The legal and regulatory frameworks for virtually all aspects of public financial management — budget formulation and execution, public procurement of goods and services and post-audit — have all been reformed to improve the effectiveness and efficiency of public-sector spending.

The budget authorization or warrants are a breakthrough in the process of budget disbursement, especially for the investment budget, which in the past suffered the longest delays. The warrants already stipulate the project manager, treasurer and procurement officer for each investment project, thereby speeding up the bidding process.   

Yet another remarkable advance was the establishment of the National Public Procurement Agency, in charge of setting nationwide standard procurement procedures, including standardized bidding documents, and the gra-dual implementation of electronic public procurement to enhance market transparency. Last week’s delivery of the budget authorization documents itself was the fastest ever made for annual state budget implementation.

The 2009 fiscal year, which ended last month, still left behind Rp 38 trillion (US$3.8 billion) or more than 20 percent of the investment budget for that year unspent due to various problems related to inadequate public budget management and institutional spending ability. But the unrealized investment budget was smaller than the previous years.

In the past, inadequate spending capacity of the line ministries and poor budget management on the part of regional administrations, which together account for around 50 percent of the national budget volume, resulted in almost 50 percent of budgeted capital expenditures being spent in the last quarter of the fiscal year. Budget spending (on investment) started slowly, then accelerating towards the end of the year, thereby causing an adverse cycle at the expense of spending quality.

But the government seems quite serious now about front-loading budget execution by early delivering of all budget authorization documents so that preparations for project implementation, including tenders, can be expedited.

Quick and efficient budget disbursement is most imperative as Indonesia urgently needs more and better spending on its basic infrastructure, such as transport and power-generation infrastructure, and public services. The 2010 budget is also conducive for infrastructure development because this fiscal year, for the first time, applied a performance-based budget system and medium-term expenditure framework to investment budget, instead of an annual cycle.

Multi-year budget appropriations for multi-year projects facilitate carry-over budget allocations, unlike the previous state budgets which were tied only to one-year budget appropriation. For example, the Rp 38 trillion carried over from the 2009 investment budget cannot automatically be disbursed this year for the projects for which the appropriations were originally intended.

Moreover, the introduction of a performance-based budget system will contribute to further integrating the planning and budgeting processes. In previous years, the decision-making processes between line ministries, the directorate generals of budget and treasury, the national planning agency and the parliament focused on input composition of the budget, rather than compliance of the spending programs with government priorities.

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