Regional autonomy and fiscal decentralization started in May 2001 after two laws were completed in June 1999, namely Law No. 22/1999 on regional governments (which was later amended twice in 2004 and 2014) and Law No. 25/1999 on fiscal balancing (amended in 2004).

Decentralization in Indonesia embodies three aspects: politics, administration and fiscal. This article will focus more on fiscal decentralization. Indonesia’s fiscal decentralization was underpinned by three pillars: revenue assignments to regions, expenditure assignments to regions and intergovernmental fiscal transfers to regions. To fulfill their own needs, regional governments were given the authority by the central government to gather their sources of revenue.

This is mentioned in Law No. 28/2008 on local taxes and retribution. With regard to their spending assignment, local governments were given the authority to decide what they want to spend their money on. As resources — especially money — are limited, local governments must set their priorities.

According to 2018 data, on average, revenue collected from the subnational governments can only account for around 25 percent of their total revenue. The remaining 75 percent comes from the central government. In other words, local governments still heavily depend on the transfers from the central government to meet their needs. From the perspective of the central government, for instance, transfers to regions and village funds account for 33.59 percent of the 2019 state budget.

For optimal results, there needs to be transparency and accountability in the transferring of such large amounts from the state budget to local governments. In Indonesia, accountability and transparency, both in central and local government levels, still need to be improved. The central government is already quite accountable and transparent in terms of allocating money to regions and village funds as nearly all the allocations are based on a defined formula and parameters.

However, this does not mean that the system is free of moral hazards. The arrest of one government official and one member of the House of Representative by the Corruption Eradication Commission (KPK) last year proved that accountability and transparency in that area still have room for improvement. As for local governments, the executor of public services that know the most about local needs, they need to improve their accountability and transparency.

One of several ways to improve fiscal accountability and transparency in local settings is through promoting participatory budgeting and planning. According to a report published by the International Budget Partnership in 2017, out of 100, Indonesia scored 64 in budget transparency, 83 in budget oversight and only 22 in public participation. The country seems to have a serious problem with public participation in the budgeting process.

With broad autonomy, the local governments have a significant role in improving public participation in the budgeting process. To meet the people’s needs, residents must actively participate in the budget process. People’s participation in the local setting can also facilitate participatory democracy at the grassroots level and foster social harmony. Through this process, community members can directly decide how to spend part of a public budget.

There are some good examples of participatory budgeting from other countries that can feasibly be implemented in Indonesia.

The first example is from India. The local government of Kerala has a high degree of accountability toward its citizens. To ensure the social accountability of local governments through citizen participation, Kerala has gone further than most other Indian states. The role of the gram sabhas (local council) is the key. Furthermore, the local media also has a strong role in ensuring local accountability.

In Kerala, there is an ombudsman that serves as the independent body for redress at the local government level. The ombudsman has the authority to conduct investigations into any action involving corruption, maladministration or irregularities in the discharge of administrative functions by or related to local governments.

In this region, procurement and project appraisal — usually the responsibility of a local government technical staff — have been taken over by citizen groups. Furthermore, there is also social audit committees consisting of respected citizens and experts with authority to conduct independent performance evaluations of local governments’ staff. Kerala even involved women in being part of special watchdog committees at the municipal level.

Another example comes from the city of Chicago in the United States. The local government of Chicago has since 2009 spared US$1 million worth of capital projects per ward (district) that involve its residents. The program has expanded to all districts. The examples of past projects are street and sidewalk repairs, bike lanes, playground and park improvements, street lights and 100 new trees. Likewise, the local government of New York City started allocating $1 million in capital projects involving residents to 32 out of 51 districts in 2010. Most of the projects are related to education (52 percent), parks and recreation (19 percent), arts and community (9 percent), transit (9 percent), housing (7 percent), public safety (3 percent) and seniors and elderly (1 percent).

In South Australia, the local government initiated a project called Fund My Community. The local government provides funds for local nonprofits to deliver services to isolated and disadvantaged South Australians, such as swimming lessons for refugees and free dental care for survivors of domestic violence.

From the experiences of the local governments in India, the US, and Australia, Indonesia can learn that participatory budgeting and planning can be implemented successfully in local settings. In Indonesia, such a bottom-up initiative to improve participatory budgeting and planning needs to be emphasized more and more.

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Dwinanda Ardhi Swasono is a master’s student at the Sanford School of Public Policy at Duke University and a government communicator. Andi Yoga Trihartanto is a fiscal analyst. Both work for the Finance Ministry. The views expressed are their own.

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