Opinion

Public expenditure for
regional disaster mitigation

The floods that hit several areas in Indonesia, especially Jakarta, have been a warning to some provinces and districts of the need to provide disaster mitigation spending in local budgets.

Natural disasters do not just include flooding, but other catastrophes such as the tsunami that hit Aceh in late-2004 and the fatal earthquakes including the Yogyakarta earthquake in May 2006 and the Padang earthquake in September 2009.

While the central government is continuously developing disaster risk management and its financing, local government responses to financially mitigate natural disasters are arguably far from adequate. The government of Jakarta under Governor Jokowi, for example, does not allocate special funds to anticipate major flooding, despite the city’s vulnerability to the disaster.

Until today, West Java and East Java are the only provinces that have set aside special budgets for disaster management. Respectively, they allocate Rp 100 billion (US$10.41 million) for disaster mitigation. Other provincial and regional governments insist they have allotted disaster management budgets under unpredicted expenditures spread across government agencies.

Reflecting on this, now is the time for any disaster-prone province or regency to consider a budget for disaster mitigation. In general, it should be well understood that it is impossible for any region to rely on the central government’s assistance when it comes to natural disasters.

In terms of public management, this issue is stipulated in Law No. 24/2007 on disaster management and Government Regulation No. 22/2008 on the funding and management of disaster assistance, which clearly divide the powers and responsibilities of the central and local governments. The central government has outlined the scale of the disasters it will handle in proportion, while a local government’s primary responsibility is to allocate adequate policy so as to not rely solely on the actions and funding from the central government. Furthermore, financial management is needed to anticipate these problems within an integrated policy framework.

For that, from the point of view of public management, each local government, both provincial and regional, should anticipate five important aspects, namely risk assessment, institutional capacity building, investment in risk reduction, emergency preparation and the allocation of funding following a disaster. This approach is integral, and not only deals with the event of any disaster but also the related aspects.

Therefore, a budget has to be a regional financial allocation that integrates a pro-green development policy to the regional development program. Once a relevant policy has been prepared, the local government can think about crucial aspects in the aftermath of disasters, such as emergency response, recovery and reconstruction.

In particular, more attention needs to be given to the financial aspects of the local governments in the allocation of mitigation expenditure as well as its financing. In fact, some local governments traditionally allocate expenditure in the form of disaster insurance.

One example is the West Sumatra provincial government, which has insured regional assets from possible earthquakes since 2008. With the “Insurance Expenditure on Government Assets” budget amounting to Rp 200 million, they claimed insurance funds of Rp 20 billion in May 2010, just seven months after the earthquake. Likewise Yogyakarta, which has insured public assets since 2003, received a payment of Rp 3.4 billion after the major earthquake in 2006, a sum that was 14 times the annual premium paid. This amount was obviously insufficient compared to the sultanate city’s losses, which exceeded Rp 29 trillion.

Initiatives like insurance spending in anticipation of fiscal risk in disaster-prone areas may set a good example for other regions. However, there are pros and cons in finance. In the State Finance and Budget Law, there is no regulation which explicitly disallows insurance.

In practice, there are also several insurance programs financed by the state budget. However, the budget allocation is limited to insurance of public assets only. When expanded to other beneficiaries, its legal basis is weak as the insurance mechanism provides no measurable clarity on budget performance (output/outcome). Dues premiums will run out, with no real output.

Therefore, the government should deliberately consider ex-ante schemes for their mitigation funding. These schemes are anticipated at an early stage to think of natural disasters and prepare every relevant precaution measure needed. This scheme is also the format that best fits the pattern adopted for disaster mitigation management policies as described earlier, which is to reduce fiscal risk areas that may arise due to a disaster.

Policymakers in each region need to prepare the legal infrastructure so that the aspect of funding can be dealt with in accordance with state financing. Insurance is crucial, and any local government can choose one or more types of insurance, but spending on those insurance policies should cover public interests in general.

Indeed, fiscal mitigation will remain lower than the losses incurred. But, we have seen the tremendous losses resulting from inadequate disaster mitigation because it is not backed by financing schemes. So, why are we not getting in there early?

The writer is a social and economic movement advocate who holds a master’s degree in economic policy studies from the Australian National University (ANU).

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