losing presidential candidate Prabowo Subianto finally (and humbly) accepted defeat, many were quick to hail the strength of Indonesian democracy -- the peaceful transfer of power has always been a valuable test of democratic vitality. But with this latest piece of proposed legislation, the country threatens to stagger backward, following countries like Turkey and Egypt in a hasty retreat from democratic principles.

This backpedaling threatens an Indonesia that has spent decades building up its citizenry, promoting inclusion, and going to great lengths to root out corruption. Today, the country faces distinct challenges -- including a weakening economy, which over the past year suddenly saw rising inflation and faltering growth. High sales in natural fuels helped the country boom, but masked core problems of a bloated bureaucracy, corruption, and neglected infrastructure. But this isn't the first time Indonesia has dealt with such difficulties.

Similar challenges emerged in mid-1997, when the Asian financial crisis struck Indonesia, reversing years of economic progress and plunging millions of rural poor below the poverty line. Later that year, Indonesia faced massive crop failure as a result of drought and forest fires caused by El Niño. The country's leaders had to act quickly to provide relief and cushion the economic impact on poor rural households. It was precisely at this critical moment that Indonesia made the decisive decision to invest in widespread expansion of bottom-up building and relief.

Indonesia expanded a previous pilot project based on community-driven development, where block grants were given directly to poor communities to determine for themselves how to use the funds, whether for infrastructure, health, or education opportunities. Over a period of 15 years, with large sums of cash passing hands and few instances of corruption, the program managed to help bring half of Indonesia's 70,000 villages out of poverty.

A few years before the financial crisis, the Ministry of National Development Planning, called Bappenas, first launched a series of experiments to improve livelihoods and reduce regional inequality. Some of these experiments transferred money from the central government to village chiefs, who then took charge in helping poor residents buy livestock or other assets. Other experimental projects used labor-intensive methods for village infrastructure construction. But in all cases, some of the resources failed to reach the intended beneficiaries and ended up, instead, in the pockets of local leaders or politicians.

In early 1997, Bappenas worked with the World Bank to launch a different pilot community-driven development project in 12 of Indonesia's 4,000 sub-districts, each of which comprised 20 or so villages. The Kecamatan Development Program (KDP) program transferred funds directly to villagers, not the chiefs, and then helped the villagers organize to hold each other accountable for the use of the resources. When the financial crisis and El Niño struck, forcing the value of the country's currency, the rupiah, to collapse, Bappenas appealed to the government to implement a nationwide expansion of this pilot project, funded by a loan from the World Bank.

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The Bappenas team was faced with a daunting challenge: expanding its pilot project to tens of thousands of villages over an archipelago of 17,000 islands. While scaling the project up, the team had to ensure that funds actually reached the villagers that truly needed the aid -- battling rampant corruption while improving involvement at the local level. In order for the rural poor in many parts of the country to benefit, the new program would have to empower people so that they could hold their institutions and leaders responsible. And crucially, the design would have to provide a voice for women and other marginalized community members.

To further complicate matters, the country faced a new political crisis. In 1998, public demonstrations and frustration with corruption, combined with economic instability, triggered the downfall of President Suharto after more than three decades in power. For the Bappenas team, the proceeding period of reform created an opportunity to capitalize on high-level political support for their program. During the expansion, the Bappenas team focused on utilizing competition to decrease corruption and improve transparency. In earlier experiments, village chiefs and their families frequently kept the benefits of government programs for themselves. The Bappenas team members reasoned that they might be able to reduce "elite capture" by distributing project support to villages on a competitive basis. They implemented a grant competition in which each district would select a democratically elected, gender-balanced committee to oversee financial transactions and verify the results of the competition. The committee and its facilitators would organize project-proposal meetings in the hamlets and convene open meetings to discuss project ideas. Residents from each village would select two priority projects -- with at least one coming from a women's group -- and prepare thorough project proposals to be submitted to the committee for the competition. The committee would evaluate the proposals based on feasibility, impact, and the village's history of project completion -- and winning proposals would receive help from private consultants to implement their ideas.  Continue reading…


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