By Martin Manurung and Erny Murniasih, Jakarta
(Jakarta Post, Thursday 22 November 2007)
Seven years on, decentralization faces a critical question: is it going down the right track?
Regional autonomy was part of Indonesian democratic reform, one of the manifestations of the democratization processes which began after the fall of Soeharto. Along with political decentralization, which aims at bringing the government closer to the people, Indonesia also launched economic decentralization to achieve better distribution of income between the central and the local governments. It is also expected that these reforms will enhance the capacity of local governments to provide better services to the people.
Nevertheless, local economic development has been slow. Although the total Gross Domestic Regional Product (GRDP)of the provinces between 2005 and 2006 increased slowly - by about 13 percent -- the GRDP distribution is still concentrated in certain provinces, such as DKI Jakarta. The province with the slowest growth is North Maluku. In addition, the gap between the richest and poorest province tripled over the same time period, demonstrating great inequality among regions.
Another issue is the amount of money that the central government has transferred to the regions. Since 2005, the ratio of the Intergovernmental Fiscal Transfer (IGFR) amount to the total amount of state budgets increased steadily. The figure, in 2005 was 27 percent, increasing to 32 percent in 2006 and 34 percent this year.
The 2007 Government Financial Note argues that more IGFR will result in a higher GDRP, which is the aggregate local income. However, due to problems of inequality and fiscal imbalance, an increase in IGFR does not always mean people are better off at the local level. We must also ask whether the allocated money is effectively spent, on better public services offered locally.
As discussed above, it is the people who should benefit the most from decentralization. Nonetheless, from a budgetary perspective, the majority of local budgets are primarily used to pay the salaries of local government officers. The proportion of the total budget spent on their salaries was 41 percent in 2006 and 43 percent in 2005. Thus, it is an undisputable fact that decentralization program monies are not effectively and efficiently utilized to enhance local economic development.
With this background, several points can be made. First, the government should reconsider the mechanism behind local budgeting. It is true that intervention from the central government is generally undesirable in the local budgeting process. Many believe this would hinder the full implementation of decentralization.
However, as in other countries, it is crucial that local governments are given certain guidelines from the central government, to ensure that budgets are created without delay and that budgetary funds are spent on the delivery of public services.
Recent reports indicate that local governments have "parked" up to 62 trillion rupiah in bank deposits and the central bank certificates (SBI). This is mismanagement of public funds which obviously does not benefit the people.
In view of the mismanagement risk, the central government should not leave local governments on their own, particularly in budgeting matters. This is extremely important because local legislative councils have not been an effective advocate for public needs and public participation in budget preparation is very limited. Therefore, the central government should provide clear and comprehensive guidelines to minimize mismanagement and misinterpretations of regional financial regulations.
Second, the equalization grant needs revision. Currently the amount of this grant is significant. The equalization grant has contributed to overall IGRF to the tune of 60 percent. However, as discussed, the gap between regions is still an unresolved problem. Thus, the government and the parliament must pursue better alternatives to fix the horizontal imbalances.
Third, the complexity of government procurement requirements deserves a thoroughgoing review. Delays in budget implementation is often blamed on these rules. The government must simplify the process without compromising on transparency and the fight against corruption.
Finally, bringing the government closer to the people -- the overall aim -- will remain merely a catchphrase if there is no harmonization between central and local governments. Both sides must work together to resolve the above issues and put aside narrow-mindedness.
Martin Manurung is a senior consultant at Sekurindo Global Consulting and Erni Murniasih is a practitioner in Fiscal Decentralization. Both are 2005 British Chevening Scholars and based in Jakarta.
Thursday, November 22, 2007
Monday, November 12, 2007
INTERGOVERNMENTAL FISCAL TRANSFERS : THE INDONESIAN EXPERIENCE
By Erny Murniasih
In Indonesia, according to Law 33/2004 on Fiscal Balance between central and local government, intergovernmental fiscal transfers are aimed to reduce fiscal gap among tiers of government and between sub-national governments. The so-called ‘Balance Fund’ policy deploys in the form of: Revenue sharing, Specific Purpose Grant (DAK), and General Purpose Grant (DAU).
Revenue Sharing
Revenue sharing is allocated to sub-national governments in order to address the problems of imbalances between central and local governments. As in many countries, some major taxes remain at the central level, i.e. personal income tax, VAT, and property tax. Until recently property tax is still administered at the central level but almost all the money is allocated to local governments through revenue sharing.
The mechanism for revenue sharing derives from taxes and natural resources revenues based on derivation basis from the originating local governments. Revenue sharing from taxes comprises of sharing of revenue from property tax, property tax transfer fee, and PIT.
As for the shared revenue from natural resource, it consists of shared revenues from forestry, mining, fishery, oil, and gas. In addition, the new law on Central and Local Fiscal Balance stipulates additional shared revenue from geo-thermal energy and re-forestation fund. The latter is formed as an earmarked grant for rehabilitating forests in originating local government.
Pressures during the drafting of the new law on Central and Local Fiscal Balance, particularly from rich-natural sources regions, has resulted such changes. The law 33/2004 mandates additional revenue sharing mechanism from geothermal energy and re-forestation. The latter is an earmarked grant specifically for rehabilitating forests in originating regions.
Moreover, the new law also mandates additional percentage on the revenue sharing from oil and gas. According to this, sub-national governments will receive an additional 0.5 percent from oil and gas. Such additional amount is also earmarked for specific provision, that is, for education. Of the 0.5 percent, 0.1 percent goes for provinces, 0.2 percent belongs to originating local governments, and the rest 0.2 percent is divided equally to all local governments in the same province.
Other than these two main changes, the other mechanism on revenue sharing remains the same with the previous scheme in law 25/1999.
General Purpose Grant (Dana Alokasi Umum/DAU)
The DAU intends to address both problems of vertical and horizontal imbalance. Thus it is expected to equalise fiscal capacities across regions to finance public services.
Law 33/2004 sets forth the total amount for DAU allocation as at least 26 percent of net domestic revenues, and starting from 2007 the percentage becomes 26 percent. Previously the magnitude of DAU allocation is 25 percent. The portion for provinces and municipalities/districts is determined by the proportion of responsibilities assigned to each tiers of government (article 29).
In principle, the main content of amendment of DAU in the law 33/2004 concerns the formula for fiscal gap and the basic-amount allocation. The formula for fiscal gap is using the difference of expenditure needs and fiscal capacity. In the law 33/2004, expenditure needs are measured with using proxies of population, surface area, index of cost construction, the inverse of the Human Development Index (HDI) and the inverse of the Gross Regional Domestic Product (GRDP) per capita index.
From the fiscal capacity side, the calculation is based on own-source revenue (OSR) and revenue sharing. OSR is calculated based on the revenue raising capacity (potential revenues) while revenue sharing are shared revenues from tax and natural resources.
Moreover, a major breakthrough of DAU formula in the law 33/2004 is the elimination of hold-harmless provision in the beginning of year 2008. Historically, hold-harmless provision is to maintain all regions should receive DAU in current year at least equal with the amount of DAU received in the previous year. This has been part of the agreement between the Budget Committee in the parliament and the government in the DAU for 2002. The existence of hold-harmless policy in the DAU has certainly disrupted the performance of DAU to improve horizontal fiscal imbalance.
Specific Purpose Grant (DAK)
A conditional or earmarked transfer scheme, DAK, is allocated to specific regions and certain sectoral programs. DAK intends to ‘promote the attainment of minimum standards and compensate for benefit/cost spill-over related to priority capital investment’ (Sidik 2004,p.392). Hence, it is confined mainly to finance physical capital investment and limited-period financing of operational and maintenance needs.
The criteria for DAK are based on the general, special, and technical criteria. The general criteria should consider the financial capacity of the regions, while special criteria emphasise on the characteristic of the regions. Technical criteria are more specific and established by line ministries.
Conditional term attached in DAK lead to the limited scope of sub-national governments’ entitlement, particularly in the usage of funds. Central government gives direction for using DAK for designated sectors. In 2007, the designated sectors which received transfer from DAK comprise of: education, health, infrastructure, fishery, agriculture, local governments’ infrastructure, and environment.
In Indonesia, according to Law 33/2004 on Fiscal Balance between central and local government, intergovernmental fiscal transfers are aimed to reduce fiscal gap among tiers of government and between sub-national governments. The so-called ‘Balance Fund’ policy deploys in the form of: Revenue sharing, Specific Purpose Grant (DAK), and General Purpose Grant (DAU).
Revenue Sharing
Revenue sharing is allocated to sub-national governments in order to address the problems of imbalances between central and local governments. As in many countries, some major taxes remain at the central level, i.e. personal income tax, VAT, and property tax. Until recently property tax is still administered at the central level but almost all the money is allocated to local governments through revenue sharing.
The mechanism for revenue sharing derives from taxes and natural resources revenues based on derivation basis from the originating local governments. Revenue sharing from taxes comprises of sharing of revenue from property tax, property tax transfer fee, and PIT.
As for the shared revenue from natural resource, it consists of shared revenues from forestry, mining, fishery, oil, and gas. In addition, the new law on Central and Local Fiscal Balance stipulates additional shared revenue from geo-thermal energy and re-forestation fund. The latter is formed as an earmarked grant for rehabilitating forests in originating local government.
Pressures during the drafting of the new law on Central and Local Fiscal Balance, particularly from rich-natural sources regions, has resulted such changes. The law 33/2004 mandates additional revenue sharing mechanism from geothermal energy and re-forestation. The latter is an earmarked grant specifically for rehabilitating forests in originating regions.
Moreover, the new law also mandates additional percentage on the revenue sharing from oil and gas. According to this, sub-national governments will receive an additional 0.5 percent from oil and gas. Such additional amount is also earmarked for specific provision, that is, for education. Of the 0.5 percent, 0.1 percent goes for provinces, 0.2 percent belongs to originating local governments, and the rest 0.2 percent is divided equally to all local governments in the same province.
Other than these two main changes, the other mechanism on revenue sharing remains the same with the previous scheme in law 25/1999.
General Purpose Grant (Dana Alokasi Umum/DAU)
The DAU intends to address both problems of vertical and horizontal imbalance. Thus it is expected to equalise fiscal capacities across regions to finance public services.
Law 33/2004 sets forth the total amount for DAU allocation as at least 26 percent of net domestic revenues, and starting from 2007 the percentage becomes 26 percent. Previously the magnitude of DAU allocation is 25 percent. The portion for provinces and municipalities/districts is determined by the proportion of responsibilities assigned to each tiers of government (article 29).
In principle, the main content of amendment of DAU in the law 33/2004 concerns the formula for fiscal gap and the basic-amount allocation. The formula for fiscal gap is using the difference of expenditure needs and fiscal capacity. In the law 33/2004, expenditure needs are measured with using proxies of population, surface area, index of cost construction, the inverse of the Human Development Index (HDI) and the inverse of the Gross Regional Domestic Product (GRDP) per capita index.
From the fiscal capacity side, the calculation is based on own-source revenue (OSR) and revenue sharing. OSR is calculated based on the revenue raising capacity (potential revenues) while revenue sharing are shared revenues from tax and natural resources.
Moreover, a major breakthrough of DAU formula in the law 33/2004 is the elimination of hold-harmless provision in the beginning of year 2008. Historically, hold-harmless provision is to maintain all regions should receive DAU in current year at least equal with the amount of DAU received in the previous year. This has been part of the agreement between the Budget Committee in the parliament and the government in the DAU for 2002. The existence of hold-harmless policy in the DAU has certainly disrupted the performance of DAU to improve horizontal fiscal imbalance.
Specific Purpose Grant (DAK)
A conditional or earmarked transfer scheme, DAK, is allocated to specific regions and certain sectoral programs. DAK intends to ‘promote the attainment of minimum standards and compensate for benefit/cost spill-over related to priority capital investment’ (Sidik 2004,p.392). Hence, it is confined mainly to finance physical capital investment and limited-period financing of operational and maintenance needs.
The criteria for DAK are based on the general, special, and technical criteria. The general criteria should consider the financial capacity of the regions, while special criteria emphasise on the characteristic of the regions. Technical criteria are more specific and established by line ministries.
Conditional term attached in DAK lead to the limited scope of sub-national governments’ entitlement, particularly in the usage of funds. Central government gives direction for using DAK for designated sectors. In 2007, the designated sectors which received transfer from DAK comprise of: education, health, infrastructure, fishery, agriculture, local governments’ infrastructure, and environment.
INTERGOVERNMENTAL FISCAL TRANSFERS : THE CONCEPT
By Erny Murniasih
The previous post has written about the key elements of fiscal decentralisation. One of the elements is intergovernmental fiscal transfers (IGFT). The IGFT has some objectives as follow:
a. To address vertical fiscal imbalances
Historically, the problem of vertical imbalances may always persist, since broad and substantial taxes remain at the central level. Indeed, sub-national governments are often left with low-yielding, unpopular taxes, mainly focused on production rather than wealth and income. This leads to difficulties in tax collection. Thus, intergovernmental transfers are needed to achieve vertical balance.
b. To address horizontal fiscal imbalances
In developing and transition countries, it is not unusual to have large disparities between the richest and the poorest regions. This may happen due to variations in the capacity of sub-national governments to generate own source revenues. Such variation depends on the performance of potential taxes which are derived from the nature of the local economic activities. The disparities will widen because the more urbanised local governments have the greatest taxable capacities. In addition, administrative capacities vary amongst sub-national governments. Hence, this will lead to horizontal imbalances. A system of equalisation grant might be justified to address such problems.
c. To address inter-jurisdictional spill-over effects (or externalities)
There are some public services that have spill-over effects (or externalities) on other jurisdictions. Higher education and pollution control are some examples. A local government may under-spend for these services without paying attention of the substantial public benefits. Therefore, central government should provide incentives or financial resources for local governments to address this particular problem.
There are types of intergovernmental transfer to address the various designated objectives.
a. Conditional transfers
In this scheme, the central government specify the purpose(s) for which the recipient government can use the funds. The types of transfers classified in this group:
(i). Matching open-ended grant, that is, the central government grant depends upon the local governments’ behaviour in spending.
(ii) Matching close-ended grants. This scheme employs a ceiling on the cost borne by central government due to budget constrains in central level.
(iii). Non-matching grants. In this scheme, central government offers fixed sum of money which is directed on a specified public good. Thus, local government does not have to match the contribution of central government.
b. Unconditional transfers
This type on transfers places no restriction of the use of the money. In theory, the scheme consists of revenue sharing arrangements and general purpose grants. The main justification for unconditional grants is that such grants can be used to equalise fiscal capacities of different local governments to ensure the provision of a minimum (or reasonable) level of public services (Ma, 1997). In Indonesia, IGFT (a.k.a in Indonesia “Kebijakan Dana Perimbangan”) consists of Revenue Sharing, General Purpose Grant, and Specific Purpose Grant.
... to be continued
The previous post has written about the key elements of fiscal decentralisation. One of the elements is intergovernmental fiscal transfers (IGFT). The IGFT has some objectives as follow:
a. To address vertical fiscal imbalances
Historically, the problem of vertical imbalances may always persist, since broad and substantial taxes remain at the central level. Indeed, sub-national governments are often left with low-yielding, unpopular taxes, mainly focused on production rather than wealth and income. This leads to difficulties in tax collection. Thus, intergovernmental transfers are needed to achieve vertical balance.
b. To address horizontal fiscal imbalances
In developing and transition countries, it is not unusual to have large disparities between the richest and the poorest regions. This may happen due to variations in the capacity of sub-national governments to generate own source revenues. Such variation depends on the performance of potential taxes which are derived from the nature of the local economic activities. The disparities will widen because the more urbanised local governments have the greatest taxable capacities. In addition, administrative capacities vary amongst sub-national governments. Hence, this will lead to horizontal imbalances. A system of equalisation grant might be justified to address such problems.
c. To address inter-jurisdictional spill-over effects (or externalities)
There are some public services that have spill-over effects (or externalities) on other jurisdictions. Higher education and pollution control are some examples. A local government may under-spend for these services without paying attention of the substantial public benefits. Therefore, central government should provide incentives or financial resources for local governments to address this particular problem.
There are types of intergovernmental transfer to address the various designated objectives.
a. Conditional transfers
In this scheme, the central government specify the purpose(s) for which the recipient government can use the funds. The types of transfers classified in this group:
(i). Matching open-ended grant, that is, the central government grant depends upon the local governments’ behaviour in spending.
(ii) Matching close-ended grants. This scheme employs a ceiling on the cost borne by central government due to budget constrains in central level.
(iii). Non-matching grants. In this scheme, central government offers fixed sum of money which is directed on a specified public good. Thus, local government does not have to match the contribution of central government.
b. Unconditional transfers
This type on transfers places no restriction of the use of the money. In theory, the scheme consists of revenue sharing arrangements and general purpose grants. The main justification for unconditional grants is that such grants can be used to equalise fiscal capacities of different local governments to ensure the provision of a minimum (or reasonable) level of public services (Ma, 1997). In Indonesia, IGFT (a.k.a in Indonesia “Kebijakan Dana Perimbangan”) consists of Revenue Sharing, General Purpose Grant, and Specific Purpose Grant.
... to be continued
THE ELEMENTS OF FISCAL DECENTRALISATION
By Erny Murniasih
The shift from a centralised planning to a decentralised government system has been a widespread trend in many countries during the 1980s. There are many motives of why these countries have engaged in decentralisation: to stimulate economic growth, reduce urban-rural disparities, deepen democracy, and encourage civil society at the local level.
In principle, there are three varieties of decentralisation that can be distinguished corresponding to the degree of independent decision-making exercised at the local level: de-concentration, delegation, or devolution (Bird and Vaillancourt, 1999). To ensure that local governments have sufficient funding, the principle of ‘finance follows function’ should be in place. In such way, the set of functions are assigned to local governments with an adequately designated own source revenues and intergovernmental transfers.
In fiscal decentralisation program, there are key elements that should be applied according to public finance experts:
1. An appropriate set of functions for subnational governments. This element is supposed to address the question of ‘who does what?’ and ‘what are the functions and expenditure responsibilities of each level of government?’
2. An appropriate revenue-resource responsibilities. This element provides allowance for sub-national governments to levy taxes and charges.
3. A well-designed intergovernmental fiscal transfer system. Transfers are needed where vertical and horizontal imbalances persist and when there is problem of inter-jurisdiction spill over effect or externalities. Transfers can be formulated in some cases, depending on the purpose. They can be in the form of unconditional and/or conditional grants. The principle is that transfers should be sufficient to ensure that sub-national governments can afford to implement the decentralisation of functions.
4. An adequate access to develop capital. Access to development capital is vital to accelerate development, generating increased local revenues (Devas, 2006). This gives sub-national governments alternatives in financing their expenditures, particularly capital investment, in respect of functions assigned by central government. However, since borrowing could create problems for overall macroeconomic stability, experts in public finance advocate setting limits for local borrowing.
5. An adequate enabling environment for fiscal decentralisation. Substantial political is required to enable governments to establish constitutional and legal mandates for fiscal decentralisation and so to develop a strong foundation for fiscal decentralisation (Smoke, 2001). Even though such an internal driving-force does not guarantee successful fiscal decentralisation, there has to be substantial driving force to ensure a strong commitment to implementing the system.
The shift from a centralised planning to a decentralised government system has been a widespread trend in many countries during the 1980s. There are many motives of why these countries have engaged in decentralisation: to stimulate economic growth, reduce urban-rural disparities, deepen democracy, and encourage civil society at the local level.
In principle, there are three varieties of decentralisation that can be distinguished corresponding to the degree of independent decision-making exercised at the local level: de-concentration, delegation, or devolution (Bird and Vaillancourt, 1999). To ensure that local governments have sufficient funding, the principle of ‘finance follows function’ should be in place. In such way, the set of functions are assigned to local governments with an adequately designated own source revenues and intergovernmental transfers.
In fiscal decentralisation program, there are key elements that should be applied according to public finance experts:
1. An appropriate set of functions for subnational governments. This element is supposed to address the question of ‘who does what?’ and ‘what are the functions and expenditure responsibilities of each level of government?’
2. An appropriate revenue-resource responsibilities. This element provides allowance for sub-national governments to levy taxes and charges.
3. A well-designed intergovernmental fiscal transfer system. Transfers are needed where vertical and horizontal imbalances persist and when there is problem of inter-jurisdiction spill over effect or externalities. Transfers can be formulated in some cases, depending on the purpose. They can be in the form of unconditional and/or conditional grants. The principle is that transfers should be sufficient to ensure that sub-national governments can afford to implement the decentralisation of functions.
4. An adequate access to develop capital. Access to development capital is vital to accelerate development, generating increased local revenues (Devas, 2006). This gives sub-national governments alternatives in financing their expenditures, particularly capital investment, in respect of functions assigned by central government. However, since borrowing could create problems for overall macroeconomic stability, experts in public finance advocate setting limits for local borrowing.
5. An adequate enabling environment for fiscal decentralisation. Substantial political is required to enable governments to establish constitutional and legal mandates for fiscal decentralisation and so to develop a strong foundation for fiscal decentralisation (Smoke, 2001). Even though such an internal driving-force does not guarantee successful fiscal decentralisation, there has to be substantial driving force to ensure a strong commitment to implementing the system.
Is the Indonesian government still on the track facing decentralization program?
by Erny Murniasih
One might deem harshly that Indonesian economic is running with inadequate economic formula. Indonesian macro economy is tended to be vulnerable with external shocks, particularly with international influence. Such condition is dampened by the fact that the micro economy situation is not even better. At the time being, we are witnessing mismanagements in public finance, both at the national and the local governments’ level.
Taken into account, local economic development has only demonstrated a slow motion progress. The total GRDP of Provinces between 2005 and 2006 increased slowly at about 13 percent. The GRDP distribution concentrates in certain provinces. Province DKI Jakarta experienced the highest whilst Maluku Utara was the least. The gap between DKI Jakarta and Maluku Utara within these years is more than three times. Such condition reflects a strong inequality among regions.
Considering that local economic growth has persisted inequality, we should be aware that this condition would endanger the economic as a whole. The objective of decentralization program conducted in the early 2000s has been determined to increase welfare. With decentralization program, the amount of money transferred to local government, the so-called Intergovernmental Fiscal Transfers (IGFR), has a large extent of increase. The transfer is set forth to reduce imbalances between central and local government, and to increase fiscal capacity at the local level.
From 2005 to 2007, the ratio of IGFR to total state budget has increased quite considerably. In 2005, the ratio was 27 percent, while it is 34 percent in 2007. A reference from the Government Financial Note mentioned that there is a positive correlation between the increase growth of IGFR and the increase of GRDP. The government claimed that IGFR has given substantial contribution to the enhancement of local economic development.
Nevertheless, does this mean that the government should be contented? From the above problem which shows that inequality and fiscal imbalances still persist, one might moderately incriminate that an increase of IGFR does not always answer the problem of enhancing local economic development. The next question that is worth to answer is how to make sure that the allocated-money spends on giving service to encourage economic development.
Have the local budgets so far been allocated to achieve this goal? If we have a look at the overall outlook of local budgets, we reveal that most of local budget is still accounted for local government officers’ salary. Between 2005 and 2006, local salary accounted for about 43 and 41 percent consecutively. Capital expenditure, which is supposedly allocated for public service provision, still accounted only around 20 to 25 percent.
On the other hand, we are currently stirred by the publication that some local governments put their idle money being parked in the banking sectors and the BI’s certificate (SBI). Up until March 2007, the total amount of local governments’ money being parked at the SBI has reached at about 62 trillion rupiah.
The contrast condition, which is involved the bureaucrats’ behavior in managing regional budget and finance, has given an evidence of lack of capacity both at the national and local levels. In national level, the government has not given clear and comprehensive guideline to facilitate decentralization program. While at the local level, the mindset of autonomy is defined as full discretion of managing local resources.
As a result, decentralization is running without a proper balance. On one side, the central government tends to increase the amount of IGFR for each year and give the money in term of block grant, rather than targeted grant. On the other side, local governments have full discretion on managing the money, including decision to put their idle money in banking sector for security reason.
With this background, it is worth noticing that firstly the central government should reconsider the mechanism of managing local budget and mediate capacity building to local governments, such as in procurement procedures. It is realized that the central government’s intervention on local budget is fairly undesirable. Many believe such experience would mean a down-graded of the process of implementing a fully decentralization program and would mean as ‘recentralization’.
However, guidelines from the central government in budget preparation are still necessary, even in any countries. This is not only necessary to ensure that local government will allocate their budget for public service delivery, but also to ensure that there are no delays on setting up the budget and will open the loop hole to put the public money in banking sector.
One might deem harshly that Indonesian economic is running with inadequate economic formula. Indonesian macro economy is tended to be vulnerable with external shocks, particularly with international influence. Such condition is dampened by the fact that the micro economy situation is not even better. At the time being, we are witnessing mismanagements in public finance, both at the national and the local governments’ level.
Taken into account, local economic development has only demonstrated a slow motion progress. The total GRDP of Provinces between 2005 and 2006 increased slowly at about 13 percent. The GRDP distribution concentrates in certain provinces. Province DKI Jakarta experienced the highest whilst Maluku Utara was the least. The gap between DKI Jakarta and Maluku Utara within these years is more than three times. Such condition reflects a strong inequality among regions.
Considering that local economic growth has persisted inequality, we should be aware that this condition would endanger the economic as a whole. The objective of decentralization program conducted in the early 2000s has been determined to increase welfare. With decentralization program, the amount of money transferred to local government, the so-called Intergovernmental Fiscal Transfers (IGFR), has a large extent of increase. The transfer is set forth to reduce imbalances between central and local government, and to increase fiscal capacity at the local level.
From 2005 to 2007, the ratio of IGFR to total state budget has increased quite considerably. In 2005, the ratio was 27 percent, while it is 34 percent in 2007. A reference from the Government Financial Note mentioned that there is a positive correlation between the increase growth of IGFR and the increase of GRDP. The government claimed that IGFR has given substantial contribution to the enhancement of local economic development.
Nevertheless, does this mean that the government should be contented? From the above problem which shows that inequality and fiscal imbalances still persist, one might moderately incriminate that an increase of IGFR does not always answer the problem of enhancing local economic development. The next question that is worth to answer is how to make sure that the allocated-money spends on giving service to encourage economic development.
Have the local budgets so far been allocated to achieve this goal? If we have a look at the overall outlook of local budgets, we reveal that most of local budget is still accounted for local government officers’ salary. Between 2005 and 2006, local salary accounted for about 43 and 41 percent consecutively. Capital expenditure, which is supposedly allocated for public service provision, still accounted only around 20 to 25 percent.
On the other hand, we are currently stirred by the publication that some local governments put their idle money being parked in the banking sectors and the BI’s certificate (SBI). Up until March 2007, the total amount of local governments’ money being parked at the SBI has reached at about 62 trillion rupiah.
The contrast condition, which is involved the bureaucrats’ behavior in managing regional budget and finance, has given an evidence of lack of capacity both at the national and local levels. In national level, the government has not given clear and comprehensive guideline to facilitate decentralization program. While at the local level, the mindset of autonomy is defined as full discretion of managing local resources.
As a result, decentralization is running without a proper balance. On one side, the central government tends to increase the amount of IGFR for each year and give the money in term of block grant, rather than targeted grant. On the other side, local governments have full discretion on managing the money, including decision to put their idle money in banking sector for security reason.
With this background, it is worth noticing that firstly the central government should reconsider the mechanism of managing local budget and mediate capacity building to local governments, such as in procurement procedures. It is realized that the central government’s intervention on local budget is fairly undesirable. Many believe such experience would mean a down-graded of the process of implementing a fully decentralization program and would mean as ‘recentralization’.
However, guidelines from the central government in budget preparation are still necessary, even in any countries. This is not only necessary to ensure that local government will allocate their budget for public service delivery, but also to ensure that there are no delays on setting up the budget and will open the loop hole to put the public money in banking sector.
Tuesday, November 6, 2007
The Prepared Mind of A Leader
catatan akhir pekan, 23 September 2007
by Tedy J. Sitepu
Seorang ilmuwan abad 18, Louis Pasteur, pernah mengatakan: “Chance favors the prepared mind.” Kalimat ini menjadi sangat abadi hingga kini. Bagi saya, ini menjadi salah satu kalimat motivasi pribadi yang sejak dulu mendasari setiap upaya saya selama ini.
Tak sengaja, saya menemukan sebuah buku yang sebagian besar isinya didasarkan pada spirit kalimat Louis Pasteur itu. ”The Prepared Mind of A Leader: Eight Skills Leaders Use to Innovate, Make Decision, and Solve Problems” judulnya. Buku yang sangat menarik menurut saya. Berikut sedikit ringkasan buku tersebut.
Good leadership, like so many other things in life, is seen through a combination of skills. And like so many other things in life, you don’t just “get better” at leadership; you improve your skills by regular practice. To use a sport metaphor, a good golfer has driving skills, putting skills, “rough skills, bunker skills, and others. He or she is good only because of practice. And as we looked at organisational successes and failure in their innovation, decision making, and problem solving, we looked for mental skills that were being used or were absent.
We see eight fundamental skills delineating a Prepared Mind leader.
Observing
The environment in which we live and operate is constantly changing. It’s natural for us to look for confirming information about our view of the world, but it’s often more important to look for disconfirming information. What have you been obeserving lately?
Reasoning
People will want to know why you are proposing a course of action and will not follow your lead untill they understand your explanation. What are your answer to the “why” question?
Imagining
The future is unknowable, but it can be visualized. Established industries, companies, policies, and practices are always challanged be new (imagined) ideas. What’s running through your mind these days?
Challenging
Any organisation’s business is built on assumptions. When is the last time you challanged your assumptions and tested their validity?
Deciding
Face it, you get paid to make or influence decisions because action is essential to progress. Are you progressing or paralyzed?
Learning
Past knowledge got you to where you are today. It may or may not be effective in continuing to move you forward. What don’t you know that you should know?
Enabling
You m ay be smart, but progress requires a concerted effort for any organisation. Do the people aroun you have the knowledge and the means and, most important, the opportunity to progress.
Reflecting
All decisions have trade-offs. We need to look at past decisions and understand the trade-offs we made and the consequences of those trade-offs. We also need to reflect forward (envision) and consider the trade-offs we are about to make. The problem is that we are time starved and never seem ti have the time to just think. Have you spent any quiet thinking time lately?
Corruption: Will It be Eradicated from Indonesia?
by Erny Murniasih
Corruption...
This word might be the most popular word that is discussed by about 200 million Indonesians.
We still memorize headline news of the non-budgeter corruption case in Ministry of Fishery. Later, such corruption case has brought about political wars among politicians. Not to mention the previous unsolved corruption cases relating with the BLBI fund or other cases relating with mark-up practices in government institutions.
Corruption practices in
‘Mark-up’ practices, for instance, have long been experienced in government institutions. Initially, such practice was aimed to cover non-budgeted costs and involved lower level officials. Thus, sometimes the phrase ‘invisible corruption’ can be named for this type of corruption practices. However, as time goes by, such type corruption has grown and has reached upper level officials as decision maker. That is why, later, the small-scale corruption then positioned to be systematic and systemic.
Having had this, establishment of eradication commission is not fully solved the problems. The already-exist eradication commission in
Answers are varied. However, optimism should persist. There are ways to enable concrete condition to eradicate corruption. One of them is by constructing strong foundation for the nation.
A strong nation should have owned sustainable democracy as the foundation of its construction. The sustainable democracy can be delivered in four aspects which comprise of economic development, equality, political culture, and enhancement of civil society.
First is economic development. Economic development at national and regional level has influenced individual freedom to access public service delivery provided by the government. For this stand, Amartya Sen agrees that individual freedom for getting economic access would encourage development of freedom.
Access to economic and financial sector is crucial in order to encourage economic growth which in turn will open an equal opportunity for citizen and to gain welfare. Hence, economic development could be the main condition for reaching sustainable development.
Second is equality. The term of ‘equality’ which is best to describe for this occasion is how to allocate an equal public expenditures and equal opportunities for citizen. However, this should not only be seen as equal for all, but should concern with the characteristic of local needs and beyond jurisdictions. Therefore, the indicators to measure equality should reflect the potency of natural resources, human resources, geographical condition, and ethnic diversity. Equality for public expenditures should also consider accessibility to lower class people. In turn, citizens are having equal opportunities for gaining welfare and open a way for transparency.
Third is political culture which comprises political freedom and political attitude. Political freedom is the key to secure citizen rights, whilst political attitude is the transportation mode for experiencing democracy. Less commitment from politicians and lack of harmonization among politicians will un-secure political tensions. Strong support gained from political aspect is crucial to enable the eradication of corruption practices.
Fourth is enhancement of civil society. This last aspect will strengthen the nation building through trilingual communication between citizen, government, and politicians which has long been suggested as social contract by JJ Rousseau. If we reinforce the communication and if the governments (and politicians) have the courage to sign contract with citizen, the establishment of civil society might work optimally to supervise the performance of executive and legislative body. Citizen is able and is willing to voice their demand, including to voice corruption cases nearby.
What is Hope?
In English language, the word ‘Hope’ refers to a feeling of desire and expectations that things will go well in the future. We need to have the ‘hope’ in our life. By having the ‘hope’ we will try our best to pursue our objectives in life.
My hopes in this year are nearly fulfilled. I got my master degree, I have obtained chances to improve my capacity building, and most of all, I have gained my love and my angels’ smile again.
One hope that has not fully filled.. I am hoping that I will be able to share my thoughts, my bright, and my smile to many people. But I am optimistic that the time will come for the chance… Therefore, I am still preparing another hope for the upcoming year.
So, what are your hopes? Please leave a comment so that we are able to share our own hopes…
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