In 42 Kabupatens and Cities and 5 Provinces in Indonesia
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9. CONCLUSIONS AND RECOMMENDATIONS
1. The contribution made by other lawful own-source revenue LPDS has been constantly rising
over the last several years. One of the main stimuli for growth in LPDS has been the introduction of infrastructure adjustment funds which basically doubled up on the Special
Allocation Fund DAK. Not only have adjustment funds lacked clear eligibility criteria, they have also required no counterpart financing from recipient local governments. Moreover, some
areas receiving high levels of DAK funding have been chosen to receive adjustment funding as well, while others, inadequately funded by the DAK, have received no adjustment funding. Such
a situation not only violates principles of fiscal decentralization in Law No. 332004, but also reflects poorly on the administration of adjustment fund programs. Almost all regions could only
properly ―administer‖ their 2009 adjustment fund grants at the end of the fiscal year after grants had been spent. Recommendations: That infrastructure adjustment funds be abolished and
amalgamated with the DAK; that the DAK itself have more transparent allocation criteria and concentrate on fewer and thus better funded areas of activity.
2. Local fiscal discretion is on a downward slide: spending on bureaucracies is increasing; and
expenditure on goods services is decreasing. Lack of local government interest in downsizing, or at least not increasing, civil service numbers has meant that more and more local government
money has been spent on local bureaucracies. Moreover, 95 of General Allocation Fund DAU transfers are spent exclusively on local bureaucracies without any incentive for local
governments to reduce civil service costs and spend more on enhancing community welfare. Ever tighter fiscal situations have progressively reduced funding for capital expenditure and for
provision of goods services
—so sorely needed for community welfare and for local economic
development. Recommendations: That local governments be encouraged to reduce expenditure on civil servants; options for doing so include removing civil service costs as a
component of DAU and offering incentives
—for example, via a regional incentives fund—to local governments to reform and streamline their bureaucracies.
3. The full benefits of mid-year budget revision processes—to make budgets better targeted—are
