Challenges

There are four main challenges that the reconstruction and rehabilitation process now faces. The first arises from the unrealistically high community expectations generated by the various statements and pledges from government leaders, NGOs, donors, and others. Local communities now expect not only to have their houses rebuilt and their livelihoods restored but also to participate in reconstruction activities. It is hoped that expectations can be managed by focusing on reasonable targets although the BRR’s operational approach does not yet provide for this.

The BRR’s budget realisation for the 2005 and 2006 fiscal years is quite low. This is the second challenge faced in the reconstruction process. We discuss this further in section 7.2. The third challenge relates to issues of coordination and commitment. As a coordinating agency, the BRR needs to establish smooth coordination arrangements with local governments and donor agencies. The relationship with local governments is pivotal to spending monies effectively while the relationship with donor agencies is vital to ensure that aid commitments are implemented efficiently. Finally, there is the challenge of establishing a viable exit strategy for the BRR. The current mandate of the BRR extends until 2009. By then it is expected that the BRR will have arranged the transfer of the whole redevelopment process to local governments. There is, therefore, a challenge for both the BRR and local governments in handling the transition processes well.

The following sections elaborate on these four challenges.

7.1. Managing Expectations

The ambitious plans for reconstruction and rehabilitation in Aceh and Nias have created high expectations. During the initial emergency stage, local inhabitants witnessed the arrival of large-scale support from both the government and non- governmental organisations alike. Figure 4 indicates a peak of activity in the early stage which was much more intensive than the more sustained work carried out later in the recovery stage. But as the diagram shows, there is a risk of a lull in activity when the emergency stage scales back to a lower intensity because there is no guarantee that the housing recovery stage will kick in quickly. A lull of this kind did occur and was seen by many people as reflecting inactivity on the part of the BRR. A “slow start”, which is the term some observers used in referring to the first year of BRR operations, is a polite judgement compared to the views expressed by others who cynically translated BRR as baru rapat-rapat (just hold meetings).

For the Acehnese in general and the people of Nias in particular, the disasters aroused expectations of significant improvements at the local level. Development in these areas has long lagged behind development elsewhere in Indonesia. People in these regions feel marginalised and isolated from the national development process, economically as well as politically—in Aceh because of the long socio-political conflict, and in Nias because of the separation from Sumatra and the remoteness of the island.

The establishment of the BRR in 2005 led to considerable excitement among the local populace in Nias. Many people imagined that they would take part in the reconstruction process following the plans set out by the agency. Who would the BRR recruit if not locals who know the region well? It has to be acknowledged that in Indonesia the sentiment of putera daerah (local people) is still important in isolated areas. Local people were therefore very disappointed to find that their involvement in the administration of the BRR in Nias was quite limited.

In the case of Nias, the irony is that for non-locals, an assignment to Nias is generally regarded as a punishment rather than a promotion. In the first six months of the operation of the BRR branch in Nias, only one out of twelve heads of BRR working units lived on the island. This problem was remedied in early 2006 when the heads of BRR working units were instructed to live in Nias.

Local businesses and contractors in Aceh and Nias were also excited by the prospect of involvement in BRR projects. Most local contractors, however, were disappointed to find that in practice they were unable to participate in the construction projects. The reason for this, they reported, was that the procurement procedures and requirements set down by the BRR for redevelopment construction were so complicated that local contractors were effectively excluded from participating.

Finally, the BRR’s target of building around 92,000 houses in Aceh and Nias during 2006—which, added to those built in 2005, amounted to a target of around 108,000 houses in total by the end of 2006—raised special expectations. Although restoration of the housing stock was justifiably seen as the main priority, the feasibility of this target was questionable from the start, even allowing for the fact that the size of the new homes was expected to be small (only 36 square metres). Typically, the number of new homes constructed nationwide in Indonesia is only around 60,000 per annum. In the absence of any decline in house construction elsewhere, the BRR target implied an increase of roughly 150 per cent in the output of the national housing construction industry, a very ambitious target.

Even with the relatively modest rate of construction achieved in 2005 in Aceh and Nias, wages in the construction industry and the price of building materials increased during the year at levels higher than elsewhere in Indonesia (BRR and International Partners, 2005). Adhering closely to such an ambitious target thus ran the risk of encouraging the lowering of construction standards, and this implied that the much- publicised opportunity to “build back better” would be missed. Moreover, the heavy additional demand for timber, if not carefully managed, threatened to hasten deforestation in Aceh and other parts of Indonesia.¹¹

Nevertheless, BRR officials declared themselves confident of meeting the housing targets and mentioned the following considerations in support of their optimism. First, after a delay of some months in its establishment, the agency had generally been able to demonstrate leadership in the reconstruction effort and hence had been able to encourage major participants to focus their efforts on housing. Second, the BRR has been allowed—at least up until the time of writing—to modify the Master Plan stipulations where appropriate after consultations with local communities. This pragmatic approach has worked to overcome a number of conflicts between the perceived interests of local communities and the constraints of the Master Plan on housing programs. Third, most problems of land identification had been solved through the Reconstruction of Aceh Land Administration System (RALAS) project. Fourth, the central government and the Free Aceh Movement (GAM) agreed to end their thirty years of conflict on 15 August 2005. The result was that the general level of safety in Aceh improved greatly allowing reconstruction activities to be conducted in a conducive environment. Fifth, the BRR’s special new authority, which allowed for the implementation of housing projects through direct contracting, helped to offset delays in other government agencies responsible for building houses, such as the Ministry of Public Works. Finally, funds for reconstruction activities began to flow smoothly (Kuncoro and Resosudarmo, 2006). In spite of this optimism by the BRR, however, it should be noted that, judging by the number of houses built by November 2006, it seems highly unlikely that the housing target will be achieved. Delays in reaching targets, in turn, may weaken the credibility of the BRR as a reliable reconstruction partner in the region.

There is a quite widespread view that the BRR should put more emphasis on the quality of reconstruction—that is, maintaining house construction as its main priority but without committing itself to ambitious numerical targets—while meanwhile ensuring that all those waiting to receive new housing are properly accommodated in temporary comfortable living conditions. Arguably, there should also be stronger emphasis on supporting the restoration of livelihood activities through provision of suitable fishing boats, support for farming activities (such as the provision of seeds), repair of the relevant infrastructure, and so on (Kuncoro and Resosudarmo, 2006).

7.2. BRR Spending

As at September 2006, spending by the BRR has lagged well behind budget (Table 16 [ PDF 68.2KB | 1 pages ]). Underexpenditure of this kind can lead to widespread dissatisfaction among local people. The inability of the BRR to achieve its reconstruction target is reflected in the planned budget for BRR operations. Indeed, for the 2005 budget, the BRR’s fiscal year was extended up to 2006. Thus, during January–September 2006, there were two fiscal budgets running.

However, even after the extension of the fiscal year, the level of budget spending was still very low. Out of Rp4 trillion (around US$410 million) allocated in the 2005 budget for the BRR, only 63 per cent was spent. Moreover, the higher spending areas appear to have been on administrative activities related to offices, planning, and programming.

There was a sharp increase in the BRR budget for 2006.¹² The main reason for this was that, beginning in 2006, the BRR received an additional mandate to implement housing construction in an effort to speed up activity in this sector following the earlier disappointing performance. The agency was provided with additional funding of Rp4 trillion (around US$430 million) to build up to 40,000 houses during the year. Mainly because of this initiative, the budgeted expenditure for the BRR in 2006 was set at around Rp10 trillion (around US$1 billion), an increase of over 150 per cent on its budget for 2005. It is not clear, however, that this approach will be successful. As a new agency lacking experience in managing large-scale construction projects, it is uncertain whether the BRR will able to implement this daunting new task more successfully than the other organisations involved. Moreover, this major additional spending program is likely to further constrain the capacity of the BRR to coordinate other reconstruction programs. And if it turns out that the BRR does not perform well, this is likely to further lessen its moral authority to oversee the programs of other institutions. Perhaps of greatest concern is whether, having such a large budget, the BRR can avoid the taint of mismanagement. There is bound to be considerable pressure on its officials to engage in corrupt behaviour. If they succumb to this pressure, the ability of the BRR to continue to lead the reconstruction effort will quickly diminish.

Data up to 30 September 2006 suggest that expenditure outcomes throughout the financial year remained well behind target (Table 16). While a slow start in 2005 was perhaps understandable, the continued underspending must raise concerns about the ability of the BRR to deliver on the promises that have been made. Nine months into 2006 only about 18 per cent of the budget had been spent. The challenge for the BRR in the remaining months therefore was important.

What can be said about these problems? First, from the point of view of the local people, the spending delays are most unfortunate. In 2005 alone, actual spending reportedly lagged behind planned expenditures by about Rp2.8 trillion (around US$290 million), the bulk of which reflected underspending in the areas of housing, infrastructure, and land use coordination. One widely mentioned reason for spending delays was said to be the BRR’s commitment to careful management of project procurement activities. This explanation, however, was not well-received at the local level. What the locals know is that they have not received the things that were promised to them by the BRR. People still living in barracks feel that they should by now have been able to move into permanent housing, and fishermen and farmers feel that their operations should, by this stage, have returned to normal. Second, this continuing underexpenditure naturally begs the question of whether the BRR will be able to execute planned budgets into the future.

What are the policy options? First, the BRR could perhaps have tried to speed up spending in the last three months of fiscal 2006. The danger is that quality would be compromised for the sake of quantity. Worse, the emphasis on careful project procurement might be compromised. Alternatively, the BRR could have asked for a technical extension of the 2006 budget into the next year. However, the Indonesian Government would have been unlikely to agree to this because it would be reluctant to accept the idea that budget extensions were a normal way of doing business.

The BRR seems to have preferred the first option. In the last three months of 2006, the BRR spent around Rp8.8 trillion or almost 60 per cent of its total budget for 2006 (Table 17 [ PDF 66.3KB | 1 pages ]). In order to speed up spending the BRR explored the idea of decentralising expenditure authority to local BRR offices across Aceh and Nias. For example, starting in April 2006 the BRR experimented with the idea of placing a liaison officer at the local level by creating joint secretariats with local governments in Nias. The secretariats were given a wide range of duties including coordinating activities carried out by stakeholders, sharing information on the progress of recovery activities, involving local governments in the recovery process, and assisting local governments with the management capacity to be professional lead agencies for development activities. Additional liaison officers were appointed in seven or more regional offices by the end of 2006.

This innovation seems to have helped to accelerate the housing and infrastructure development program in that more decisions will, hopefully, be made at the local level under this approach. The current plan is to continue to decentralise activities considerably during the next few years. In 2005 some 90 per cent of BRR staff were in Banda Aceh. However it is now expected that the proportion of staff in the central Banda Aceh office will go down to just 50 per cent by 2008. By gradually shifting the decision-making and management to district and local town authorities across Aceh and Nias, it is expected that the BRR’s role will be reduced mainly to monitoring, countering corruption, problem solving, gap filling, and donor relations.

But another option that perhaps should be considered—which is also a very effective form of decentralisation—is the establishment of a much larger program of direct cash transfers. If this approach were adopted, households would receive cash and be able to organise building and rehabilitating their houses themselves.

The donor community, too, has naturally been important in all of these activities. But unfortunately little public information is available regarding the expenditure programs of donors. There are no comprehensive reports easily available on how much the international donor community has spent so far. It would be particularly interesting to find out how much has been spent on the ground in Indonesia and how much, in contrast, donors have spent on their own administrative activities. More accountability on the part of donors is clearly needed.

7.3. Coordination and Commitments

Developing effective coordination within the BRR, between the BRR and local governments, as well as between the BRR and other organisations has been a continuing challenge.

The three key structures within the BRR itself are the Executive Agency, the Advisory Board, and the Supervisory Board. The question of how these three bodies can interact efficiently so that the BRR as a whole can be effective has been a major issue ever since the BRR was established in early 2005.

Since the early days of the BRR, the Executive Agency has shown flexibility, choosing to follow the Bappenas Master Plan when practical but being ready to modify it when necessary. However the definition of “practical” is not clear. There is no agreement on this matter between the Executive Agency, the Advisory Board, and the Supervisory Board. There is a perception that the Executive Agency can do whatever it wants, even though the Advisory and Supervisory Boards may have different views. Even within the Executive Agency itself there is no clear guidance on this for staff. The result is a lack of consistency in operations. Some directors follow the stipulations of the Master Plan—even when doing so is problematic—on the grounds that abandoning the Plan would be tantamount to ignoring the law because it is embodied in a presidential decree (Kuncoro and Resosudarmo, 2006).

Thus there is now a growing view that the role of the Supervisory and Advisory Boards needs to be strengthened. There are also some calls to reevaluate the original Master Plan with the aim of removing the parts that create problems, simplifying others, and strengthening those that are important—particularly those relating to land use planning. It is hoped that a revised version of the Plan might then provide guidance that would be followed by both the BRR and by all other institutions contributing to the reconstruction effort (Kuncoro and Resosudarmo, 2006).

BRR coordination with local governments has so far been rather weak. Initially, local governments expected that the BRR would help them implement local priorities. However, seeing that local governments lacked comprehensive rehabilitation plans, the BRR devised its own plan and spent considerable time in 2005 establishing offices and learning about local problems. This approach did not work very well. Local governments felt that they already had sufficient knowledge about local concerns and were furious over what they regarded as a late start by the BRR. The weak coordination between the BRR and local governments should not be attributed to a lack of commitment. There were many meetings and discussions. However, the different organisations just did not relate to each other very well. As noted in the publication of BRR and International Partners (2005): “…most meetings, ostensibly for coordination, achieved little more than information-sharing rather than strategic planning [and] ... agency leaders were so busy on their own programs that they were frustrated when they attended a meeting that wasn’t useful ... [so that] they were likely to send junior staff in future, so reinforcing the information rather than strategy content”.

The result was that local Bappeda kabupaten (district) and kota (municipality) agencies did not align their 2006 regional budgets with the BRR’s 2006 plan. Indeed, many regional governments complained that they did not know what the BRR planned to do in their regions.

The BRR also struggled to develop relations with other agencies involved in the Aceh-Nias reconstruction activities although, in general, the BRR was able to take the lead in management. The struggle was evident in several areas. First, there were significant imbalances within the various components of the rehabilitation effort between the minimum requirements and the available funds. Figure 5 [ PDF 77.8KB | 1 pages ] shows the difference between total current commitments of funding by government and donors in each sector and the minimum funding requirements. It can be seen that funding far in excess of actual needs has been allocated to areas such as health, culture and religion, governance and administration, enterprise rehabilitation, education, and water and sanitation, while energy supply, the environment, flood control and irrigation works, and transport are significantly under-funded. So far, the BRR has not been able to persuade donors to reallocate funding from excessively funded to under-funded sectors. Another example of the BRR’s limited ability to coordinate the recovery effort is that several of the NGOs involved have not been able to deliver the outcomes they have promised, particularly in relation to housing construction and provision of income earning opportunities.

Second, it is not apparent that the BRR has the ability to ensure that commitments by international and domestic donors will materialise in a timely manner. Some commitments may not translate into actual fund flows for various reasons beyond Indonesia’s control. Indonesia’s capacity to absorb domestic aid is also an important factor. It is vital that the BRR maintains effective communication with donors and engages donors in developing activities so as to minimise any mismatches between donors’ interests and reconstruction priorities.

7.4. Exit Strategy

It is important that reconstruction programs following a natural disaster should fit into broader programs of economic development for the affected regions. The current plan is for the mandate of the BRR to end in 2009. The question of the BRR’s exit strategy therefore becomes relevant. Figure 4 suggests that the agency might start phasing out its activities by mid-2008. For housing, the target was to finish rebuilding by mid-2007. The dotted lines at the far right of Figure 4 suggest that the BRR will no longer execute projects itself, but will leave certain activities for other agencies. Indeed, at the end of its term, the expectation is that the BRR will hand over the resources it has been using to local governments (at both the provincial and district or municipality levels), which will be expected to continue reconstruction and development activities.

Sustainability, then, is an issue that needs to be considered. First is the sustainability of the development process initiated by the BRR. In its operations, the BRR had introduced procedures and practices that appear in some cases to be different from the operational procedures currently in use by local governments. It is important that the BRR’s governance systems can be implemented by local governments while at the same time allowing for different local values and cultures. During the period to the end of 2009 when the BRR is expected to cease operations, the BRR and local governments must work together to find governance systems that, given the local context and capability, are workable and acceptable to local people. Second, the BRR currently also acts as a focal point for various budgetary matters including the coordination of funds from donor agencies. In many instances the BRR matches local needs with possible funding from both national and international donor agencies. This task requires understanding and sensitivity to local needs on the one hand, and on the other calls for effective networking and good diplomatic skills to liaise with donors and upper level governments. As 2009 approaches, the BRR should increasingly share its knowledge and information about financial networks with local governments.

The issue of an exit strategy certainly emphasises the need for close communication between the BRR and local governments across Aceh and Nias.

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