This report is designed to assist theauthorities develop an overall road map for reforming budgetpreparation. A specific focus is on the steps to be taken tointroduce a medium-term framework for the centralgovernment's budget and a performance-based budget.These reforms require important preconditions to be inplace, and a substantial change in the culture, incentivesand behavior of the public service, and are likely to takeseveral years to complete. Successive Indonesian governmentshave embarked on various reforms in the budget and publicfinancial management system. New laws for governing budgetand planning processes were adopted during 2003-04, whichare gradually being implemented. The national developmentplanning agency (BAPPENAS) and spending ministries havedeveloped strategic government and ministerial plans thatprovide a basis for elaborating the framework forperformance measurement and evaluation. Reforms are thusstarting from a secure base and can also take advantage ofthe improved and stable macroeconomic and fiscal conditions,including a low fiscal deficit and a declining governmentdebt ratio.