T

here are at least two pieces of good news from the proposed Rp 2.02 quadrillion (US$172 billion) state budget for the 2015 fiscal year beginning in January. One is the 6 percent rise in pensions and the salaries of civil servants, the military and the state police.

The second is the direct allocation for villages. This is the first time that village administrations, of which there are an estimated 73,000, will get direct allocations from the national budget, in compliance with Law No. 6/2014 on villages. Until now, grants or budget allocations to villages have been part of the total state budget allocations to regional (provincial, regency and municipal) administrations.

The new law stipulates that national budget allocations to villages shall gradually reach 10 percent of the total allocation from the national budget to regional administrations and shall be in addition to the funds the villages already receive from regency and municipal administrations.

The amount each village will get directly from the national budget is determined according to a formula taking into account the village'€™s population, the size of its territory and its incidence of poverty. The funds shall be used primarily for development and for the empowerment of the local people.

As the villages'€™ eventual 10 percent share of the total allocation to regional administrations is to be implemented gradually, the first budget allocation directly to villages next year is set at Rp 9.1 trillion rather than Rp 64 trillion (10 percent of next year'€™s total national budget allocation to all regional administrations).

We think this gradual process is necessary to ensure effective, efficient and accountable use of the funds, given the inadequate institutional capacity of village administrations, which are the lowest level of public administration.

This process learns from the lessons of the launch of regional autonomy in 2001, the first time that national budget funds were allocated directly to regional administrations. Even now, 13 years on, many regional administrations have yet to implement adequate standards of financial accountability.

The Village Law also stipulates that the direct budget allocations can be reduced, deferred or even stopped altogether if villages fail to submit timely reports on the use of the funds, or if they abuse the funds, do not use the funds according to the directives based on their respective priorities, or leave the funds in banks for more than two months.

We urge the Finance Ministry to ensure that village heads and financial officials at village offices are sufficiently trained in budget administration to maximize the benefits of the direct budget allocation.

Village officials, through processes involving local people, also need to be trained in how to design priority programs, so as to ensure that the use of the funds receives stringent public scrutiny. We can also draw lessons from the designing and implementation of community-driven programs under the subdistrict-based National Community Empowerment Program in Rural Areas, which is also funded by the national budget.