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.
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