World Bank Document€¦ · 24.06.2013 · 200 Promenade du Portage Gatineau, Quebec Canada, KI A 0G4 Dear Ms. Urban: Re: Administration Arrangement between the Government of Canada

THE WORLD BANK I BANK DUNIASharing Development Solutions 7/ 77for an Erneging Indonesia OFFICIAL/

OCUMENTSLetter No. CD-143/PFM/III/2013 March 27. 2013

Ms. Cheryl UrbanDirectorIndonesia, Philippines, China and Southeast Asia Regional ProgramCanadian International Development Agency200 Promenade du PortageGatineau, QuebecCanada, KI A 0G4

Dear Ms. Urban:

Re: Administration Arrangement between the Government of Canada as represented bythe Minister for International Cooperation acting through the Canadian International

Development Agency (CIDA) and the International Bank for Reconstruction andDevelopment concerning the Support to Public Financial Management andRevenue Administration in Indonesia Multi-Donor Trust Fund (TFO71375)

1. The International Bank for Reconstruction and Development (the "Bank") acknowledges thatthe Government of Canada, as represented by the Minister for International Cooperation acting throughthe Canadian International Development Agency (CIDA) (the "Donor") agrees to provide the sum offive million Canadian Dollars (C$5,000,000) (the "Contribution") for the Support to Public FinancialManagement and Revenue Administration in Indonesia Multi Donor Trust Fund. TF071375 (the "TrustFund") in accordance with the terms of this Administration Arrangement. Other donors are alsoexpected to contribute to the Trust Fund on the terms and conditions specified in Annexes I and II to thisAdministration Arrangement.

2. The Contribution will be used to finance the activities set forth in the "Description of theOperation" attached hereto as Annex II, and will be administered by the Bank on behalf of the Donor inaccordance with the terms of this Administration Arrangement, including the "Standard Provisions"attached hereto as Annex I.

3. The Donor will deposit the Contribution in accordance with the following schedule and in thecurrency specified in Section I above ("Contribution Currency") into such bank account designated bythe Bank (each amount deposited hereinafter referred to as an "Installment") upon submission of apayment request by the Bank:

(a) Promptly following countersignature and by March 31, 2013- CS3,000,000 for CIDA fiscal year2012-2013;

(b) By January 2014 - C$2,000,000 for CIDA fiscal year 2013-2014.

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Ms. Cheryl Urban 2 of 22 March 27, 2013Canadian 'International Development Agency

4. When making such deposit, the Donor will instruct its bank to include in its deposit details

information (remittance advice) field of its SWIFT deposit message, information indicating: the amount

deposited, that the deposit is made by the Donor for TF 071375 (the Support to Public Financialmanagement and Revenue Administration in Indonesia Multi Donor Trust Fund), and the date of thedeposit (the "Deposit Instructions"). In addition, the Donor will provide a copy of the Deposit

Instructions to the Bank's Accounting Trust Funds Division by e-mail sent [email protected] or by fax sent to +1 (202) 614-1315.

5. Notwithstanding Section 6.1 of the Standard Provisions (Administrative Cost Recovery) set outin Annex I to this Administration Arrangement, in order to assist in the defrayment of the costs of

administration and other expenses incurred by the Bank under this Administration Arrangement, the

Bank may, following deposit of the Contribution by the Donor, deduct from the Contribution and retain

from the Bank's own account an amount equal to 3% of the Contribution. In addition, the Bank may

charge the managing unit's actual costs to administer the Trust Fund, up to a maximum equal to 3.94%of the Contribution.

6. Except with respect to the Deposit Instructions, any notice, request or other communication tobe given or made under this Administration Arrangement will be in writing and delivered by mail, fax or

e-mail to the undersigned respective address specified below or at such other address as such

undersigned notifies in writing to the other undersigned from time to time:

For the Bank (the "Bank Contact"):

Theo David ThomasSenior Public Sector Specialist, EASPIThe World BankIndonesia Stock Exchange Building, Tower 2J1. Jenderal Sudirman Kay. 52-53Jakarta 12190, IndonesiaTel: +62-21-5299-3000Fax: +62-21-5299-3111

For the Donor (the "Donor Contact"):

Program ManagerEmbassy of CanadaWorld Trade Centre, 6th FloorJl. Jend. Sudirman Kay. 29-31Jakarta 12920Tel: +62-21-2550-7800Fax: +62-21-2550-7813

7. In the event any amounts are to be returned to the Donor under this Administration

Arrangement, the Bank will transfer such amounts to the Donor's applicable donor balance account with

the Bank, unless otherwise agreed with the Bank.

8. No member of the House of Commons of Canada will be admitted to any share or part of this

Administration Arrangement or to any benefit arising therefrom.

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Ms. Cheryl Urban 3 of 22 March 27, 2013Canadian International Development Agency

9. No current or former public office holder or public servant of the Government of Canada who isnot in compliance with the Conflict of Interest and Post-Employment Code for Public Office Holders orthe Values and Ethics Code for the Public Service will derive a direct benefit from this AdministrationArrangement.

10. Any transfer into the Trust Fund to be made under this Administration Arrangement is subject tothere being an appropriation by the Parliament of Canada for the fiscal year in which such transfer is tobe made. If CIDA's appropriation is changed by the Parliament of Canada, CIDA may reduce theContribution. or terminate this Administration Arrangement.

11. No offer, gift or payment, consideration or benefit of any kind, which constitutes an illegal orcorrupt practice, has or will be made to anyone, either directly or indirectly, as an inducement or rewardfor the award or execution of this Administration Arrangement. Any such practice will be grounds forterminating this Administration Arrangement or taking any other corrective action as required.

12. All annexes hereto constitute an integral part of this Administration Arrangement, whose termstaken together will constitute the entire agreement and understanding between the Donor and the Bank.Unless otherwise specified in an annex hereto, this Administration Arrangement may be amended onlyby written amendment between the Bank and the Donor; provided, however, that any annexes to thisAdministration Arrangement may be amended only by written amendment of all donors contributing tothe Trust Fund

13. It is understood that this Administration Arrangement, including any annexes, is not aninternational treaty.

14. All references made in the Annexes to "shall" will have the same meaning as the term "will"herein.

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15. Each of the undersigned represents, by confirming its acceptance below, that it is authorized to

enter into this Administration Arrangement and act in accordance with its provisions. The Bank and the

Donor are each requested to sign and date this Administration Arrangement, and upon possession by theBank of this fully signed Administration Arrangement, this Administration Arrangement will becomecarried out as of the date of the last signature.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

By 3

Name :Jos ine Bassinette

Title Acting Country Director

Date :4-1 3 2-0 /0

THE GOVERNMENT OF CANADA AS REPRESENTED BY THE MINISTER FORINTERNATIONAL COOPERATION ACTING THROUGH THE CANADIANINTERNATIONAL DEVELOPMENT AGENCY

By :

Name :V_L-m_Avi

Title .>Ir C__ tr _____

Date : 7OF

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Annex I - Standard Provisions Applicable to the Trust Fund

1. General

1.1 The following terms and conditions shall govern all arrangements entered into between the Bankas Trustee of the Trust Fund, on the one hand, and donors and donor agencies (herein referred tocollectively or individually as the "Donors"), on the other, that provide contributions in the form ofgrants to the Trust Fund.

2. Definitions

2.1 Unless the context otherwise requires, the several terms defined in this AdministrationArrangement have the respective meanings therein set forth, and the following additional terms andexpressions have the following meanings:

(a) "Bank-Executed Activities" means Activities executed or to be executed by the Bankunder the Trust Fund:

(b) "Contribution" means any contribution to the Trust Fund made by a Donor pursuant toan agreement between the Bank acting as Trustee and the Donor;

(c) "Donor" means any entity which has made a Contribution to the Trust Fund;

(d) "Grant" means a grant made or proposed to be made to a Recipient out of the resourcesof the Trust Fund to support Activities under the Trust Fund, and to be administered bythe Bank;

(e) "Grant Agreement" means an agreement entered or proposed to be entered into betweenthe Bank and a Recipient governing a Grant;

(f) "Recipient" means the Republic of Indonesia or any agency of the Republic ofIndonesia, or other entity, for the benefit of which a Grant has been, or is proposed to be,made;

(g) "Recipient-Executed Activities" means Activities executed or to be executed by aRecipient under the Trust Fund;

(h) "Trustee" means the Bank acting as Trustee of the Trust Fund.

3. Purposes and Description of Activities; Eligible Categories of Expenditure

3.1. The purpose of the Trust Fund is to support the Government of Indonesia to enhance the publicsector contribution to the socio-economic development of its population, by improving the effectivenessof public finance management through strengthening capacity, efficiency, governance and transparencyin public resource mobilization, management and oversight. The Trust Fund is being established tosupport and complement the Government Financial Management and Revenue Administration Program(GFMRAP).

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Ms. Cheryl Urban 6 of 22 March 27, 2013Canadian !nternational Development Agency

3.2. The Trust Fund is intended to finance a program of activities to be executed by both theGovernment of Indonesia and the World Bank in the following program areas: (a) budget preparationand budget execution, (b) revenue administration, (c) legislative oversight, (d) procurement reform, (e)policy capacity development, (f) change management, human resources management andcommunications, and (g) management, strategy and visibility. Under each focus area, a mix ofGovernment-executed and Bank-executed activities are expected to be pursued.

3.3. The Contribution will be used exclusively for the financing of the following categories:

(a) Recipient-Executed Activities: consultants' services; goods; training, study tours andworkshops; and incremental operating costs; and

(b) Bank-Executed Activities: short- and extended-term consultants' services, contractualservices, and associated overheads; temporary staff costs and staff costs (salaries,benefits and indirect costs); travel expenses; and media and workshops costs.

4. Administration of the Contribution

4.1. The Bank will be responsible only for performing those functions specifically set forth in thisAdministration Arrangement and will not be subject to any other duties or responsibilities to the Donor,including, without limitation, any duties or obligations that might otherwise apply to a fiduciary ortrustee under general principles of trust or fiduciary law. Nothing in this Administration Arrangementwill be considered a waiver of any privileges or immunities of the Bank and International DevelopmentAssociation (IDA) under their Articles of Agreement or any applicable law, all of which are expresslyreserved.

5. Commingling, Exchange and Investment of the Contribution

5.1. The Contribution funds may be commingled with other trust fund assets maintained by theBank, but will be kept separate and apart from the funds of Bank.

5.2. The Contribution funds may be freely exchanged by the Bank into other currencies as mayfacilitate their disbursement.

5.3. The Bank will invest and reinvest the Contribution funds pending their disbursement in

accordance with the Bank's policies and procedures for the investment of trust funds administered bythe Bank. The Bank shall credit all income from such investment to the trust fund established under this

Administration Arrangement to be used for the same purposes as the Contribution funds.

6. Administrative Cost Recovery

6.1. In order to assist in the defrayment of the costs of administration and other expenses incurred bythe Bank under this Administration Arrangement, the Bank shall, following deposit of the Contribution

by the Donor, deduct from the Contribution and retain for the Bank's own account an amount equal to

five percent (5 %) of the Contribution.

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7. Governance Structure

7.1 In addition to the role of the Bank as Trustee, the governance structure of the Trust Fund shallalso include a Policy Advisory Committee and a Management Committee, as well as a Secretariat,whose respective functions shall be as follows:

(a) The Policy Advisory Committee ("PAC") , to be chaired by or on behalf of the Ministerof Finance, and consisting of representatives of the Recipient, the Trustee and Donors, as well asrepresentatives of the business community, will be responsible for: (i) reviewing, endorsing andcommenting on the Republic of Indonesia's priorities as laid out in the annual Strategy Note; (ii)providing strategic guidance and ensuring coherence between the Trust Fund and the Strategy Note; (iii)reviewing the progress and achievements of the Trust Fund in support of the Republic of Indonesia'spolicies and priorities; and (iv) promoting donor coordination and coherence in the areas included in theProgram. The PAC will meet annually or as often as necessary to conduct its business.

(b) The Management Committee ("MC"), to be chaired by the Bank Country Director or hisdesignate, and consisting of the relevant staff of the Bank and Donors, will be responsible for reviewingfinancing proposals under the Trust Fund and, to the extent that they are consistent with the objectivesof the Trust Fund and satisfy the relevant selection criteria, endorsing them for financing under the TrustFund. The MC will meet quarterly or as often as necessary to conduct its business.

(c) The Secretariat to be headed by the GFMRAP Task Team Leader, and consisting of therelevant technical staff of the Bank, will be responsible for: (i) receiving and providing guidance onfinancing proposals, and screening them for quality control; (ii) making recommendations to the MC onwhether to endorse or reject them, keep them on hold or return them to their sponsors for revisions. TheSecretariat will provide administrative support to the PAC and MC in the management of the TrustFund, and the organization and conduct of meetings.

8. Use of the Resources of the Trust Fund

8.1. The resources of the Trust Fund shall be applied in accordance with the objectives of the TrustFund to provide financing to support eligible activities under the Trust Fund, whether in the form ofGrants to Recipients to support Recipient-Executed Activities or by way of internal transfers ofresources to support Bank-Executed Activities.

8.2. In the case of Recipient-Executed Activities, the Bank will, as administrator on behalf of theDonor, enter into one or more Grant Agreements with Recipients for the provision of any part of theContribution funds for the purposes of this Administration Arrangement, and on the terms andconditions set forth in the respective Grant Agreement. The Bank will furnish a copy of each GrantAgreement to the Donor.

8.3. The Bank will be solely responsible for the supervision of activities under each GrantAgreement.

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9. Employment of Consultants and Procurement of Goods

9.1. In the case of Bank-Executed Activities, the employment and supervision of consultants and theprocurement of goods financed by the Contribution will be the responsibility solely of the Bank and willbe carried out in accordance with its applicable policies and procedures. In the case of Recipient-Executed Activities, the relevant Grant Agreement will provide that the Contribution will be used by theRecipient to finance expenditures for goods and services, as the case may be, in accordance with theBank's Guidelines on "Procurement under IBRD Loans and IDA Credits" and the Bank's Guidelines onthe "Selection and Employment of Consultants by World Bank Borrowers," as in effect on the date ofthe Grant Agreement.

10. Authority to Deny Funding

10.1. The Bank, as Trustee, has a duty to ensure that Contribution funds are actually applied for thepurposes for which they are intended.

10.2. Where, in the Bank's view, there is reasonable doubt as to whether the proceeds of any proposedfinancing will be effectively utilized for its intended purposes, the Bank will have the authority to denyfunding to the corresponding financing proposal.

1 1. Accounting and Financial Reporting

11.1 The Bank shall maintain separate records and ledger accounts in respect of the funds depositedin the Trust Fund and disbursements made therefrom.

11.2 The Bank shall furnish to the Donors current financial information relating to receipts,

disbursements and fund balance in the Holding Currency with respect to the Contributions via the World

Bank's Trust Funds Donor Center secure website. Within six (6) months after all commitments and

liabilities under the Trust Fund have been satisfied and the Trust Fund has been closed, the final

financial information relating to receipts, disbursements and fund balance in the Holding Currency with

respect to the Contributions shall be made available to the Donors via the World Bank's Trust Funds

Donor Center secure website.

11.3 The Bank shall provide to the Donors via the World Bank's Trust Fund Donor Center secure

website, within six (6) months following the end of each Bank fiscal year, an annual single audit report.

comprising (i) a management assertion together with an attestation from the Bank's external auditors

concerning the adequacy of internal control over cash-based financial reporting for all cash-based trust

funds as a whole; and (ii) a combined financial statement for all cash-based trust funds together with the

Bank's external auditor's opinion thereon. The cost of the single audit shall be borne by the Bank.

11.4 If a Donor wishes to request, on an exceptional basis, a financial statement audit by the Bank's

external auditors of the Trust Fund, the Donor and the Bank shall first consult as to whether such an

external audit is necessary. The Bank and the Donor shall agree on the appropriate scope and terms of

reference of such audit. Following agreement on the scope and terms of reference, the Bank shall

arrange for such external audit. The costs of any such audit, including the internal costs of the Bank

with respect to such audit, shall be borne by the requesting Donor.

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11.5 The Bank shall make available to the Donors copies of all financial statements and auditors'reports received by the Bank from Recipients pursuant to any Grant Agreements (as defined below) inaccordance with the Bank's Access to Information Policy."

12. Coordination and Reporting

12.1. The Bank, as Trustee, shall provide the Donor with semi-annual reports on the progress ofActivities financed by the Contribution. Within six (6) months of the final disbursement date specifiedin paragraph 13.1 of this Annex, the Trustee shall furnish to the Donor a final report on the activitiessupported under the Trust Fund.

12.2. The Bank will promptly inform the Donor of any significant modification to the terms of anyGrant Agreement and of any contractual remedy that is exercised by the Bank under the GrantAgreement. To the extent practicable, the Bank will afford the Donor the opportunity to exchange viewsbefore effecting any such modification or exercising any such remedy.

13. Disbursement Deadline; Cancellation; Refund

13.1. It is expected that the Contribution funds will be fully disbursed by the Bank in accordance withthe provisions of this Administration Arrangement by April 30, 2014. The Bank will only disburse

Contribution funds for the purposes of this Administration Arrangement after such date with the written

approval of the Donor.

13.2. Either party may, upon giving three (3) months' prior notice in writing to the other, cancel all or

part of any remaining balance of the Contribution funds that is not committed pursuant to the Grant

Agreement or any other agreement entered into between the Bank and any consultants and/or other third

parties for the purposes of this Administration Arrangement prior to the receipt of such notice.

13.3 Upon the final disbursement date specified in paragraph 13.1, or upon the date of cancellation of

uncommitted Contribution funds in accordance with paragraph 13.2, as the case may be, the Bank shall

return any remaining funds to the Donor, or otherwise dispose of such funds in accordance with the

Donor's instructions.

13.4. Where there is more than one Donor contributing to the Trust Fund, any reference in this Section

to the balance of uncommitted Contribution funds outstanding in the Trust Fund account and to be

returned to the Donor, or otherwise disposed of, shall be construed as a reference to each Donor's pro-

rata share of the outstanding balance (defined as the ratio of the Donor's paid-in Contribution to the total

paid-in Contributions of all Donors) of any uncommitted funds remaining in the Trust Fund, including

any applicable investment income.

14. Commencement; Donor Visibility; Disclosure

14.1 The Trust Fund will commence its operations as of the date of deposit of the first Contribution

by any Donor to the Trust Fund.

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14.2. The Bank, in consultation with the appropriate Indonesian authorities, will promote visibility ofachievements of the Trust Fund and Donors on information materials pertaining to the Activities, at thesites of the Activities, and through specific dissemination events, such as press conferences and anannual conference.

14.3. The Trustee may disclose this Administration Arrangement and information on this Trust Fund inaccordance with the Bank's policy on disclosure of information.

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Ms. Cheryl Urban 11 of 22 March 27. 2013Canadian International Development Agency

Annex II Description of the Operation

Public Financial management Multi-Donor Trust Fund to SupportIndonesia's Government Financial Management and

Revenue Administration Program (GFMRAP)

Summary

Recipient { Republic of Indonesia

Trust Fund Budget European Commission: Euro 9.2 million(preliminary) Royal Netherlands Embassy: Euro 5 million

US Agency for International Development: US$ 3 millionSwitzerland: US$4.5 millionCIDA: C$5 million

Project Period The period of this award will last from the date of the signing of theaward through April 30, 2014

Description The multi-donor trust fund seeks to assist the Government ofIndonesia achieve its medium-term objectives in public financialmanagement. The trust fund is administered by the World Bank andfinances Bank and Recipient activities - particularly those related tocapacity building, analytical & advisory services, and technicalassistance. The trust fund is intended to support and complement theBank-financed GFMRAP, the Government's integrated PublicFinancial Management program that locks in major policy andinstitutional reforms across broad areas of Public Financial

Management.

I. INTRODUCTION

1. The World Bank and several development partners are establishing a Public Financial Management

Multi Donor Trust Fund to support the Government's medium-term public financial management

and revenue administration reform agenda. Currently, the European Commission and the

Government of the Netherlands have made preliminary commitments totaling Euro 14.2 million.

Other donors may also commit additional funding. The trust fund is proposed for six years and is

intended to support and complement Indonesia's Government Financial Management and Revenue

Administration Program (GFMRAP), financed by World Bank programmatic investment loans. The

proposed Public Financial Management Multi Donor Trust Fund would provide complementary and

flexible support to all stages of GFMRAP by providing quick and key technical assistance in the

initial pilots and especially the more difficult and risky stages of the reform process. The Public

Financial Management Multi Donor Trust Fund will consequently pay particular attention to tax and

customs reforms. In addition to flexibility, the principles of government ownership, policyengagement, donor coordination, and participation will underlie the implementation of the Public

Financial Management Multi Donor Trust Fund.

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II. STRATEGIC CONTEXT AND GOVERNMENT STRATEGY

2. The proposed Public Financial Management Multi Donor Trust Fund supports the Government'soverall goal of accelerating economic growth and sustained poverty alleviation. The logicalframework assumes that better public financial management facilitates poverty reduction throughimproved revenue mobilization and administration, and more effective and pro-poor expenditureallocation. While there have been impressive successes in the macroeconomic front, efforts toimprove public administration have lagged. Despite some progress, public investment levels are notback to pre-crisis levels and, more broadly, the quality of public services remains inadequate. Thisis a reflection of institutional weaknesses, a lack of transparency and accountability, and corruption.The fragmented and overlapping structures within the Ministry of Finance pose major constraints.leading to inefficiencies, poor resource allocation, and unreliable reporting. These weaknessesaffect both sides of the fiscal equation: public resource use and revenue generation. They in turnpose continuing constraint to the Government's efforts to alleviate poverty.

3. The Government estimates that overall revenues need to increase by about 0.5 percent of GDP perannum to meet development needs and spending needs to be reprioritized. Revenue goals cannot beachieved solely through enforcement and litigation; hence an emphasis on improved resourcemobilization and a reallocation of spending toward education, health, and infrastructure, taking intoaccount the roles of regional governments. The significant reduction in fuel subsidies providesIndonesia additional discretionary resources to improve public service delivery. However, as historydemonstrates, the availability of resources does not automatically increase or improve governmentservices. Good public financial management is needed to improve the allocative and operational

efficiency of budgetary resources to support the Government's development priorities.

4. The core of the Government's strategy for reforming public financial management derives from the

Economic Policy Package prepared for 2003-04. The Economic Policy Package builds on earlier

work from the World Bank Country Financial Accountability Assessment and the Government's

post-IMF "White Paper", outlining a twin strategy to (i) improve the legal and regulatory framework

to sustain the government's fiscal position and build public confidence in these functional areas; and

(ii) to invest in efficient and transparent systems to manage these functions and promote

accountability and integrity. In total, some major reforms have been initiated though their impact

has yet to be felt.

5. In 2004, the Ministry of Finance announced that the GFMRAP would act as an umbrella to integrate

donor technical assistance for public financial management reform. The Government Financial

Management and Revenue Administration Program (GFMRAP) is a World Bank funded

programmatic series of Adaptable Program Loans that the Government considers as an operational

framework for coordinated donor support for technical assistance and related investment in the

public financial management domain. GFMRAP was originally designed as a three-stage reform

process, each focusing on a priority area of reform within Public Financial Management'. The

GFMRAP-I (2004-2008) focuses on public financial management, covering budget preparation and execution,

treasury payments system modernization, public procurement, and accountability systems. It provides limited technical

support for broader revenue administration reforms in subsequent phases.

GFMRAP-II (2007-2012) will concentrate on tax administration, covering improvement in taxpayer services, business

process simplification and implementation of a new governance framework including a code of conduct for tax officers,

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current or first stage of GFMRAP is financed by a combination of loan, credit, and grant2. Thenewly appointed Minister of Finance is now keen on a combined GFMRAP II-Ill phase, whichwould cover tax and customs modernization, for which a follow-on Bank loan is currently beingconsidered 3 .

6. In her attempt to accelerate the reform agenda, the new Minister has proposed an additionalreorganization to be completed by mid-2006. This reorganization will create two new DirectorGenerals, one on intergovernmental relations (decentralization) and the other for consolidated debtmanagement (foreign and domestic along with contingent liabilities). In addition, there will also be arevamped and empowered Fiscal Policy Unit. Comprehensive policy packages focusing on tax andcustoms administration reform and infrastructure investment regulation were announced in February2006, and the replacement in April 2006 of the Heads of Tax and Customs Directorate Generals isalso a sign of the government's commitment to reform in these areas. The time seems therefore ripeto accelerate reforms in the tax and custom areas.

7. Donors working in the areas of budget, taxes and customs have been asked to accelerate assistanceto allow the ministry to accomplish core reforms by the end of calendar 2008. The government hasalso indicated that reforms are not sustainable without systematically addressing human resourceconstraints and civil service reform. The Bank is exploring various reform scenarios with theGovernment.

8. The current World Bank Country Assistance Strategy (CAS) specifically addresses two majorchallenges: low investment and weak provision of services. The Bank Group's entire efforts, whichcomprise of analytical and advisory services, lending, contributions by the International FinanceCorporation and the Multilateral Investment Guarantee Agency activities, and donor partnershipsand coordination, are to complementarily address these issues. Of the tour business platforms

defined for implementation of the Bank's Country Assistance Strategy. the National Lending

Platform is critical to the public finance management reform and modernization. The proposed

multi-donor Public Financial Management Trust Fund specifically addresses the challenges

associated with this platfor-A "

a taxpayer "bill of rights", and an investigations unit. It would also continue to support improvements in public financial

management, and Customs modernization.

GFMRAP-III (2008-2010) may support Customs modernization, focusing on improving efficiency, accountability,

transparency and integrity through revenue performance, trade facilitation, business process and information technology

modernization, and staff development. GFMRAP-II is expected to continue support for public financial management.

2 Indonesia GFMRAP I (PO85133): see Project Appraisal Document no. 29910-IND, November 24, 2004. The

commitment was comprised of $55 million from International Bank of Reconstruction and Development (IBRD) and

$5 million from the International Development Agency (IDA). The Japanese Government through the Policy and

Human Resources Development Fund (PHRD) has provided $5 million in co-financing, while the Indonesian

Government has contributed $15 million. The Board approved the loan on December 21. 2004 and it became

effective on October 27, 2005.

A Bank supervision mission was conducted in June 2006 and a pre-identification was held in November 2006 with a

view to prepare the loan for Board discussion in FY2008.

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9. The Bank has worked closely with other development partners to develop the Country AssistanceStrategy and has intensified the partnerships with key development partners in implementing theCountry Assistance Strategy goals. Both the European Union (EU) through the delegation of theEuropean Commission (EC) and the Government of Netherlands through the Royal NetherlandsEmbassy in Jakarta have been close partners of the World Bank Office Jakarta over the past years.The intention of all parties is to intensify the cooperation. This program also complements thesubstantial work done by the World Bank through the Netherlands Technical Assistance Trust Fundon improving the investment climate.

III. THE PROPOSED TRUST FUND

A. General Overview

1. The overall objective of the proposed Trust Fund is to support the Government of Indonesia toenhance the public sector contribution to the socio-economic development of its population. Thepurpose of the proposed activities is to improve the effectiveness of public finance management inIndonesia through the support to the Government Financial Management and Revenue

Administration Program (GFMRAP). Special emphasis will be put on taxation and customs.

2. The underlying principles by which the Public Financial Management Multi Donor Trust Fund willfunction include: (i) government ownership; (ii) policy dialogue; (iii) flexibility; (iv) coordination;and (iv) participation. These principles are manifest in the governance structure and the overall

administration of the Public Financial Management Multi Donor Trust Fund.

3. The Trust Fund builds on existing partnerships between the Bank and bilateral donors through which

trust funds have been established. It takes into account lessons that the Bank has learned from

administering other trust funds, particularly in the area of governance. As the administrator of the

Public Financial Management Multi Donor Trust Fund, the World Bank has overall management

and financial accountability, as well as an obligation to demonstrate achievement of expected

results. Given this responsibility, the Bank takes management, program, and financial decisions to

achieve the objectives of the Public Financial Management Multi Donor Trust Fund.

B. Governance Structure

4. The governance of the Public Financial Management Multi Donor Trust Fund is centered on a

Policy Advisory Committee and a Management Committee.

5. The Policy Advisory Committee will consist of the Minister of Finance (or designate) who will chair

the committee, selected Directors General (Echelon 1 levels) of the Ministry of Finance, the Country

Director of the World Bank, and the head representatives in Indonesia of contributing donors. Other

major stakeholders involved in the public financial management arena may also join the Policy

Advisory Committee in an advisory capacity. The views of the business community will also

regularly be invited to ensure that the activities undertaken in the context of the Public Financial

Management Multi Donor Trust Fund are relevant to them as well. The Policy Advisory Committee

provides a platform for policy engagement and donor coordination in the public financial

management arena. In this regard, the Government's annual Strategy Note is a crucial to the Policy

Advisory Committee's objectives.

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6. The Indonesian Government, with the help of the Bank, will derive from its broader medium-termprogram, an annual Strategy Note that prioritizes the policy areas and activities for funding by theTrust Fund. The Policy Advisory Committee will review and endorse the Strategy Note and providea debate forum to discuss the cooperation objectives of the Bank and of Trust Fund donors. ThePolicy Advisory Committee will provide: (i) strategic guidance to support the public financialmanagement reforms and ensuring coherence between donor funded activities and the StrategyNote; and (ii) review general achievements of donor support. The Policy Advisory Committee willconvene on an annual basis.

7. The Management Committee is responsible for reviewing and approving proposals to be fundedunder the Public Financial Management Multi Donor Trust Fund. Proposals are to be submitted inthe form of detailed proposals for Components also known as Child Trust Funds. The ManagementCommittee will review and discuss results and impact achieved based on periodic reporting, andsuggest dissemination and visibility actions. The Management Committee will meet on a quarterlybasis to review proposals unless a more/less frequent schedule is decided upon by its co-chairpersons.

8. Governments buy-in is critical to the success of the Public Financial Management Multi Donor TrustFund program. Accordingly, proposals must be endorsed by the Government before presentation tothe Management Committee for consideration. This applies to Bank-executed as well as Recipient-executed proposals. Non-government agencies may submit proposals for financing under the MultiDonor Trust Fund. Government is required to endorse such proposals just as is the case for allproposed activities. The endorsement should include an endorsement on the execution arrangementwhich will then be reviewed and approved by the Multi Donor Trust Fund's ManagementCommittee in compliance with World Bank policies and procedures. Government should executerecipient activities while the Bank should execute Bank activities. Under exceptional circumstances,Bank execution of recipient activities maybe allowed if the activities are within the limits set byBank policies, Bank execution is requested by Government, is approved by the World BankRegional Vice President and will be covered by a grant agreement to be executed between the WorldBank and Government.

9. The Management Committee is co-chaired by the Bank Lead Economist and the OperationsManager. Other voting members include the Bank Regional Financial Management Hub Leader andtwo relevant sector co-coordinators or Country Assistance Strategy platform leaders. The GFMRAPTask Team Leader will act as overall Task Team Leader of the Public Financial Management MultiDonor Trust Fund and will act as secretariat for the Management Committee. The Task TeamLeader will not have voting rights at the Management Committee. Technical staff of contributingdonors and the Government may be part of the Management Committee acting in an advisory

capacity.

10. Proposed Components should be aligned with the overall objective of facilitating the realization of

poverty-reduction goals through a modern, efficient, and pro-poor public financial managementsystem. A Component could be implemented by the Bank and/or Government agencies.

11. Proposals for Component financing are to be submitted to the Task Team Leader at least two weeks

in advance of the quarterly meetings of the Management Committee. The exact date for the meeting

will be announced by the Task Team Leader on behalf of the Co-Chairs. Proposals are to be

submitted with a summary sheet by Bank staff. Proposals will be sent by the Task Team Leader to

Management Committee members for comments. The Management Committee may decide to

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accept or reject proposals, or put a proposal on hold, in case it endorses the proposal, but wants todelay implementation for cash management reasons. In the case of hiring of co-terminous staff priorconsultation with the participating donors in Jakarta is required regarding the Terms of Reference;such staff will be hired through competitive process.

12. Specific selection criteria for financing include the following:

A. Proposals for funding must be fully aligned with the priorities of the Government's AnnualStrategy Note and should complement GFMRAP objectives.

B. A written statement of endorsement of the Component should be given by an authorizedrepresentative of the relevant Indonesian counterpart organization. A representative of therelevant Indonesian counterpart organization will be invited to present the motivation forsupporting the Component at the Management Committee meeting considering the proposal.

13. Both criteria apply to Bank-executed as well as recipient-executed proposals.

14. A semi-annual review of activities with the Task Team Leader, and if so desired by the contributingdonors, with the Component Task Manager will be held. This review will also be used to discussimpact of the activities, and possible adjustments or additions to the Component. A mid-termreview, by the Management Committee funded by the Component for administration, will beconducted to review the overall effectiveness of the program, and the Bank will on a best effortbasis, implement recommendations regarding the program made in such review. Six months beforeexpiry of the Trust Fund, a review will be held to decide on possible closure or extension of theProgram.

C. Areas of Intervention and Indicative Projects

15. The Public Financial Management Multi Donor Trust Fund is intended for a program of activities tobe executed by both the recipient or Government of Indonesia and the World Bank. It is furtheranticipated in the initial stages of Trust Fund implementation, that there will be much more Bank-executed activities (focusing on Analytical and Advisory Activities and Technical Assistance) thanrecipient-executed activities. Government's buy-in is critical to the success of the Public FinancialManagement Multi Donor Trust Fund program; hence, Government endorsement is required for allactivities.

16. The Trust Fund will address issues across a broad range of public financial management relatedareas. Table 1 below provides an indicative list of policy and institutional areas of focus, as well as

potential activities/projects. Table I also provides a provisional allocation of funding per areas offocus. However, as indicated, given the relatively long timeframe of the Public FinancialManagement Multi Donor Trust Fund and the fluid nature of the reform environment, flexibility andthe avoidance of a pre-determined approach to activities is essential.

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Table 1. Proposed Areas and Indicative Activities under the Public Financial Management MultiDonor Trust Fund

IndicativeAreas Activity & Output Expected Outcome Fund

Allocation 4

A. Budget Advisory services on "How-To" 9 Improved budgetPreparation & guidance on developing and planning and 25%Execution implementing a budget & treasury development in

system (SPAN) through an selected lineIndependent Verification & ministriesValidation (IVV) Consultancybased on international good Improved budgetpractices implementation

* Strengthen capacity of pilot Reducedleakageministries (Finance, Agriculture, of resourcesEducation, Health, & PublicWorks) in preparing annual budgetsubmission, adoption of newaccounting and reportingprocedures, etc.

* Advisory services to developcapacity building & trainingmodules for public treasurers,budget officials, & staff

* Strengthen HR development andcapacity in DG Treasury, DGBudget and Bappenas

B. Revenue * Analytical work on establishing Improved tax andadministration pilot call centers for tax customs Tax: 25%

I administration* Consultancy to conduct a DG Tax Customs: 25%

specific IT/IS plan Reducedleakageof resources

* Consultancy to conduct a DG Taxspecific HR reform Improved

Investment climate* Strengthen HR development and by offering

* capacity in DG Tax improved tax_and

4Actual allocation will be determined based on agreement with the Management Committee.

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IndicativeAreas Activity & Output Expected Outcome Fund

Allocation4

* Analytical work on the reform customer serviceroadmap development & to businessesimplementation in customs (large and small).

* Advisory support on the nationalsingle window development inCustoms

* Strengthen HR development andcapacity in DG Customs & Excise

* Non-tax revenue modernization

C. Legislative * Diagnostic and analytical reports * ImprovedOversight parliamentary 3%

* Training & study visits budget analysisand oversight

* Institutional development plans

D. Procurement, * Diagnostic and analytical reports Improved publicasset manage- procurement in 3%ment moderni- * Public disclosure websites terms ofzation and efficiency, valuereform & Audit * Advisory support for money andReforms competition

* How-to guidance* Improved audit

capacityI

*Improved assetomanagement

E. Policy Capacity * Regulations drafting e. Improved policyDevelopment framework for 3%

f Workshops, training, study visits public financialmanagement

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F. Change * Advisory services for Change ImprovedManagement, Management & Communications organizational 7%Human planning,Resources * Advisory services for Human coordination, andManagement, Resources communicationsand within and amongCommunication * Strengthen Human Resources central ministriess development and capacity in and relevant

project management and stakeholdersprocurement execution

*Strengthen

* Diagnostic reports ministry's readinessfor broad scale

SWorkshops, training reforms

cInstitutional development plans

cAnalytical & advisory services onHuman Resources management,policies, & practices within the

aMinistry of Finance.

Contrlforrogrmoututs&relets

G. Management, 9 Strategic policy advisory Har-monizedStrategy and Sprogram execution 4%

Visibility * Quality Assurance/Quality for maximum

Conrolfo prgrm otmini rstrysredns

outcomesAutomated

f Improve donor coordination and capturing ofensure technical support and program knowledgeintra-agency coordination for continual

* t improvement

* Advisory services to the Ministerof Finance and her office Improved team on

projectAnalytical & advisory services to management in thesupport the overall GFMRAP Indonesianimplementation i Government.

Advisory to develop "How-To" *Ipoestaegy

guidance to implement the & policyMinistry of Finances Information framework onTechnology Infrastructure public financialServices Support Plan management

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* Establish a project management Institutionalized& knowledge portal to facilitate GFMRAP andGFMRAP implementation related projects as

part of standard* Strengthen project monitoring & operating procedures

evaluation /routines in theIndonesian

* Visibility: conduct dissemination Government.

and outreach events to promotevisibility of contributing donors I Automated project

management

* Promote transparency and

accountability onndonors fund

Note: The remaining 500 of the Grant total is a customized administrative It*e to the World Bank to hededucted upofrontffrom the principal.

17. The resources of the Fund will be used for the financing of the following categories:

a) Consultants' services, including Short Term Consultants, Short Term Temporaries, ExtendedTerm Consultants, Extended Term Temporaries, and coterminous staff6, as well as relatedexpenses, which is estimated to cost an aggregate amount not to exceed 68 % of the total amountof the Grant Funds;

b) Studies, surveys, workshops and in-country training logistics, which is estimated to cost anaggregate amount not to exceed 10% of the total amount of the Grant Funds;

c) Overseas training and study tours, which is estimated to cost an aggregate amount not to exceed10% of the total amount of the Grant Funds;

d) Equipment, particularly IT software and hardware required to support the capacity building

activities, which should not exceed 5% of the total amount of the Grant Funds,

e) Operating costs, which is estimated to cost an aggregate amount not to exceed 1% of the total

amount of the Grant Funds;

c) Visibility activities, which are estimated to cost an aggregate amount not to exceed 1% of thetotal amount of the Grant Funds; and

Visibility activities are estimated to cost an aggregate amount not to exceed 1% of the total amount of the Grant

Funds. See also Para 26(f).

6 Scope of work for coterminous staff is limited to non-administrative technical assignments. Coterminous staff can not

work in support of Bank Management and supervision of the Multi Donor Trust Fund. Coterminous staff and related

expenses are estimated to cost an aggregate amount not to exceed 9% of the total amount of the Grant Funds. In the case

of hiring of co-terminous staff prior consultation with the participating donors in Jakarta is required, regarding the

TORs.

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g) Administrative costs, which are estimated to cost an aggregate amount not to exceed 5% of thetotal amount of the Grant Funds.

18. If, in the Bank's opinion, an amount of the Grant Funds allocated to any of the categories set forth inParagraph 23 above will be insufficient to finance the expenditures under such category, the Bankmay reallocate to such category an amount of the Grant Funds then allocated to another categorywhich, in the Bank's opinion, will not be necessary to meet other expenditures; provided, however,that the Bank will consult the Donors when proposed reallocations exceed, cumulatively: (i) 25% ofthe amount of the Grant Funds allocated to the category of consultants' services (a); or (ii) 25% ofthe amount of the Grant Funds allocated to any of the categories of studies, surveys, workshops andin-country training; overseas training and study tours; and operating costs.

D. Results Framework

19. A results framework for the Trust Fund articulates a logical framework and measurable indicators(outputs and outcomes) that will closely align with the Government's own results indicators as laidout in GFMRAP. Each Component proposal is expected to lay out a results framework that ties intothat of the Trust Fund. The results framework for both the Trust Fund as a whole and the individualComponents will include, to the extent possible, baseline data, measurable indicators, and targets tobe achieved by the end of the Component. The results framework will comprise a main componentof the regularly scheduled progress reports to the donors. Table 2 includes the list of outcomeindicators currently in GFMRAP.

Table 2. GFMRAP Outcome Indicators

A. National government policy priorities are reflected in a Medium Term Expenditure Frameworkand annual budgets

B. Reduced leakage in expenditure flows to end-users as measured by Public ExpenditureTracking Surveys

C. Automated integrated system for budget preparation/execution and treasury enables timelyrelease of budget execution documents and processing of payments, provides accuratefinancial reporting, minimizes incidence and size of idle cash balances, and reduces corruptionin payments

D. Improved Customs revenue performance and time-for-release performance

E. Demonstrable evidence of improved performance of Tax and Customs collection and greatertransparency in implementation of tax and Customs regulation, as indicated by increased ratioof revenues to GDP, increase in registered tax payers and filers, reduced tax arrears, andreduced clearance time in Customs

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Ms. Cheryl Urban 22 of 22 March 27. 2013Canadian International Development Agency

E. Other Implementation Issues

20. The TF-accredited Bank Task Team Leader will be responsible for TF supervision. Joint supervisionmissions with the donors are proposed to be undertaken twice a year. Donor expenses forparticipating in the supervision missions will be funded by the donors themselves.

21. Each Component, both Government & Bank executed, is assigned to a Bank Task Manager. TheTask Manager will be responsible for overseeing implementation, including procurement anddisbursement, and reporting to the Task Team Leader to ensure that all information needed formaintaining accounts is provided on a timely and accurate basis. Reporting by the Task Managerwill provide input to the semi-annual report on progress made in achieving the Public FinancialManagement Multi Donor Trust Fund's stated objectives.

22. All Task Managers of projects report to the Task Team Leader on a semi-annual basis according to apredetermined schedule. The Task Team Leader will submit progress reports to the donors on asemi-annual basis on program implementation, disbursement, procurement activity, and newcommitments for the program as a whole and for individual sub-projects. Unaudited financialstatement will be submitted to donors quarterly.

23. An implementation completion report will be submitted within six months of this Trust Fund'sclosing date. All Components of US$1million and above will be required to submit anImplementation Completion Memorandum within six months from closing date.

24. Contracting and procurement will follow World Bank guidelines and procedures. Furthermore, theadministration and enforcement of all provisions of any grant agreement entered into between theBank and a third party that is financed by the Public Financial Management Multi Donor Trust Fundshall be the responsibility solely of the Bank and shall be carried out in accordance with itsapplicable procedures. The-grant agreement shall further provide that no amount of the grant fundsmay be used for the payment of taxes levied by or in the territory of the Recipient country.

25. The Bank, in consultation with the appropriate Indonesian authorities, will promote visibility of

achievements of the trust fund and contributing donors on information materials pertaining toproject activities financed by the Public Financial Management Multi Donor Trust Fund, at the sitesof project activities under implementation, and through specific dissemination events, such as pressconferences and an annual conference. A separate Component will be established for this purpose.

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Documents

World Bank Document€¦ · 24.06.2013 · 200 Promenade du Portage Gatineau, Quebec Canada, KI A 0G4 Dear Ms. Urban: Re: Administration Arrangement between the Government of Canada