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Local govts’ capacity remains issue in spending
We meet again: Mandiri Institute head Moekti P
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span>We meet again: Mandiri Institute head Moekti P. Soejachmoen (left to right), Finance Minister Sri Mulyani Indrawati, World Bank country director for Indonesia Rodrigo Chaves and Centre for Strategic and International Studies’ (CSIS) chair of the board of directors Djisman Simandjuntak talk during the launch of World Bank’s Indonesia Economic Quarterly in Jakarta on Tuesday. (Courtesy of the Centre for Strategic and International Studies (CSIS))
The central government is expected to closely monitor regional administrations to improve their capacity in ensuring higher quality spending, as they have been given a larger role in public expenditure.
With more effective spending, coupled with fiscal policy reform and a better investment climate, Indonesia’s economy is predicted to grow by 5.3 percent this year, according to a new World Bank (WB) report. The figure is higher than the government’s estimate of 5.1 percent.
In the January edition of its Indonesia Economic Quarterly, WB stated that the 2017 state budget would improve the country’s quality of spending, including sustained higher allocations for infrastructure, health and social assistance, with better targeting for energy subsidies and social programs for the poor.
“It’s very important for Indonesia to sustain this reform momentum so that the country can meet its development goals,” Rodrigo Chaves, WB’s country director for Indonesia, said Tuesday.
According to the report, improving the quality of public expenditure entailed two actions, with the first being reallocation toward priority sectors where public spending is low as additional spending can have a great impact on poverty and growth.
“These sectors include infrastructure, health and social assistance,” the report said.
The second thing the government should do was to maximize the effectiveness of spending in all sectors, particularly agriculture, education and social assistance, the bank wrote.
During a speech at the report’s launch on Tuesday, Finance Minister Sri Mulyani Indrawati said the government was working on what the bank had highlighted, but pointed out the issue of highly diverse spending capacity between local administrations.
Of the total Rp 2.08 quadrillion (US$156.1 billion) allocated for spending this year, she said more than half was given to regional administrations as most of the central government’s functions had been delegated to them as part of regional autonomy.
“This means the risk of the quality of spending is going to be shifted from the central [government] to the local governments,” she said.
Sri Mulyani pointed out that some local administrations had become champions of reform as they had managed to make every rupiah count in creating better quality lives for their people.
On the other hand, however, other local administrations have yet to resolve governance issues. Sri Mulyani cited examples of regional heads who continued to practice nepotism, which could negatively impact efforts to ensure higher quality spending.
She added that another element of local administrations’ spending that had seen a significant improvement in the past three years was the funds transferred to villages countrywide, dubbed “village funds”, which accounts for around Rp 60 trillion in the 2017 state budget.
This year’s village funding, she said, was six times higher than the Rp 9 trillion allocation for the National Program for Community Empowerment (PNPM) set by the previous administration in 2011. With the higher allocation, the government aims to lower the poverty rate to a single digit, from above 10 percent currently.
“But we all know, if you’re talking about 70,000 villages in Indonesia as well as regencies and cities, we have such diverse quality,” she added.
Experts attending as speakers said during the launch that improvement in regional administrations’ fiscal capacity would take a long time, thus faster measures to ensure quality spending were needed, such as assigning them more tasks to channel central government funds.
Yose Rizal Damuri, head of the Centre for Strategic and International Studies’ (CSIS) economics department, said regional administrations could take on the role by paying higher premiums for their people for the Healthcare and Social Security Agency (BPJS Kesehatan), or channeling funds for vocational schools.
“It is actually something that doesn’t need high fiscal capacity,” he said.
