This study presents options for anational disaster risk financing strategy in Indonesia,drawing heavily on international experience. The studydiscusses a series of complementary options for a nationaldisaster risk financing strategy, based on a preliminaryfiscal risk analysis and a review of the current budgetmanagement of natural disasters in Indonesia. It benefitsfrom the international experience of the World Bank, whichhas assisted several countries in the design andimplementation of sovereign catastrophe risk financingstrategies. The rehabilitation and reconstruction fund isthe main budget instrument for the Government of Indonesia(GoI) to finance public post-disaster expenditures, but itis under-capitalized. This study presents an optimalcombination of risk-retention and risk transfer instrumentsthat could help the GoI increase its immediate financialresponse capacity against natural disasters and betterprotect its fiscal balance. Building on the three-tier risklayering approach promoted by the World Bank and thepreliminary fiscal risk assessment analysis, the followingfinancial strategy could be considered by the GoI. Thisstrategy would provide the GoI with access to immediateliquidity in the aftermath of a disaster at a competitivecost. The strategy would allow the GoI to access up toUS$1.8 billion liquidity in the aftermath of a disaster inorder to finance immediate post-disaster expenditures, suchas grants for livelihood and low income housingreconstruction. Preliminary disaster fiscal risk assessmentanalysis shows that this would protect the GoI againstdisasters occurring every 100 years. The implementation of anational disaster risk financing strategy would requiresignificant institutional capacity building.
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