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Jakarta Post

Indonesia tightens watch on regional spending

  • Grace D. Amianti

    The Jakarta Post

Jakarta   /   Mon, January 9, 2017   /  04:13 am
Indonesia tightens watch on regional spending Businesspeople apply for permits at the One-Stop Service Agency of Batam, which provides three-hour investment service for eight kinds of permits. (JP/Fadli)

The Indonesian government has stepped up its supervisory measures to help boost infrastructure spending at the regional level in a push to accelerate economic growth.

Under the 2017 State Budget Law, all regional administrations are required to earmark at least 25 percent of their budget to build infrastructure, with optimal disbursement seen as the key to help Southeast Asia’s biggest economy expand by 5.1 percent this year.

As the new arrangement comes into force, the central government has set a target for fund disbursement within the four periods of the year to enable proper spending, according to the Finance Ministry’s regional fiscal balance director general, Boediarso Teguh Widodo.

“Phase one, for instance, may end in April and the regions must disburse the [targeted] funds within the designated period,” he said. “This is to ensure their discipline in budgeting and disbursing with clear output.”

Regional administrations were required to submit monthly reports to indicate their spending progress, Boediarso said, adding that failure to meet the quarterly targets or the overall annual 25 percent allocation would incur punishment, namely the delay or reduction of general transfer funds to the regional administrations by between 5 percent and 50 percent.

Indonesia has increased its budget for building toll roads, seaports, airports and other means to enhance connectivity in the sprawling archipelago of more than 17,000 islands in the past few years.

Infrastructure development is a hallmark of the presidency of Joko “Jokowi” Widodo, who has made an ambitious pledge to create Rp 4.7 quadrillion (US$352.08 billion) worth of facilities by 2019, 40 percent of which are to be funded by the state budget.

National expenditure for infrastructure was raised by 22 percent to Rp 387.3 trillion this year to make sure economic recovery was on track after falling to the slowest pace in six years in 2015.

Some of that money will be channeled to the regional level, mostly through general transfer funds, which along with village funds, stands at Rp 764.9 trillion this year, 1.45 percent lower than last year’s target.

Slow budget disbursement has always been an issue from one year to another. In 2015 nearly 67 percent of 542 regions nationwide failed to spend 25 percent of their budget to spur infrastructure development, focusing mostly on routine spending, such as on salaries for civil servants, according to data from the Finance Ministry.

Since mid-2016, the government has flexed its muscle again in regions with snail-paced spending by converting the general transfer funds stored in bank accounts into government debt papers (SBN).

This was triggered by the high amount of undisbursed funds totaling more than Rp 100 trillion found in state-owned lenders and regional development banks (BPD) in 2015.

The move has been considered effective, as according to the ministry’s assessment the funds in the regional government banks’ accounts continued to decline to between Rp 85 trillion and Rp 87 trillion by the end of 2016, Boediarso claimed.

As regions mostly rely on routine expenditures, the administrations still have issues over fiscal management capacity despite the central government’s support of regional autonomy.

An economist with the Institute for Development of Economics and Finance (INDEF), Imaduddin Abdullah, said that half of the regional governments still had low indexes of fiscal capacity, while disbursement of village funds also barely met the 100 percent target.

“There should be a monitoring system at the village level [for infrastructure spending],” Imaduddin said.

The Organisation for Economic Co-operation and Development (OECD) also highlights the urgency of providing regional administrations with legal resources to fully exploit their revenue potential, allowing them to improve fiscal management and budgeting through greater technical assistance from central government.

“This would the lighten the fiscal burden on the central government, while also increasing autonomy and accountability at the local level,” the group wrote in its Indonesian economic surveys last year.

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