T

here is actually not much new in the revelation last week by the director general of inter-government fiscal relations Boediarso Teguh Widodo that as of May, more than Rp 255 trillion (US$18.8 billion) from the investment budgets of regional (province, regency and city) administrations had yet to be disbursed.

That only reflects the national trend as even the central government had as of last month disbursed less than 10 percent of its total investment budget. But it is nonetheless discouraging because there seems to be no significant improvement in the financial management and accountability of regional administrations.

The undisbursed portions of the investment budgets seem to have increased steadily in the regions in proportion to the rise in fund transfers from the central government. At present, almost 50 percent of the national budget is annually transferred to be implemented in the regions.

Yet more worrisome is the trend that the bulk of the undisbursed investment funds are parked in time deposits and checking accounts in regional development banks owned by regional governments and at commercial banks. There have been allegations that the interest earnings from these deposits have flown to the accounts of regional leaders and senior officials.

The central government should address this problem through concerted programs because undisbursed funds mean lost opportunities to deliver public services. We should also remember that budgets are the most important link in the long chain connecting policy to resource flows and on to public services and poverty reduction on the ground.

The slow budget implementation has virtually nothing to do with effective oversight because the standards of financial management and accountability remain poor in most regions, as shown by the audit reports of the Supreme Audit Agency.

But disorder in financial management cannot always be blamed solely on corruption. Technical incompetence of local officials in charge of budget management is also often the main factor, especially in newly formed administrations.

Herein lies the importance of and urgent need for continuous training programs to improve the capacities of regional administrations in managing increasingly large budgets and responding to the needs of their communities.

In order to strengthen accountability, reporting, performance-based budgeting and monitoring, and minimum service standards should be put into practice at the local level.

It is high time also to establish a strong carrot-and-stick mechanism or merit (performance-based) system within the transfer of budget appropriations (grants) from the central government to regional administrations to force local governments to improve their financial management and accountability.

Deferment in the transfer of grants to regional administrations that have large sums of unspent investment funds could be effective in pressuring a faster pace of budget disbursement.