Change Central and Regional Approach

At the Kompas Collaboration Forum (KCF) City Leaders Community, a number of mayors pushed for a change in approach in balancing central and regional finances. Incentives-disincentives need to be made effective.

KOMPAS/HENDRA A SETYAWAN (HAS)

The Mayor of Bogor who is also the Chairman of the Management Board of the Indonesian City Government Association (Apeksi) Bima Arya (second from left) with the Director General of Fiscal Balance of the Ministry of Finance Astera Primanto Bhakti (center) accompanied by Kompas Editor in Chief Sutta Dharmasaputra (left), Research and Development researcher Kompas Mahatma Chrysna (second from right), and Deputy Managing Editor of Kompas Haryo Damardono were speakers at the Kompas Collaboration Forum-City Leaders Community APEKSInergi #2 discussion at Kompas Tower, Jakarta, Friday (10/6/2022).

JAKARTA, KOMPAS — The decreasing trend in the ratio of fund transfers to the regions was cited by a number of mayors as an indication of the central government’s distrust of local administrations. The problem of regional administrations being unable to spend their budgets should be overcome by building a system that enabled effective budget use and accelerated development.

For 2023, the government has prepared a budget for regional transfers and village funds (TKDD) ranging between Rp 800.2 trillion and Rp 832.4 trillion, or 38-40.1 percent of the central government’s estimated budget of Rp 1.995 quadrillion to Rp 2.161 quadrillion. The ratio is not much different from this year’s TKDD budget of Rp 770.4 trillion, or 39.75 percent of total government spending. However, referring to 2017-2021 data from the Institute for the Development of Economics and Finance, the ratio of the TKDD budget to government spending declined.

In 2017, the ratio was 58.64 percent, while the 2021 TKDD allocation for 98 municipal administrations reached Rp 105.663 trillion out of a total TKDD budget of Rp 770.3 trillion. The TKDD includes general allocation funds (DAU), special allocation funds (DAK), the village funds, and profit-sharing funds.

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At the #APEKSInergi KCF City Leaders Community discussion titled "Strengthening Politics of Regional Budget Transfers for City Development", held by the Kompas daily in collaboration with the Indonesian Association of City Administrations (Apeksi) on Friday (10/6/2022), Apeksi head Bima Arya, who is also the mayor of Bogor, West Java, said that one type of TKDD that no longer existed was the subdistrict funds.

Prior to the Covid-19 pandemic, the central government distributed funds to all subdistricts. However, since the pandemic, the subdistrict funds had been stopped. In fact, subdistricts were no less important than villages, which received the village funds every year, in improving public services and development.

“As a result, we have to think hard on how to fund the subdistricts from the regional budget (APBD). In fact, there is a lot of hope that development and public services in the subdistricts will be more optimal with the subdistrict funds," said Bima.

KOMPAS/HENDRA A SETYAWAN (HAS)

The Mayor of Bogor who is also the Chairman of the Management Board of the Indonesian City Government Association (Apeksi) Bima Arya was a speaker at the Kompas Collaboration Forum-City Leaders Community APEKSInergi #2 discussion at the Kompas Tower, Jakarta, Friday (10/6/2022).

Besides Bima, the director of the General Fund Transfers director Adriyanto from the Finance Ministry’s Fiscal Balance Directorate General was also a presenter at the KCF. Meanwhile, the respondents comprised Cilegon Mayor Helldy Agustian, Jambi Mayor Syarif Fasha, and Denpasar Deputy Mayor I Kadek Agus Arya Wibawa. Kediri Mayor Abdullah Abu Bakar also responded to the presentation by video link.

Apart from the subdistrict funds, several members on the respondents’ panel raised the issue of balancing the funds that were deemed to be unfair. Helldy, for example, said that Cilegon had many industries, but the public received only "the leftovers", because the region had received revenue-sharing funds so far from only small taxes, such as the street lighting, land and building taxes.

In addition, Abdullah highlighted the unfair distribution of the tobacco excise revenue, as the value was almost equal between producing and nonproducing regions.

Meanwhile, Syarif Fasha said that the share of special physical allocation funds (DAK) for city administrations continued to shrink. According to Syarif, the larger part of the infrastructure budget should not remain with the Public Works and Housing Ministry, because the regional administrations knew better the types of infrastructure that needed to be prioritized in their regions.

Distrust

The problems that the mayors presented, said Bima, illustrated the erosion of the local administration’s authority and the balance between central and regional finances. The attitude of the central government was seen to be a form of distrust towards local administrations. Moreover, a number of central government officials had made statements that were deemed inappropriate, such as one that alleged local administrations of storing their budget in banks.

He admitted that while optimal absorption of the budget relied on regional leaders, there were obstacles beyond that from the center, including delays in the technical guidelines and the implementing regulations on the use of the special allocation funds (DAU) and the DAK. As a result, even though local administrations had received the DAK and the DAU, the funds could not be used immediately.

“There is a temptation to solve problems not with the system, but with distrust, which in turn erodes regional authorities. This is what we have seen later as inconsistency in our spirit of regional autonomy," added Bima.

In fact, he said, this problem could be resolved with the development of a system that offered incentives and disincentives. In terms of the subdistrict funds, for example, incentives could be given if a subdistrict performed well in improving development and public services and vice versa, but "not by stopping the funds", he said.

KOMPAS/HENDRA A SETYAWAN (HAS)

Jambi Mayor Syarif Fasha (left), Cilegon Mayor Helldy Agustian (second from right), Denpasar Deputy Mayor I Kadek Agus Arya Wibawa (second from left), Kompas Daily Leader Lilik Oetama (center), and senior journalist Kompas Ninuk Mardiana (right) participates in the discussion on the Kompas Collaboration Forum-City Leaders Community APEKSInergi #2 at the Kompas Tower, Jakarta, Friday (10/6/2022).

Positive developments

Adriyanto did not deny that a number of problems had arisen in the financial relationship between the center and the regions since regional autonomy and fiscal decentralization were implemented. However, this did not mean that the central government wanted to undermine regional autonomy. Fiscal decentralization had even showed positive development from year to year. Even in 2020, when the budget was under pressure from the pandemic and state revenues fell nearly 16 percent, Adriyanto said, regional disbursement fell only around 7 percent.

He also mentioned that solutions to existing problems were constantly being sought to enable faster development in the regions while reducing unequal development in the western and eastern regions of the country. Improvements were needed in the design of not only the regional transfers, but also regional revenues and regional expenditures. This included efforts to monitor and evaluate regional expenditures to ensure that each budget was being used effectively and efficiently, as well as to encourage growth in regional incomes in order to create fiscal independence in the regions. The latest improvement efforts, said Adriyanto, could be seen in Law No. 1/2022 on Central-Regional Financial Relations.

"In calculating the DAU, for example, this law mandates not only calculating a region’s needs and fiscal capacity, but also to take into account the local character. For example, the DAU is not the same for islands, areas with extensive forests, or areas with large populations," he said.

If there are regions that are performing well, they can be shifted from those in the ministries/agencies to enter the DAK.

He said that the calculation included the budgetary needs of subdistricts, adding that subdistrict budgetary needs had been taken into account when preparing the 2020 DAU. This was why there had been no special funds for subdistricts since 2020. Including the subdistrict funds in the DAU calculation was an effort to prevent budgetary overlap.

Adriyanto also said that the Central-Regional Financial Relations Law opened the greater possibility of transferring funds to regions with good budgetary absorption.

"If there are regions that are performing well, they can be shifted from those in the ministries/agencies to enter the DAK," he said.

Separately, executive director Herman Nurcahyadi Suparman from the Regional Autonomy Implementation Monitoring Committee said that an incentive-disincentive mechanism would be effective in encouraging regional administrations to perform better. However, guidance and supervision from the center should be more intense. This was important in resolving the problem of the slow absorption of regional budgets, as well as in ensuring that regional budgets were spent on development and public services. (BOW/PDS/APA/HRS/JAL/COK/ESA/ITA/AIN

This article was translated by Hyginus Hardoyo.