T

he “specificity” of a Specific-Purpose Grant (Dana Alokasi Khusus or DAK) has been lost, from the perspectives of the regions covered and the sectors supported by it.

This is because of the strong orientation toward “equalization”, which gives the impression of “sharing the pie” to all regions — rich and poor, in lieu of “specificity” — and because the coverage of national-priority sectors is widening.

In general, the principles of DAK allocation must not be separated from its basic legal definition: “A fund that is originated from the national budget that is allocated to specific regions in order to help fund specific activities that are under regional authority and in line with national priorities.”

There are three important factors about DAK: Helping “specific regions”, fund “specific activities” and operate “under regional authority and in line with national priorities”. However, in 2011, 519 of the 524 regions in Indonesia received DAK. In 2012, DAK is allocated to fund 19 national priority sectors, which may expand in 2013.

The small amount of the total DAK allocations and its secondary role (even residual role) relative to General Purpose Grant (Dana Alokasi Umum or DAU) and the Revenue Sharing Fund (Dana Bagi Hasil or DBH) makes it difficult to make a significant impact on the growth of the receiving regions and putting in place minimal public services in backward regions.

There are several factors contributing to this. Law No. 33/2004, as the main law regulating DAK, is still limited to substantial regulatory norms and tends to be ambiguous in setting up the basic policies on DAK. Until now, the government has not yet issued the government regulation — which is mandatory — about the periodic transfer from the deconcentration fund and co-administration fund to DAK as one alternative to increase the amount allocated for local regions.

DAK still has not had a fixed reference of calculation. DAK policies should be anchored to some other policies, such as the minimum service standard (Standar Pelayanan Minimal or SPM).

The complexity of DAK allocation formulation, opaque allocation processes (exacerbated by the strong political aroma), and a top-down policy direction and communication make local regions become passive recipients.

Data from 2008 to 2012 shows DAK allocation in certain sectors, especially in education, has not yet been taken to assist backward regions. This can be seen from the average DAK allocation in those sectors that were bigger for the non-backward regions. One reason for this is the indicators of technical indexes that are not sensitive enough to backwards regions’ characteristics and needs.

The eligibility criteria is also too lenient. Moreover, the weighting of the indexes in the final formulation of DAK formulation seems ad hoc.

We conducted a factor analysis to reexamine the formulation of DAK. We found that there is a need to reexamine DAK allocation formulation and even consider reformulating it.

We show that the Backwardness Index positively correlates with the Border-region Index, the Coastal-region Index, the Food-region Index and the Territory Index, but is negatively correlated with the Tourism Index and the Disaster Index.

By using a factor analysis, we can see that the Backwardness Index and the Coastal and Border-region indexes can be combined into one composite index (call it: the “Backward-Region Index”), while the Food-region, Tourism and Disaster indexes can be combined into another composite index (call it the “Special Region Index”).

We recommend that DAK allocation be reformulated as follows:

For DAK that funds 19 national priority sectors: Having the “Backward Region Index” or “Special Region Index” above a certain point becomes the first requirement for all regions to receive DAK. The second requirement is that they must also have a Technical Index, which has not yet met a certain standard.

For DAK to fund SPM achievement in three sectors, having “Backward Region Index” or “Special Region Index” above a certain point becomes the first requirement. The second requirement is that they must also have SPM achievement, which has not yet met a certain standard.

We also found that by using the factor analysis, the weightings for technical indexes are never more than 0.3.

This is a contradiction to the currently assigned weight of 0.8. Moreover, clustering — giving different weights for different sets of data, e.g. backward vs non-backward regions — may be needed for some DAK sectoral allocations, such as for primary schools, drinking water and sanitation.

We also found that the composite index used to allocate DAK has a low quality of information.

Given all these considerations, there is a need to reexamine and maybe reformulate DAK allocations. The government’s decision to give priorities to three sectors for SPM (namely education, health and infrastructure) is a wise strategy.

To make a real impact, DAK must focus on “specificity” instead of “equalization”, although these two aspects are inseparable from one another.

Robert Endi Jaweng is the manager for external relations at the independent Regional Autonomy Watch (KPPOD) in Jakarta. Maria Monica Wihardja is a researcher at the Centre for Strategic and International Studies in Jakarta and a lecturer at the University of Indonesia’s economics school.