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50
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
still not being enjoyed. Budget revision processes have undoubtedly improved budget planning by making it more realistic. But local governments are still generally underestimating their
income, leaving them at year’s end with more revenue than they expected to receive. At the same time, mid-year revised expenditure targets have been becoming more and more unrealistic
especially in the areas of capital expenditure and provision of goods services. End-of-year budget outcomes are not far off what was envisaged in original budgets APBN-Ms, but are way
below mid-year revised APBD-P expenditure targets. The result is a double whammy: under- achievement of expenditure targets and over-achievement of revenue projections. That results in
turn in sizeable
unspent budgetary surpluses SiLPA at year’s end. And let’s not forget that civil
society plays only a very limited role in budget revision processes. Recommendations: i That government consider an incentives scheme to encourage more efficient mid- year budget
revision processes similar to the scheme in place for original budget APBD-M processes
— when governments not adopting budgets on time have their DAU allocations cut; ii That
technical regulations be passed making it mandatory for mid-year budget revision processes to be transparent and participatory; and iii That civil society pay closer attention to mid-year
budget revision processes.
4. Overall spending on social aid and grants remains high—though its composition is changing:
spending on social aid is decreasing while expenditure on grants is rising. The main problems
In 42 Kabupatens and Cities and 5 Provinces in Indonesia
51 with these two areas of expenditure are lack of transparency in their planning and unclear
allocation and expenditure criteria. They are thus very susceptible to misuse for personal or political purposes. The Ministry of Home Affairs has sent out circular letters to try to limit the use
of these budget line items, but seemingly without good effect. Recommendations: i That government issue stricter regulations on expenditure on social aid and grants: for example, by
setting an upper limit on the amount of local budget resources that can be allocated for these line items; ii That the implementation of such regulations be closely monitored with a system
of clearly defined incentives and sanctions; and iii That civil society more closely monitor the allocation and expenditure of social aid and grant funds.
5. Allocations for education are quite satisfactory in aggregate terms, but the way they are
