In 2010 the World Bank approved a US$220million loan for a Local Government and Decentralizationproject in Indonesia.The project aims to improve theaccountability and reporting of the centralgovernment's Specific Purpose Grants (DAK). Piloted infour infrastructure sub-sectors-irrigation, roads,sanitation, and water the project is the World Bank'sfirst to apply innovative Output-Based Aid (OBA) designprinciples on a large scale to target improvements ininter-governmental fiscal transfers. Under the project, theDAK grants will work in a similar way to OBA subsidies,which reimburse service providers for independentlyverified, pre-agreed physical outputs. Up to 81 localgovernments in five provinces are eligible to take part inthis project. This note presents an overview of the projectobjectives and design.