p110714 - 1 - six years of decentralization in indonesia

Six Years of

Indonesia’s DecentralizationInternational Seminar

on Decentralization

Nikko Hotel, Jakarta

July 4-5, 2007

1

INDONESIA’S 6 YEARS OFDECENTRALIZATION

Bambang P.S BrodjonegoroProfessor, FEUI

GRAND DESIGN• Decentralization at the expenditure side, financed by

the intergovernmental transfers• Majority of the intergovernmental transfer is the

block grant (general purpose grant and revenuesharing)

• Local taxing power is relatively weak• Finance follows function• Hard Budget constraint• Local direct election without local direct taxes• Autonomy at districts and municipalities, while

provinces act as the coordinator and representative

2

ISSUES AND PROBLEMS• Most regions depend on the general purpose grant (DAU),

and tend to neglect the local own revenue (PAD)• Revenue sharing creates a significant interregional fiscal

disparity• DAU has not been optimal as equalization grant• Many regions still apply illegal charges• Tug of war between line ministries and regions

(Decentralization v Deconcentration)• Creation of new local governments• Quality of local human resources• Absence of tax price at local level• Growing number of government employees, especially at

new local government

CHALLENGES AHEAD• Understanding the concept of whole

intergovernmental transfer, including DAU, and thesources of government employees salary

• Improving DAU performance as the equalization grant• More local taxing power• Managing the creation of new local governments• Tax price at local level• More decentralization, less deconcentration• Application of finance follows functions• The existence of special autonomy, special economic

zone (KEKI), interregional cooperation• Cost of politics : money circulation during local direct

election

3

ECONOMIC DECENTRALIZATION• Need to introduce “Market Preserving Federalism”• Voting with Feet v Voting with hand• Interregional competition with central government

as facilitator and regulator• Local budget matters but GRDP growth,

unemployment rate, and poverty matter more.• Needs of significant local investment and export• Conducive local investment climate, especially for

SME is a must• Governors, Bupatis, and Mayors should direct the

local economy to adopt innovation, dynamicefficiencies and local development reform.

CONCLUDING REMARKSCentral government should :• Promote decentralization and reduce deconcentration• Find new strategies in controlling the creation of new

local governments• Apply the intergovernmental transfer concept more

appropriatelyLocal Government should :• Promote efficiency in local bureaucracy• Invest more in basic public services• Focus more on local economic growth, local job

creation and local personal income improvement• Accept the whole integrated concept of

intergovernmental transfer

1

OVERVIEW OF FISCALOVERVIEW OF FISCALDECENTRALIZATION IN INDONESIADECENTRALIZATION IN INDONESIA

Presented in“Six-year Indonesia’s Decentralization Seminar”

University of Indonesia

Jakarta, 4 July 2007

2

CENTRAL GOVERNMENTCENTRAL GOVERNMENTDevelopm

entA

ndM

ON

EV

(Ministry of Home Affairs:LAW 32/2004)

Political & AdministratonAspect

Determining Direction and Policy of National Developmentthrough Mid Term Govt Plan (RPJM) and Govt Working

Plan (RKP)

(MoF : LAw 33/2004)Financial Aspect

National Fiscal Policy(APBN & APBD relations)

Fiscal Balance Policybased on Money FollowFunction principal

Funding Policythrough Balancing Fund

Local Financing Policythrough Loan (incl.Municipal Bond) and Grant

Local Capacity BuildingPolicy

Illustration of Central and LocalIllustration of Central and Local GovtGovt RelationsRelations

LINE MINISTRY (L/M)Related LawsDevelopment

Implementation Aspect

Deconcentration and Co-administrative Task Policy

Other Technicals Policy

Sugg

estio

nan

dC

onsu

ltativ

e

Division of functionsEstablishment of New

Region and TerritoriesZone

GovernmentalOrganization

Developing RegionalFinancial Administration

Regional Autonomy PolicyReview

(Board of NationalDevelopment Planning

(BAPPENAS): LAW 25/2004)

LOCAL GOVERNMENTLOCAL GOVERNMENT

Deleg

atingA

uthority/A

ffairs

Implementing Decentralization,Deconcentration and co-administration

Development

And

MO

NEV

Development

And

MO

NEV

Sug

gest

ion

and

Con

sulta

tive

Sug

gest

ion

and

Con

sulta

tive

2

3

Map of Intergovernmental RelationsMap of Intergovernmental Relationsin Central and Local Fiscal Relations Managementin Central and Local Fiscal Relations Management

BAPPENASBAPPENAS

Ministry of FinanceMinistry of Finance

Development PlanningAffairs

Development PlanningAffairs

Law No. 25/2004Law No. 25/2004

Fiscal AffairsFiscal Affairs

Law 17/2003; Law 1/2004Law 33/2004;Law34/2000Law 17/2003; Law 1/2004Law 33/2004;Law34/2000

MINISTRY of HOME AFFAIRSMINISTRY of HOME AFFAIRS

Governmental Affairs,organizational and

Regional Financial Adm

Governmental Affairs,organizational and

Regional Financial Adm

LINE MINISTRIESLINE MINISTRIES

Supreme AuditingBoard (BPK)

Supreme AuditingBoard (BPK)

Audit AffairsAudit Affairs

Law 15/2004Law 15/2004

Central GovernmentCentral Government

RegionalAutonomy Review

Board (DPOD) -(Consultative and

Coordinative)

RegionalAutonomy Review

Board (DPOD) -(Consultative and

Coordinative)

Cabinet Plenary(Discussing Work Plan,Problem/Constrain andSolution, also Policy

Plan)

Cabinet Plenary(Discussing Work Plan,Problem/Constrain andSolution, also Policy

Plan)

Developing, Monitoringand Evaluating on Policy

Implementation in each field

Developing, Monitoringand Evaluating on Policy

Implementation in each field

PRESIDENT/ VICE PRESPRESIDENT/ VICE PRESPRESIDENT/ VICE PRES

Aud

itA

udit

Policy MakerPolicy Maker

FindingFindingUU 32/2004UU 32/2004

Sugg

estion/

Com

men

tS

uggestion

/C

omm

ent

Technical Affairs ineach field related to

delegating, assigningauthority/affairs

in order toDecon/Co-Adm Task

Technical Affairs ineach field related to

delegating, assigningauthority/affairs

in order toDecon/Co-Adm Task

Local Government

Policy

Policy

4

Source of FundingSource of FundingLaw No. 33/2004Law No. 33/2004

CENTRALGOVT

CENTRALGOVT

LocalGovernment

LocalGovernment

Expenditure

Surplus/Deficit

Financing

Other LegitimateRegionalRevenue

Inter-governmental

Transfer

Local Own Source/PAD

Law No.34/2000

National Budget/APBN

APBN

Division of FunctionsDivision of FunctionsLaw No. 32/2004Law No. 32/2004

Local Budget/APBD

ExecutingAffairs

SCOPE OF NATIONAL FISCAL POLICYSCOPE OF NATIONAL FISCAL POLICY

Specific Purpose Grant

Special Autonomy Fund

Revenue Sharing Fund

General Purpose Grant

Adjusment Fund

Grant Fund

Emergency FundCo-

administrationtask

De-concentration

Decentralization

Line MinistryLine Ministry delegatingdelegatingauthority to Governorauthority to Governor

Line Ministry (L/M)Line Ministry (L/M)assigning authority toassigning authority to

Governor/ MayorGovernor/ Mayor

(MOF)(MOF)

(MINISTRY OF HOME(MINISTRY OF HOMEAFFAIRS)AFFAIRS)

Asset Sales

Borrowing(incl. Municipal Bond)

Usage of SILPA

Reserve Fund

3

5

Central GovtExpenditure

Central GovtExpenditure

1. Personil Expenditure2. Supplies Expenditure3. Capital Expenditure4. Interest Payment5. Loan6. Subsidy7. Grant expenditure8. Social Expenditure9. Miscellaneous Expd

Expenditurefor Regions

Expenditurefor Regions

L/ML/M

Centralexpenditure

in Cenral

Centralexpenditure

in Cenral

Centralexpenditure in

Regions

Centralexpenditure in

Regions

6 ObligatoryAfffairs

Excluding 6Obligatory Affairs

Regional Office

Self-worked byUPT

Delegated toGovernor

assigned toGov/Mayor

NATIONAL

BUDGET

CENTRALCENTRALCENTRAL LOCALLOCALLOCAL

DeconcentrationFund

Co-Administrative

Task

LOCALBUDGET

Grant

EmergencyFund

1. Balancing Fund1. Balancing Fund

2. Special Autonomy Fund2. Special Autonomy Fund

3. Adjusment Fund3. Adjusment Fund

DecentralizationFund

Sectoral Fundin Region

NATIONAL BUDGET ALLOCATION TO LOCAL GOVT(MONEY FOLLOWS FUNCTION)

NATIONAL BUDGET ALLOCATION TO LOCAL GOVTNATIONAL BUDGET ALLOCATION TO LOCAL GOVT((MONEY FOLLOWS FUNCTION)MONEY FOLLOWS FUNCTION)

6

LOCALLOCALLOCAL

LOCALBUDGET

Grant

Emergency Fund

DecentralizationFund

L/M Budget(Sectoral) in

Region

Funding Central Affairs inRegion

Funding Central Affairs whichbecome Local Affairs (up to now

interpreted as De-concentration/Co-administrative

Task)

Specific PurposeGrant(DAK)

Specific PurposeGrant(DAK)

Transferedgradually

Draft for Govt Regulation on Division ofFunctions among Central, Province and

District/City (Revised PP No. 25/2000)assigned by UU 32/2004

(Ministry of Home Affairs)

(Article 108Law 33/2004)

continued….

NATIONAL BUDGET ALLOCATED TO LOCAL GOVT(MONEY FOLLOWS FUNCTION)

NATIONAL BUDGET ALLOCATED TONATIONAL BUDGET ALLOCATED TO LOCAL GOVTLOCAL GOVT((MONEY FOLLOWS FUNCTION)MONEY FOLLOWS FUNCTION)

4

7

1. TO INCREASE EFFICIENCY IN PUBLIC SERVICEPROVISION

2. TO ACCOMMODATE CITIZEN’S ASPIRATION

3. TO IMPROVE STRUCTURE OF LOCAL BUDGET

4. TO MOBILIZE REVENUE SOURCES

5. TO INCREASE ACCOUNTABILITY, TRANSPARENCY,AND PARTICIPATORY

6. TO REDUCE FISCAL DISPARITY AMONG REGIONS

7. TO ENSURE SOCIAL BASIC SERVICE PROVISION

8. TO IMPROVE WELFARE

9. TO ENHANCE LOCAL ECONOMIC AND INVESTMENTGROWTH

8

35,833,97,3258,820077

33,531,67,1220,820066

29,027,65,7149,620055

32,230,25,6130,020044

35,232,05,8120,320033

32,930,55,298,220022

26,923,75,681,120011

%Ratio to National

Revenue

%Ratio to National

Expenditure

%Ratio to GDP

Share of Nationalbudget to LGs

(trillion rupiah)

NationalBudget

NO

from 2001 – 2007

Share of National Budget to Local Governments

5

9

81.198.2

120.3130.0

149.6

220.8

258.8

-

50.0

100.0

150.0

200.0

250.0

300.0

dala

mtriliu

nru

piah

2001 2002 2003 2004 2005 2006 2007

Share of National Budget to Local GovernmentsFrom 2001 - 2007

10

5,6%

23,7%

26,9%

5,2%

30,5%

32,9%

5,8%

32,0%

35,2%

5,6%30,2%

32,2%

5,7%

27,6%

29,0%

7,1%3

1,6%

33,5%

7,3%

33,9%

35,8%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

40,0%

dal

amtr

iliu

nru

piah

2001 2002 2003 2004 2005 2006 2007

Ratio of Allocated Budget to LG's to GDP, NationalExpenditure, and National Revenue From 2001 - 2007

% ratio to GDP % ratio to national expenditure % ratio to National Income

6

11

REVENUEREVENUE--SIDESIDEAPPROACHAPPROACH

12

Intergovernmental FiscalTransfers

• Intergovernmental Fiscal Transfers (the so-called‘Balancing Fund Policy’/Kebijakan Dana Perimbangan) isallocated from National Budget (APBN) to finance regionneeds

• Objective : to reduce fiscal gap between Central and Local

Government (vertical fiscal imbalance) and amongregions (horizontal fiscal imbalance)

• Consist of :– Shared Revenues from taxes and natural

resources (SDA)– General Purpose Fund (DAU)– Specific Purpose Grant (DAK)

7

13

is allocated to local governments based on certainpercentage which considers potential originating regions inorder to minimize vertical fiscal imbalance between centraland local government

Consist of fund from:¤ Tax;

- Land and Building Tax (PBB)- Land and Building Transfer Fee (BPHTB)- Personal Income Tax for Domestic Tax Payers and

Income Tax article 21¤ Natural Resources:

- Forestry;- General Mining;- Fisheries;- Oil Mining;- Natural Gas Mining; and- Geothermal Mining

Revenue Sharing Fund

14

Allocation of Revenue Sharing,2001-2007 (trillion rupiahs)

24 24,8831,37

36,7

49,83

59,56

68,46

0

20

40

60

80

2001 2002 2003 2004 2005 2006 2007

• Number of DBH Year 2001-2003 based on number of realization of UU PAN.• For Year 2004 dan 2005 based on number of realization till 31st December 2004 and 2005.• For Year 2006 based on APBN-P and Year 2007 based on UU APBN 2007.

8

15

PRINCIPLES OF GENERALPURPOSE GRANT (DAU)

• To equalize regional fiscalcapacity (Equalization grant)

• To reduce horizontal fiscalimbalance among regions

• Considers regional needs andregional fiscal capacity potency(using fiscal gap formula)

• Block Grant

16

DOMESTIC REVENUE

REVENUE SHARING FUND

NET DOMESTIC REVENUE

MINUS

DAU AMOUNT

ALLOCATED TOMUNICIPAL/CITY

(KOTA & KABUPATEN)

ALLOCATED TOPROVINCE

DAU AMOUNT

9

17

DAU for FY 2001-2007(trillion rupiah)

60,3469,15 76,98 82,08 88,74

145,66

164,79

0,00

40,00

80,00

120,00

160,00

200,00

2001 2002 2003 2004 2005 2006 2007

Notes:•DAU amount for FY 2001-2003 are based on actual amount from the Law onNational Budget Calculation (UU PAN)•DAU amount for FY 2004-2007 are based on National budget

18

1. Education

2. Health

3. Infrastructure* Road* Irrigation* Water Supply

4. Fishery

5. Agriculture

6. Local Government Infrastructure

7. Environment

SPECIFIC PURPOSE GRANT(DAK)

is allocated to certain sectors in accordancewith national priorities. In 2007, sectors forDAK allocation are directed to:

10

19

4,088.6 4,729.7

11,569.8

17,094.1

2,723.0

-

3,000.0

6,000.0

9,000.0

12,000.0

15,000.0

18,000.0

2003 2004 2005 2006 2007

Notes:

DAK is allocated based on general, special, and technical criteria.

DAK for FY 2003-2007(million rupiah)

20

DAK for FY 2003-2007 Per Sector(million rupiah)

-1,000.02,000.03,000.04,000.05,000.06,000.0

2003 2004 2005 2006 2007

- Education - Health- Infrastucture - Government Infrastructure- Fishery - Agriculture- Environment

11

21

Law No. 34/2000 on Amandment of Law No.18/1997 on Regional Taxation and Charge

Government regulation No. 65/2001 on RegionalTaxation

Government regulation No. 66/2001 on RegionalCharge

For Regional Tax and Charge

22

TYPES OF REGIONALTYPES OF REGIONALTAXES AND CHARGESTAXES AND CHARGES

11 types of taxes and 28 charges levied atlocal government levels, but as defined inLaw 34/2000 on Regional Taxation andCharge.

Local governments have discretion to set uprates with a determined range mandated inthe Law.

12

23

Additional Authority toAdditional Authority toEstablish New Tax and ChargeEstablish New Tax and Charge Apart from the designated types of taxes and

charges based on Law 34/2000, Province hasdiscretion to create new charges, whileKabupaten/Kota are allowed to create new taxesand charges according to criteria in Law34/2000.

This practice encounters problems due to mostof taxes and charges :

do not meet the criteria in Law 34/2000already include in central tax

24

(up to June 2007)

Total PERDA received by Govt : 9.634

Number of PERDA has been evaluated : 6.189

Number of PERDA still on-process : 3.445

Number of PERDA received recommendation : 1.113

- canceled ……………………: 965

- revised …....……………….. : 148

Estimated PERDA : 12.114

- Province ……...…. : 396

- Kab/Kota ………… : 11.718

13

25

THE UPCOMING POLICYFOR BALANCING FUND

• Setting up a clear and an accountable criteriafor DAK, improving coordination among lineministries of the shifting of fund fromdeconcentration and co-administrative taskfund into DAK

• Dissemination of the phasing-out of HoldHarmless Provision in DAU

• Improving payment methods, acceleration ofcalculation process, advancing mechanism,determining allocation to local governments,and improving coordination with line ministries

26

THE UPCOMING POLICY ONREGIONAL TAX AND CHARGE

• Increase revenue from local own-source with :- extending tax base and charge base (based

on general criteria for imposing tax andcharge, and should be neutral to fiscal national)

- giving discretion on tax rate• enforce certainty of tax collection

• increase monitoring on tax administration

• apply a close list of the types of tax andcharge levied at local governments

• Syncronize regulations between central andregioanl govt, particularly regardingunfavourable Perda, as mandated atPresidential Instruction Number 6/2007

14

27

EXPENDITUREEXPENDITURE--SIDESIDEAPPROACHAPPROACH

28

MAIN PRINCIPLES OF BUDGETEXPENDITURE POLICY TO LG’S

FOR YEAR 2008

• To reduce vertical and horizontal fiscalimbalances

• To reduce public service provision gap

• To increase local fiscal capacity

• To support fiscal sustainability

• To increase efficiency of national resources

• To increase transparency and accountability

• To shift funding from deconcentration andco-administrative task that become part oflocal affairs to DAK gradually

15

29

• Priority on education• Apply the performance-based system (3E)• Increase spending on capital expenditure

Direction for public expendituresfor FY 2008

Economic growth Job creation Investment climate

Pro

30

LG’sLG’s

Submit financialreport on time

More than1 month from the

time-frame

More than 2 monthsFrom warning letter

Yes

No

Yes

Warning letter from Ministry of FinanceCq. DG Fiscal Balance

Warning letter from Ministry of FinanceCq. DG Fiscal Balance

yes

No

No

Disbursement ofBalancing Fund

Sanction

Postpone DAUdisbursement at 25%

MECHANISM OFPUNISHMENT FOR

DELAYS IN SUBMITTINGAPBD

16

31

FINANCING FOR LGFINANCING FOR LG’’SS

32

LawLaw 33/200433/2004ArticleArticle 83 (3)83 (3)

MAXIMUM BORDER FORCUMMULATIVE BUDGET

DEFICIT AND BORROWING

Law 33/2004ArticleArticle 49 (2)49 (2)

LawLaw 33/200433/2004ArticleArticle 83 (2)83 (2)

The maximum border for governmentsThe maximum border for governmentsborrowing (national and localborrowing (national and local

governments) should not exceed 60% ofgovernments) should not exceed 60% ofthe current GDPthe current GDP

Total cummulative budget deficit forTotal cummulative budget deficit fornational and local budget should notnational and local budget should not

exceed 3% of the current GDPexceed 3% of the current GDP

Minister of Finance determines the criteriaMinister of Finance determines the criteriafor local budget deficit and maximumfor local budget deficit and maximumborder of local budget deficit for eachborder of local budget deficit for each

regionregion

17

33

LOCAL BORROWING

• Short-term to cover deficit of cash flow forthe current year

• Middle-term to finance borrowing to financepublic service provision with no cost-recovery

• Long-term to finance cost-recoveryinvestment projects

34

MUNICIPAL BONDS

Local Borrowing Regional EnterpriseBorrowing

Local BondRegional

Enterprise Bond

CorporateBonds

MunicipalBonds

18

35

PRINCIPLES OF MUNICIPAL BONDS

• Issued by local governments and do not obtainguarantee from central government

• Used to fund cost-recovery project investments andgive benefit to local people

• Project planning should be in line with regionalmiddle-term planning

• Issued in domestic market with local currency(rupiah)

• Revenues retained from municipal bond areprioritized to pay loan, interest, and charge

• Follow the stock exchange regulation

36

19

37

a) 1. APBD Provinsi, Kabupaten, and KotaPlanning andBudgeting

download

send

Administrating

Govt Regulation NO. 56/2005 on SIKD

MoF Decree No. 46/2006 on Submission Regional Information

Law NO. 33/2004 on Fiscal Balance

b) Financial statementc) Cashflowd) Notes on Regional Financial Report

e) Deconcentration and Co-administrative fundf) Report on Regional Enterpriseg) Other data related with fiscal needs and fiscal

capacity

Collection andVerification

regionalfinancialreport

- Data entry- verification- Upload to

website

LG’s

(SIPKD)

Accountingand Reporting

CentralGovernment

(National SIKD)

Regional Finance Information

2. Reallization APBD Provinsi, Kabupaten, andKota

38

For Further Information,

Please visit theMOF’s website on Regional Financial Information System

http://www.djpk.depkeu.go.id

20

39

40

Thank You

Ministry of Finance of Republic of IndonesiaDirectorate General of Fiscal Balance

Jl. DR Wahidin No. 1, Building D, 16th FloorJakarta Pusat, Indonesia, 10710

Telp. +6221-3509442Fax. +6221-3509443

1

1

Decentralized Service DeliveryPerformance in Indonesia

Reconciling Conflicting Evidence

Blane Lewis

Decentralization Support Facility

World Bank

4 July 2007

2

Presentation Outline

I. Optimistic evidence on service delivery.II. Pessimistic evidence on service delivery.III. Reconciling the conflicting evidence: three

options.IV. Sub-national government fiscal behavior.V. Conclusions.

2

3

Optimistic Evidence(Based on GDS Survey of Household Perceptions)

4

Level of Client Satisfaction toward Public Services

50.4 30.0

58.4 31.4

0% 20% 40% 60% 80% 100%

Admin

Education

Health

Satisfied Somewhat satisfied Somewhat unsatisfied Unsatisfied Don't know

8.1

10.5

44.2 34.0 13.5

Nearly 90 percent of respondents are either satisfied or somewhatsatisfied with health services. Satisfaction levels with education (80percent) and administrative (78 percent) services are also high.

3

5

Level of Satisfaction in Urban and Rural Areas

57.6 31.1 8.8

60.6 32.1 6.0

0% 20% 40% 60% 80% 100%

Rural

Urban

Education

49.9 29.8 11.3

51.9 30.5 8.2

0% 20% 40% 60% 80% 100%

Rural

Urban

Some differences insatisfaction betweenurban and ruralresidents exist butboth are generallysatisfied.

Health

6

Residents in the richest quintile are slightly more satisfied with publicservices than those from the poorest quintile but in general all incomegroups appear to be quite satisfied.

70%

75%

80%

85%

90%

95%

100%

Q1 Q2 Q3 Q4 Q5

Health Education Administrat ive

Level of Satisfaction by Income

4

7

Perceived Changes in Public Service Delivery overthe Last 2 Years

Over 70 percent of users saw improvements in health and education servicesduring the last 2 years and 56 percent saw improvements in administrative services.

55.8

72.6

70.4

0% 20% 40% 60% 80% 100%

Administrative

Education

Health

Improved No change Worsened Don't Know

23.9 8.0

13.8 5.8

21.4 3.1

8

Perceived Changes in Public Services inUrban and Rural Areas

68.2

76.8

0% 20% 40% 60% 80% 100%

Rural

Urban

Health

71.1

77.3

0% 20% 40% 60% 80% 100%

Rural

Urban

Education

Residents in urbanareas are slightly morelikely to citeimprovements inpublic service qualitythan those in ruralareas but both arequite positive aboutrecent changes inquality of services.

5

9

Perceived Changes in Public Service by Income

50%

55%

60%

65%

70%

75%

80%

Q1 Q2 Q3 Q4 Q5

Health Education Administrative

Residents from the highest income quintile are more apt to believe thatservice quality is increasing than those from the lowest quintile. Butbelief that service quality is improving is widespread.

10

Optimistic Summary

• Widespread citizen satisfaction withcurrent state of local health, education,and administrative services.

• Pervasive view that local health,education, and administrative servicequality is increasing.

6

11

0

1

2

3

4

5

6

7

8

Malaysia

Tha

iland

China

Vie

tnam

Philip

pin

es

Indo

nesia

India

Cam

bodia

GDP Rank Health Rank

Indonesian Health Outcomes in Regional Perspective

(avg. rank: CDR, IMR, USMR, MMR, DPT, measles)

Indonesia’s infant mortality rate is improving; maternal mortalityrates have stagnated; and malnutrition has recently increased.

Indonesiaranks 6th out of

8 countriesshown and

lower than it’slevel of incomewould imply.

Ran

k:B

est

toW

ors

t

12

250

300

350

400

450

500

550

600Brazil

Indonesia

Mexico

Thailand

Greece

Portugal

Russian Federation

Spain

Poland

Korea

Japan

Hong Kong-China

Reading 2000 Reading 2003 Math 2000 Math 2003

Indonesian Education Outcomes in Global Perspective

Indonesian enrollment rates are increasing but educationinfrastructure is deteriorating; trends in the general quality

of education are ambiguous.

AlthoughIndonesia has

made someimprovements in

reading and mathscores, it still

ranks the worst ofcountries shown.

7

13

Pessimistic Evidence(Based on Objective Indicators from WB PER)

14

RegionalInfrastructure Type Indonesia RankElectrification Ratio (percent) 53 11 of 12Access to Sanitation (percent) 55 7 of 11Access to Clean Water (percent) 14 7 of 11Road Network (km per 1,000 inhabitants) 1.7 8 of 12

Local Infastructure Service Delivery in Indonesia in Regional Context

The Indonesian electrification ratio has recently stagnated, access toclean water has declined, and roads have become more congested.

8

15

Pessimistic Summary

• Health, education, and infrastructureservice outcomes in Indonesia are sub-standard relative to those of many othercomparable countries.

• Health, education, and infrastructureservice outcome trends within Indonesiaare mixed: a few are improving but manyare stagnant or declining.

16

Reconciling Conflicting Evidence

1. Pessimistic evidence is correct but Indonesiansare satisfied because they have low expectations;

2. Pessimistic evidence is correct and Indonesiansagree but they say they are satisfied because theyare polite in answering survey questions;

3. Pessimistic evidence is wrong (or irrelevant),service quality is generally good, and Indonesiansare legitimately satisfied.

Three (Interesting) Options:

Opinion: Options 1 and 2 seem most plausible.

9

17

Sub-National GovernmentFiscal Behavior

18

Sub-National Government Bank Deposits Since Decentralization

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Jan

-01

Apr

-01

Jul-

01

Oct

-01

Jan

-02

Apr

-02

Jul-

02

Oct

-02

Jan

-03

Apr

-03

Jul-

03

Oct

-03

Jan

-04

Apr

-04

Jul-

04

Oct

-04

Jan

-05

Apr

-05

Jul-

05O

ct-0

5

Jan

-06

Apr

-06

Jul-

06

Oct

-06

Jan

-07

Apr

-07

Ru

pia

h(B

lns)

Sub-national governments are under-spending.

Sub-national

bankdeposits

are Rp 98trillion,

over 3 % ofGDP

10

19

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Admin Ed Infr Hlth Ag Env Trade Labor Mining

Bud

getS

hare

Province Kab/Kota Total

Sub-national government spending is inefficient.

Sub-national Budget Shares, by Sector, 2004

Indonesian sub-national

governmentsspend about32% of theirbudgets on

administration.

20

Conclusions• Public service performance since decentralization has

been mixed but mostly mediocre; central and localgovernments must share the blame in that outcome.

• Evidence from GDS should best be thought of asindicative of relative (not absolute) levels of service usersatisfaction.

• Sub-national government saving and spending behaviorhas been uninspiring, given poor state of service quality.

• Decentralization should proceed—in fact, there is littlechoice in the matter.

• Decentralization policy going forward should focus onproviding sub-national governments with incentives forspending more of their resources and spending themmore efficiently and on sanctions if they fail to comply.

1

THE GRAND STRATEGY OFTHE GRAND STRATEGY OFPROMOTINGPROMOTING

DECENTRALISATION INDECENTRALISATION ININDONESIAINDONESIA

(WITHIN THE CORRIDOR OF LAW 32/2004)(WITHIN THE CORRIDOR OF LAW 32/2004)

BY: :DR.MADE SUWANDI

DIRECTOR OF LOCAL GOVERNMENTFUNCTION

DIRECTORATE GENERAL OF REGIONALAUTONOMY

MINISTRY OF HOME AFFAIRS

THE OBJECTIVES OFTHE OBJECTIVES OFDECENTRALISATIONDECENTRALISATION

1. LOCAL GOVERNMENT CAN PROMOTEWELFARE AT THE LOCAL LEVEL THROUGHTHE PROVISION OF PUBLIC SERVICES

2. LOCAL GOVERNMENT BECOMES THEINSTRUMENT FOR POLITICAL EDUCATIONAT THE LOCAL LEVEL TO PROMOTEDEMOCRATISATION

2

FURTHER REGULATIONS NEEDED TOFURTHER REGULATIONS NEEDED TOIMPLEMENT LAW 32/2004IMPLEMENT LAW 32/2004

1. PP SEBANYAK 33 BUAH2. PERPRES SEBANYAK 2 BUAH3. PERMENDAGRI 1 BUAH

PERPRES DAN PERMENDAGRIPERPRES DAN PERMENDAGRI

PERPRES:1. PERPRES TENTANG DPOD (PERPRES 28/2005)2. PERPRES TATACARA MEMPERSIAPKAN

RANCANGAN PERDA (PROSES)

PERMENDAGRI:1. PERMENDAGRI TENTANG PERPINDAHAN

PEGAWAI PUSAT DAN DAERAH (COMPLETED)

3

33 PERATURAN PEMERINTAH (PP)33 PERATURAN PEMERINTAH (PP)

1. PP TENTNG PILKADA (PP 6/2005)2. PP TENTANG POL PP (PP 32/2004)3. PP TENTANG STANDARD AKUNTANSI PEMERINTAHAN (PP

24/2005)4. PP TENTANG KEDUDUKAN PROTOKOLER DPRD (PP 37/2005)5. PP TENTANG PEDOMAN TATIB DPRD (PP 53/2005)6. PP TENTANG PENGELOLAAN KAWASAN PERKOTAAN

(DALAM PROSES)7. PP TENTANG DESA (PP 72/2005)8. PP TENTANG KELURAHAN (PP 73/2005)9. PP TENTANG BINWAS (PP 67/2005)10. PP TENTANG SPM (PP 65/2005)11. PP TENTANG PENGELOLAAN KEUANGAN DAERAH (PP

58/2005)12. PP TENTANG EVALUASI PEMDA (DALAM PROSES)13. PP TENTANG PEMBENTUKAN PEMDA (DALAM PROSES)


14. PP TENTANG KEWENANGAN (DALAM PROSES)15. PP TENTANG BELANJA KEPALA DAERAH (PROSES)16. PP TENTANG LAPORAN PEMDA (PP 3/2006)17. PP TENTANG LKPJ DAN IPPD (PP 3/2006)18. PP HUBUNGAN PELAYANAN UMUM (PROSENG)19. PP TENTANG PERUBAHAN BATAS WILAYAH, PERUBAHAN

NAMA, DAN PEMINDAHAN IBUKOTA (PROSES)20. PP TENTANG FUNGSI PEMERINTAHAN TERTENTU (PROSES)21. PP TENTANG TATA CARA PENETAPAN KAWASAN KHUSUS

(PROSES)22. PP TENTANG KERJASAMA ANTAR DAERAH (PROSES)23. PP TENTANG PENEGASAN BATAS WILAYAH (PROSES)24. PP TENTANG PERANGKAT DAERAH (PROSES)25. PP TENTANG PERENCANAAN PEMBANGUNAN DAERAH

(PROSES)26. PP TENTANG PENGELOLAAN BARANG DAERAH (PROSES)

4


27. PP TENTANG KEWENANGAN GUBERNUR SEBAGAI WAKILPEMERINTAH PUSAT (PROSES)

28. PP TENTANG PINJAMAN DAN OBLIGASI DAERAH (SELESAI)29. PP TENTANG PENGELOLAAN DANA DARURAT (PROSES)30. PP TENTANG KEDUDUKAN KEUANGAN GUBERNUR

SEBAGAI WAKIL PUSAT (PROSES)31. PP INSENTIF KEPADA MASY/INVESTOR (PROSES)32. PP TENTANG PENGELOLAAN PNS (PROSES)33. PP TENTANG PENGANGKATAN SEKDES MENJADI PNS

(PROSES)

BASIC ELEMENTS OF LOCALBASIC ELEMENTS OF LOCALGOVERNMENTGOVERNMENT

1. LOCAL GOVERNMENT FUNCTION2. ORGANISATION STRUCTURE OF LG3. LOCAL GOVERNMENT PERSONNEL4. LOCAL GOVERNMENT FINANCE5. PEOPLE REPRESENTATION6. PUBLIC SERVICES7. SUPERVISION

THOSE ELEMENTS BUILD UP THE LOCAL GOVERNMENT AS ASYSTEM. THE APPROACH SHOULD BE HOLISTIC NOT

PARTIAL

5

BASIC QUESTIONBASIC QUESTION

WHAT STRATEGY SHOULD BE ADOPTEDTO SUPPORT THE CAPACITY OF LOCAL

GOVERNMENT TO PROMOTE ; WELFAREAND DEMOCRATISATION AT THE

LOCAL LEVEL

STRATEGYSTRATEGY

1. STRENGTHEN THE 7 BASIC ELEMENTS OF LOCALGOVERNMENT

2. IDENTIFY THE IDEAL ARRANGEMENT OF EACHELEMENT WITHIN THE CORRIDOR OF LAW 32/2004

3. IDENTIFY THE EXISTING CONDITION OF EACHELEMENT

4. IDENTIFY THE GAP BETWEEN THE IDEAL AND THEEXISTING; PROBLEMS, CONSTRAINTS ETC

5. ARRANGE THE ACTION PLAN OF EACH ELEMENT TOFILL THE GAP

6. ALL ACTION PLANS WILL BE BOUND IN A GRANDSTRATEGY OF AUTONOMY

6

THE GRAND STRATEGY OFTHE GRAND STRATEGY OFREGIONAL AUTONOMYREGIONAL AUTONOMY

THE GRAND STRATEGY WILL CONSIST OF: STRATEGY ON LG FUNCTION STRATEGY ON LG ORGANISATION

STRUCTURE STRATEGY ON LG PERSONNEL STRATEGY ON LG FINANCE STRATEGY ON PEOPLE REPRESENTATION STRATEGY ON PUBLIC SERVICES STRATEGY ON LG SUPERVISION AND

FACILITATION

ALL STRATEGIES ARE IN LINE TO THEARRANGEMENT OF LAW 32/2004

STRATEGY ON LOCAL GOVERNMENTSTRATEGY ON LOCAL GOVERNMENTFUNCTIONFUNCTION

THE OBJECTIVE:THERE IS A PROPORTIONAL DISTRIBUTION OF FUNCTIONS

AMONG TIERS OF GOVERNMENT (CENTRE, PROVINCE ANDDISTRICT/CITY)

EXISTING CONDITION:1. OVERLAP BETWEEN THE AUTONOMY LAW WITH THE

SECTORAL LAWS2. OVERLAP FUNCTIONS AMONG TIERS OF GOVERNMENT

ACTION PLANS:1. HARMONIZE AUTONOMY LAW WITH SECTORAL LAWS2. CLEAR DISTRIBUTION OF FUNCTIONS AMONG TIERS OF

GOVERNMENT

7

STRATEGY ON LG STRUCTURESTRATEGY ON LG STRUCTURE

GOAL: :LG HAS THE RIGHT SIZING OFORGANISATION TO ACCOMMODATE LGFUNCTIONS

EXISTING CONDITION:THERE IS A GREAT TENDENCY TOFLORIFERATE THE ORG. STRUCTURE

ACTION PLANS:1. IDENTIFY FUNCTIONS OF LG2. SET UP LG. ORG. TO FIT IN LG FUNCTIONS

STRATEGY ON LG PERSONNELSTRATEGY ON LG PERSONNEL

GOAL:LG HAS THE APPROPRIATE NUMBER ANDQUALIFICATION OF PERSONNEL TO IMPLEMENT LGFUNCTIONS

EXISTING CONDITION:1. RECRUITMENT IS NOT BASED ON COMPETENCE2. POLITICATION OF PERSONNELACTION PLANS:1. PROMOTING PERSONNEL COMPETENCE2. FREEING PERSONNEL FROM BEING POLITICISED3. SETTING THE APPROPRIATE RATIO OF PERSONNEL

TOWARD POPULATION

8

STRATEGY ON LG FINANCESTRATEGY ON LG FINANCE

GOAL:LG HAS REVENUE SOURCES TO MEET LG FUNCTIONS

EXISTING CONDITION:1. EXCESSIVE TAXES AND CHARGES BY LG DISTURBING

THE ECONOMY2. HIGH OVERHEAD COST (AROUND 70%)3. LOW FINANCE MANAGEMENTACTION PLANS:1. CONTROL OF LOCAL TAXES AND CHARGES2. PROMOTING PERFORMANCE BUDGET3. IMPROVING THE GRANT SYSTEM INCL DECON FUND4. PROMOTING INVESTMENT CLIMATE BY LG

STRATEGY ON LG REPRESENTATIONSTRATEGY ON LG REPRESENTATION

GOAL:THE GOOD RELATIONSHIP BETWEEN LGEXECUTIVE AND LEGISLATIVE AND PEOPLE

EXISTING CONDITION:1. DIAMETRIC RELATION BETWEEN EX vv LEG2. LACK OF ACCOUNTABILITY TO PEOPLE3. COLLABORATION BETWEEN EX + LEGACTION PLANS:1. IMPROVING THE CAPACITY OF DPRD2. PROMOTING CHECKS AND BALANCES

9

STRATEGY ON PUBLIC SERVICESSTRATEGY ON PUBLIC SERVICES

GOAL:LG CAN PROVIDE BASIC SERVICES AND PROMOTINGLOCAL ECONOMIC POTENTIALS (CORECOMPETENCE)

EXISTING CONDITION:1. LACK OF CAPACITY OF LG TO PROVIDE BASIC

SERVICES2. IMPROPER ALLOCATION OF RESOURCES3. HIGH OVERHEAD COSTACTION PLANS:1. PROMOTING MINIMUM SERVICE STANDARD2. PRESSING DOWN THE OVERHEAD COST3. SETTING UP MONEV OF SERVICES4. STCK AND CARROT APPROACH5. PROMOTING INNOVATION,

STRATEGY ON LG SUPERVISIONSTRATEGY ON LG SUPERVISIONAND FACILITATIONAND FACILITATION

GOAL:THE EXISTENCE OF CLEAR CONTROL ANDSUPERVISION OF LG

EXISTING CONDITION:1. OVERLAP CONTROLS TO LG2. NO CLEAR SUPERVISION MECHANISM FROM

SECTORAL MINISTRIES TO LGACTION PLANS:1. INTEGRATING VARIOUS INTERNAL CONTROL INTO AN

INTEGRATED CONTROL AGENCY2. MAKE A CLEAR MECHANISM OF SUPERVISION BY

TECHNICAL MINISTRIES TO LG THROUGH CLEARCOORDINATION WITH MOHA

3. ADOPTING A STICK AND CARROT APPROACH

10

THANK YOUTHANK YOU

1

11

DR.MADE SUWANDI Msoc.sc

DIRECTOR OF LOCAL GOVERNMENT FUNCTION

DITJEN OTDA – DEPDAGRI

PROLIFERATION OF LOCALGOVERNMENT

(WITHIN THE CORRIDOR OF LAW 32/2004)

22

Crucial Issues inCrucial Issues in PemekaranPemekaran1. THE RATIONALE OF PROLIFERATION; ENHANCING PUBLIC

SERVICES AND MAKE LOCAL GOVERNMENT CLOSER TOPEOPLE

2. THE IMPLICATION OF PROLIFERATION:

1. LIMITED SOURCES OF FINANCE

2. INCREASING THE OVERHEAD COST

3. DOUBLING ACTORS OF LOCAL GOVERNMENT

4. PROVOKING THE ESTABLISHMENT OF SECTORALOFFICES; POLICE, ARMED FORCES, AND OTHERS

2

33

What really happensWhat really happens1. THE UNEQUAL DEVELOPMENT WITHIN THE REGION

2. PROVOKING LOCAL ELITES TO RAISE THE ISSUE OF BEINGDEPRIVED AND DEMANDING FOR MAKING NEW LOCALGOVERNMENT SEPARATED FROM THE MOTHER REGION

3. THE UNEQUAL DEVELOPMENT IS ANSWERED BYPROLIFERATION OF REGION WITHOUT SOLVING THE ORIGINALPROBLEM

4. IT WILL REDUCE THE CAPACITY OF DEVELOPMENT OF THEREGION AS A WHOLE; DEVIDING THE RESOURCES

5. THE HEADACHE IS CURED BY THE STOMACHACHE MEDICINE

44

Who loses Who gainsWho loses Who gainsWHO GAINS:

• LOCAL PEOPLE ARE HAPPY SINCE THEIR AREA AREDEVELOPED; BETTER ROAD, ELECTRICITY, NEW OFFICESFROM QUIET TO BE BUSY AREA

• CIVIL SERVANTS ARE HAPPY SINCE THEY HAVE PROMOTIONIN NEWLY ESTABLISHED LOCAL GOVERNMENT

• LOCAL POLITICAL PARTY ELITES ARE HAPPY AS THEIRCADRES MAY HAVE OPPORTUNITY TO BE COUNCILLORS OREVEN HEAD OF REGION

• THE RESOURCES ARE DEVIDED INTO AT LEAST TWOREGIONS; MOTHER REGION AND PROLIFERATED REGION

3

55

Who loses Who gainsWho loses Who gainsWHO LOSES:

• FINANCIAL SOURCES HIGHLY DEPENDENT ON CENTRALGRANT (94%) ARE DEVIDED INTO AT LEAST TWO REGIONS.REDUCING THE FINANCIAL CAPACITY OF LOCALGOVERNMENT.

• THE REDUCED FINANCIAL SOURCES WILL REDUCE THECAPACITY TO FINANCE PUBLIC SERVICES AS A WHOLETHOUGH IT WILL BENEFIT THE NEW LOCAL GOVERNMENT

• IN THE LONG TERM, NEW ECONOMICALLY WEAK LOCALGOVERNMENTS DO NOT HAVE CAPACITY TO DEVELOP

• CREATING HIGHER BURDEN FOR OVERHEAD COST FORBUEREAUCRACY WHICH IS ALREADY 70% OF THE BUDGET

66

Why Proliferation of New LocalWhy Proliferation of New Local

Governments keep GrowingGovernments keep GrowingWHY IT KEEPS GROWING:

• THE NEW LOCAL GOVERNMENT IS ESTABLISHED BY LAW

• THE LAW CAN BE INITIATED OR PROPOSED EITHER BY THEPRESIDENT OR BY THE DPR

• MOST LAWS OF NEW LOCAL GOVERNMENT WERE INITIATEDBY THE DPR

• THERE ARE THREE REQUIREMENTS TO ESTABLISH NEWLOCAL GOVERNMENT; ADMINISTRATIVE, TECHNICAL ANDAREA

• MORE EMPHASIS ON FULFILLMENT ADMINISTRATIVEREQUIREMENTS NEGLECTING TECHNICAL REQUIREMENTS

• POLITICAL PREFERENCE IS MORE EMPHASIZED

4

77

How many new Local Governments haveHow many new Local Governments havebeenbeen EstablishehEstablisheh and being Proposedand being Proposed

NUMBER NEWLY ESTABLISHED LOCAL GOVERNMENT:

SINCE 1999 UP TO NOW : 165 LOCAL GOVERNMENTS WEREESTABLISHED

1999- 2006 : 148 UNITS

2007 UP TO NOW : 17 UNITS:

5 UNITS INITIATED BY THE GOVERNMENT

12 UNITS INITIATED BY THE DPR

THE PERFORMANCE IS BEING EVALUATED

88

DPD DPR PRESIDEN BPK MA

PENYERAHAN URUSANPEMERINTAHAN

DAERAHOTONOM

OTONOMIDAERAH

DESENTRALISASI (Ps 18,18A,18B UUD 1945)

M P R

Pasal 4 UUD 1945:

Presiden pemegangkekuasaan pemerintahanberdasarkan UUD.

Pasal 17 UUD 1945:

Presiden dibantu menterinegara;masing2 menteribertanggungjawab pd urs pemtertentu.

Tujuan Negara:1. Law and order;2. Welfare

5

99

CENTRALISATION VV DECENTRALISATION

DEKONSENTRASI(PEMERINTAH WILAYAH/FIELD ADMINISTRATION)

FUNCTIONAL FIELDADMINISTRATION;KANDEP/KANWIL

INTEGRATED FIELDADMINISTRATION;KEPALA WILAYAH

PEMERINTAH PUSAT

POWER SHARING

1. OTONOMI TERBATAS(ULTRA VIRES)

2. OTONOMI LUAS (GENERALCOMPETENCE)

DESENTRALISASI(PEMERINTAH DAERAH)

1010

BAGAIMANA PENYELENGGARAANPEMERINTAHAN DAERAH ?

6

1111

UUD NKRI TAHUN 1945UUD NKRI TAHUN 1945

Pasal 18:(1) NKRI dibagi atas daerah-daerah prov dan

daerah prov itu dibagi atas kab dan kota, yangtiap-tiap prov,kab,dan kota itu mempunyaipemerintahan daerah, yang diatur dg UU

(2) Pemerintahan daerah prov,daerahkabupaten,dan kota mengatur dan mengurussendiri urusan pemerintahan menurut asasotonomi dan tugas pembantuan

1212

LanjutanLanjutan…….:.:

(3) Pemerintahan daerah prov, daerah kabupaten,dankota memiliki DPRD yang anggota-anggotanyadipilih melalui pemilihan umum

(4) Gubernur,Bupati,dan Walikota masing-masingsebagai kepala pemerintah daerah prov,kab,dankota dipilih secara demokratis

(5) Pemerintahan daerah menjalankan otonomiseluas-luasnya ,kecuali urusan pemerintahanyang oleh UU ditentukan sebagai urusanPemerintah Pusat

(6) Pemerintahan daerah berhak menetapkan Perdadan pearturan-peraturan lain untuk melaksanakanotonomi dan tugas pembantuan

(7) Susunan dan tatacara penyelenggaraanpemerintahan daerah diatur dalam UU

7

1313

PasalPasal 18A:18A:

(1) Hub wewenang antara pemerintah pusat danpemerintahan daerah provinsi,kab,dan kota,atau antara provinsi dan kab dan kota,diaturdengan dengan UU dengan memperhatikankekhususan dan keragaman daerah

(2) Hubungan keuangan,pelayananumum,pemanfaatan sumber daya alam dansumber daya lainnya antara pemerintah pusatdan pemerintah daerah diatur dandilaksanakan secara adil dan selarasberdasarkan UU

1414

PasalPasal 18B:18B:

(1) Negara mengakui dan menghormati satuan-satuan pemerintahan daerah yang bersifatkhusus atau bersifat istimewa yang diaturdengan UU.

(2) Negara mengakui dan menghormati kesatuan-kesatuan masy hukum adat beserta hak-haktradisionalnya sepanjang masih hidup dansesuai dengan perkembangan masyarakat danprinsip NKRI, yang diatur dalam UU.

8

1515

BAGAIMANA PEMBENTUKANDAERAH OTONOM ?

1616

MASING-MASINGMEMPUNYAIPEMERINTAHANDAERAH.PASAL 2 AYAT (1)

NEGARA KESATUAN REPUBLIK INDONESIADIBAGI ATAS DAERAH-DAERAH:

PROVINSI

KABUPATEN DANKOTA

DAERAH PROVINSI DIBAGI ATAS:

9

1717

PEMEKARAN SETELAHMENCAPAI BATAS MINIMALUSIA PENYELENGGARAANPEMERINTAHAN {Psl 4 (4)}

SUBSTANSI UNDANG-UNDANG DIMAKSUDMENCAKUP Psl {4 (2)} :

NamaCakupan wilayahBatasIbukotaKewenanganPenjabat Kepala DaerahPengisian DPRDPengalihan kepegawaianPendanaanPeralatan dan dokumenPerangkat daerah

PEMBENTUKANDAERAH DAPATBERUPA {Psl 4 (3)}:

PENGGABUNGANBEBERAPA DAERAH

PENGGABUNGANSEBAGIAN DAERAH YANGBERSANDINGAN

PEMEKARAN DARI SATUDAERAH MENJADI DUADAERAH ATAU LEBIH

PEMBENTUKAN DAERAH:DITETAPKAN DGN UU

{Pasal 4 (1)}

PROVINSI: 10 TAHUNKABUPATEN/KOTA: 7 TAHUNKECAMATAN: 5 TAHUN

1818

.

ADMINISTRATIF

TEKNIS

FISIKKEWILAYAHAN

SYARAT-SYARATPEMBENTUKAN

DAERAHPasal 5 Ayat (1)

10

1919

SYARAT ADMINISTRATIFSYARAT ADMINISTRATIF

A. PEMBENTUKAN PROVINSIPasal 5 Ayat (2)

1. ASPIRASI MASYARAKAT.2. KEP. DPRD KABUPATEN/KOTA &

PERSETUJUAN BUPATI/WALIKOTAMASING-MASING YG AKANMJD CAKUPAN PROV

3. KEP. DPRD PROV/INDUK.4. REKOMENDASI GUBERNUR/INDUK.5. REKOMENDASI MENTERI DALAM NEGERI

1. ASPIRASI MASYARAKAT.2. KEPUTUSAN DPRD KABUPATEN/KOTA.3. PERSETUJUAN BUPATI/WALIKOTA.4. KEPUTUSAN DPRD PROVINSI/INDUK.5. REKOMENDASI GUBERNUR/INDUK.6. REKOMENDASI MENTERI DALAM NEGERI

B. PEMBENTUKAN KABUPATEN/KOTAPasal 5 Ayat (3)

2020

SYARAT TEKNISPasal 5 Ayat (4)

FAKTOR DASARPEMBENTUKAN DAERAH

1. KEMAMPUAN EKONOMI.2. POTENSI DAERAH.3. SOSIAL BUDAYA.4. SOSIAL POLITIK.5. KEPENDUDUKAN.6. LUAS DAERAH.7. PERTAHANAN.8. KEAMANAN. dan9. FAKTOR LAIN YANG MEMUNGKINKAN

TERSELENGGARANYA OTDA (KEMAMPUAN KEUANGAN,TINGKATKESEJAHTERAAN MASYARAKAT, RENTANG KENDALIPENYELENGGARAAN PEMERINTAHAN DAERAH)

11

2121

SYARAT FISIKSYARAT FISIKPasalPasal 55 AyatAyat (5)(5)

KOTA

PROVINSI

KABUPATEN

PALING SEDIKIT 4 KECAMATANSARANA DAN PRASARANA PEMERINTAHAN

PALING SEDIKIT 5 KECAMATANLOKASI CALON IBUKOTASARANA DAN PRASARANA PEMERINTAHAN

PALING SEDIKIT 5 KABUPATEN/KOTALOKASI CALON IBUKOTASARANA DAN PRASARANA PEMERINTAHAN

2222

PENGHAPUSAN DAN PENGGABUNGAN DAERAHPENGHAPUSAN DAN PENGGABUNGAN DAERAH

Daerah dapat dihapus dan digabung dengan daerah lain,apabila tidak mampu menyelenggarakan Otda {Pasal 6 Ayat(1)} dan dilakukan setelah proses evaluasi {6 Ayat (2)}

Penghapusan dan penggabungan daerah ditetapkan denganUU {7 Ayat (1)}

Perubahan batas daerah, perubahan nama daerah,pemberian nama bagian rupa bumi, serta perubahan nama ,atau pemindahan ibu kota yang tidak mengakibatkanpenghapusan suatu daerah ditetapkan dengan PP {7 Ayat(2)}

Perubahan dimaksud dilakukan atas usul dan persetujuandaerah ybs. {Pasal 7 Ayat(3)}

Tata cara Pembentukan, Penghapusan dan PenggabunganDaerah diatur dengan Peraturan Pemerintah{Pasal 8}

12

2323

KAWASAN KHUSUSKAWASAN KHUSUSUntuk menyelenggarakan fungsi pemerintahan tertentu

yang bersifat khusus bagi kepentingan nasional,pemerintah dapat menetapkan kawasan khusus. (pasal9 ayat 1)

Kawasan khusus untuk perdagangan bebas dan/ataupelabuhan bebas ditetapkan dengan Undang-undang(pasal 9 ayat 2). Selainnya diatur dengan PP (pasal 9ayat 3)

Penetapan kawasan khusus, Pemerintahmengikutsertakan daerah yang bersangkutan (pasal 9ayat 4)

Daerah dapat mengusulkan kawasan khusus (pasal 9ayat 5)

Tatacara penetapan kawasan khusus diatur dengan PP(pasal 9 ayat 6)

2424

BAGAIMANA PENGATURANURUSAN PEMERINTAHAN

13

2525

ANATOMI URUSAN PEMERINTAHANANATOMI URUSAN PEMERINTAHAN

URUSAN PEMERINTAHAN

ABSOLUT(Mutlak urusan Pusat)

CONCURRENT(Urusan bersama

Pusat, Provinsi, dan Kab/Kota)

PILIHAN/OPTIONAL(Sektor Unggulan)

WAJIB/OBLIGATORY(Pelayanan Dasar)

SPM(Standar Pelayanan Minimal)

- Politik Luar Negeri- Pertahanan- Keamanan- Moneter dan Fiskal

Nasional- Yustisi- Agama

Contoh: kesehatan,pendidikan, lingkunganhidup, pekerjaan umum,sosial,dsb

Contoh: pertanian,industri, perdagangan,pariwisata, kelautan dsb

2626

Kriteria Pembagian Urusan Pemerintahan Antar Tingkat Pemerintahan:

1. Externalitas (Spill-over)

Siapa kena dampak, mereka yang berwenang mengurus

2. Akuntabilitas

Yang berwenang mengurus adalah tingkatan pemerintahan yangpaling dekat dengan dampak tersebut (sesuai prinsip demokrasi)

3. Efisiensi

Otonomi Daerah harus mampu menciptakan pelayanan publik yangefisien dan mencegah high cost economy

Efisiensi dicapai melalui skala ekonomis (economic of scale)pelayanan publik

Skala ekonomis dapat dicapai melalui cakupan pelayanan(catchment area) yang optimal

14

2727

1. Pusat: berwenang menetapkan norma, standar,prosedur, Monev, supervisi, fasilitasi danmengatur dan mengurusurusan-urusanpemerintahan dengan eksternalitas nasional.

2. Provinsi: berwenang mengatur dan mengurusurusan-urusan pemerintahan dengan eksternalitasregional (lintas Kab/Kota)

3. Kab/Kota: berwenang mengatur dan mengurusurusan-urusan pemerintahan dengan eksternalitaslokal (dalam satu Kab/Kota)

BAGIAN URUSAN PEMERINTAHAN YANG DILAKSANAKANBAGIAN URUSAN PEMERINTAHAN YANG DILAKSANAKANOLEH MASINGOLEH MASING--MASING TINGKATAN PEMERINTAHANMASING TINGKATAN PEMERINTAHAN

BERDASARKAN 3 KRITERIABERDASARKAN 3 KRITERIA

2828

URUSAN WAJIB KEWENANGAN DAERAH

1. Perencanaan dan Pengendalian Pembangunan2. Perencanaan, pemanfaatan dan pengawasan

tata ruang3. Penyelenggaraan Ketertiban Umum dan

ketentraman4. Penyediaan sarana dan prasarana umum5. Penanganan Bidang Kesehatan6. Penyelenggaraan Pendidikan dan Alokasi SDM

Potensial

15

2929

URUSAN WAJIBKEWENANGAN DAERAH……….Lanjutan

7.Penanggulangan masalah sosial8.Pelayanan bidang ketenagakerjaan9. Fasilitasi pengembangan UKM10.Pengendalian Lingkungan Hidup11.Pelayanan Pertanahan12.Pelayanan Kependudukan dan Capil13.Pelayanan administrasi umum pemerintahan14.Pelayanan administrasi penanaman modal

3030

URUSAN DAERAH YANG BERSIFAT PILIHAN

• Urusan Pemerintahan yang secara nyataada dan berpotensi untuk meningkatkankesejahteraan masyarakat sesuai dengankondisi, kekhasan dan potensi unggulandaerah.Contohnya: bidang Pertambangan,Perikanan, Pariwisata, Pertanian,Perkebunan, Kehutanan

16

3131

1

Spending for Development:Making the Most of Indonesia's NewOpportunities

Washington DC, July 102007 Wolfgang Fengler

Public Expenditure Review 2007

Key Messages

Indonesia has more fiscal space; themacroeconomic paradigm has changed

Indonesia experienced a second “big bang” (oftransfers) in 2006; poor regions have now[sufficient] funding

New composition of expenditures acrosssectors; substantially different than that on2001

2


Indonesia has fiscal space:the macroeconomic paradigm

has changed


0%

2%

4%

6%

8%

10%

12%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Kabupaten/KotaProvinceCentral

APBN

Fiscal Space: Indonesia has an expanding amount offiscal resources: Fiscal space is above 10% of GDP since

2005

Fiscal Space as % of GDP

3


Debt chart internationalcomparison

Fiscal Space: Debt


Fiscal Space: Indonesia has an expanding amount offiscal resources: Non oil and gas revenues are up

0

50

100

150

200

250

300

350

400

450

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2,006 2007*

trill

ion

Rp.

inco

nsta

nt20

00pr

ices

Total Central Gov. Exp.& Transfers to RegionsTotal Central Gov. RevenuesNon-oil and gas Central Gov. RevenuesOil and gas Central Gov. RevenuesExpenditures excluding interest payments

4


Limited autonomy

32% 68% 83% 96%District

Central Government

Province2%

15% 4%

Salaries


Indonesia has experienced asecond “big bang” in 2006;transfers increased by [50]percent. The poor regions havenow [sufficient] funding.

5


Second ‘big bang’ of transfers: Decentralization: The fiscalfundamentals of Indonesia have changed since 2001

use table in real terms

-

20

40

60

80

100

120

140

160

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006* 2007**

Con

stan

t200

0pr

ices

,Rp.

trillio

n

Interest Payments SubsidiesTransfers to Region Central Development Expenditures

Crisis Decentralization Extra US$ 15billion to spend


The impact of the 2006 transferincrease (65% on average)

6


Indonesia is one of the most diverseand unequal countries in the World

38753.166.357.573.7Life expectancy (years)

2610915829125Secondary Gross EnrollmentRate (%)

68909912199Adult literacy rate (%)

73201018513Poverty rate (%)

49165002104105520833,759GRDP Per Capita (USD)

ZambiaMexicoStandardDeviation

AverageWeakestdistrict

Strongestdistrict

Indicator

Living standards range from developed countrystandards to entrenched poverty.


Second fiscal ‘big bang’: Decentralization: Poorregions are the main beneficiary of Indonesia’s

transfer system

0

1000

2000

3000

4000

5000

6000

Ban

ten

Jaw

aBa

rat

Jaw

aTi

mur

Jaw

aTe

ngah

Lam

pung

DIY

ogya

karta

Sum

atra

Utar

a

Nus

aTe

ngga

raBa

rat

Sum

ater

aSe

lata

n

Bali

Sulaw

esiS

elat

an

Nus

aTe

ngga

raTi

mur

Kalim

anta

nBa

rat

Kali

man

tan

Sela

tan

Sum

atra

Bara

t

Jam

bi

Sula

wesi

Uta

ra

Gor

onta

lo

Beng

kulu

Kepu

laua

nR

iau

Sulaw

esiT

enga

h

Sula

wesi

Teng

gara

Kepu

lauan

Bang

kaBe

litung

Ria

u

Nan

ggro

eAc

ehD

arus

sala

m

Mal

uku

Malu

kuU

tara

Kali

man

tan

Teng

ah

Kalim

anta

nTi

mur

Pap

ua

Papu

aBa

rat

inth

ousa

ndR

p

Ow n Source Revenue per Capita Natural Resource Shared Revenue per Capita

Shared Tax Revenue per Capita DAU 2006 per Capita

Dana Otsus 2006 per Capita

7


Finding 2 – Decentralization: …. but to ensure that(poor) regions spend their resources effectively …

April – May Bastian?

0

20

40

60

80

100

120

May

Jun

Jul

Au

gS

ep Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Au

gS

ep Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Au

gS

ep Oct

Nov

Dec Ja

nF

ebM

arA

prM

ayJu

nJu

lA

ug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

2003 2004 2005 2006 2007

District/City

province


Since 2001, the national/sectoral composition ofexpenditures changes substantially …

Education now number 1

8


Finding 3 – Cross-sectors: Education is now thelargest spending item …

0%

5%

10%

15%

20%

25%

30%

2001 2002 2003 2004 2005 2006* 2007**

%o

fT

ota

lE

xp

end

itu

res

Agriculture Education HealthNat. Defense Infrastructure Gov. Apparatus & Superv.Subsidies Interest Payments


Finding 3 – Cross-sectors: … while infra-structure health and agriculture remain low

0%

5%

10%

15%

20%

25%

30%

35%

40%

2001 2002 2003 2004 2005 2006* 2007**

%of

Tot

alN

at.

Exp

edni

ture

s

Gov. Apparatus,& Superv.

Subsidies

Education

Infrastructure

Trade, BusinessDev. & Finance

Nat. Defens e &Security

Health

Agricul ture

9


Finding 4 – Subsidies: GENERAL

Domestic (Regulated) Prices and International of fuel productsRegulated

Domestic SalesPrice

International PricesAs of January 2007 Break even

(Rp/liter) (USD/Barrel) (USD/Barrel) (USD/Barrel) (Rp/liter) (Rp/liter) (Rp/liter) (USD/Barrel)

After Tax After tax MOPSMOPS+14.1%

+Taxes MOPSMOPS+14.1%

+TaxesMOPS+14.1%

+Taxes MOPS

Gasoline 4,500 77.3 63.61 83.5 3,615 4,744 4,505 60.40

Kerosene (household) 2,000 34.4 72.09 90.5 4,098 5,143 1,999 27.80

Automotive Diesel(Transportation)

4,300 73.9 66.09 86.7 3,756 4,929 4,300 57.2

Source: Computed by World Bank staff


Finding 5 – Education: Spending is on therise and enrollment has increased

Source: Susenas (1995-2005).

0

10

20

30

40

50

60

70

80

90

100

1995 1996 1997 1998 2000 2002 2004 2005

NetPrimarylevel NetJuniorsecondarylevelNetSeniorsecondarylevel GrossJuniorsecondarylevelGrossSeniorsecondarylevel

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2001 2002 2003 2004 2005 2006* 2007**0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Real National Education Expenditures National Education Expenditures (% of GDP)

10


Finding 5 – Education: With about 17 percent ofthe budget, Indonesia is close to other developing

nations

Source: Edstats and World Bank staff estimates

0

5

10

15

20

25

30

Urugu

a yIndia

Para

guay

LaoPDR

Colom

bi a

Russ

ian Fe

derati

on

Leban

on

I ndone

sia20

04

Argen

tina

Bang lad

esh

Ko rea , R

e p,

Indon

esia

200 6

Philip

pin es

Camero

on

Boliv

iaBel

ize

South

Afr ica

Costa Rica

Chile

Azerb

aijan

Keny

a

HongKon

g,Ch ina

Thaila

nd

Ma laysia

Education expenditure % of Govt spending Education expenditure as % of GDP


1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2006CentralGov.Budget

%o

fto

tal

Cen

tral

Go

v.S

pen

din

g Pers onnels pen din g

Education: pre-school,p rimary,

s econdary,h igher ed.,& religion education

Supports ervices &

othersEducation f orCivil Service

Non Formal &I nformalEducation

5%

10%

15%

20%

25%

30%

35%

2,001 2, 002 2,003 2,004

Total subnational routine personn el expe ndituresTotal subnationaldevelopment expendituresTotal subnational routine non-personn el spending

Central Government Sub-National

Below 20% Below 20%

Finding 5 – Education: The current definition ofthe 20% rule is unrealistic and problematic (1)

11


Finding 6 – Indonesia’s health expenditures haveincreased substantially …

-

5

10

15

20

25

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Tr.

Rp

.co

nst

ant

200

1p

ric

es

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

%o

fG

DP

Real National Health Exp. National Health Expenditures as % of GDP


Finding 6 – .. But remains low in internationalcomparison and the challenges are huge

Source: WDI 2006 and WB staff estimates

0.73 0.94

3.23.8

4.3

5.9

3.83.3

6.9

13.634.6

28.7

10.2

18.2

0

2

4

6

8

10

12

14

16

Indonesia 2004 Indonesia 2006 Philippines Thailand Malaysia

%H

ealt

hS

pe

ndin

g/G

DP

0

5

10

15

20

25

30

35

40

Infa

ntM

orta

lity

Rat

e

Total health expenditure as % GDP

National government health expenditure as % total government expenditure

Infant Mortality Rate (per 1000 live births)

12


Finding 7 – Many infrastructure sectors are in crisis

0 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3

E le c tr i f ic a t io n r a t io

A c c e s s t o s a n i ta t io n

A c c e s s t o c le a n w a te r

R o a d N e tw o r k

C o u n tr ie s w ith lo w e r r a n k I n d o n e s ia C o u n t r ie s w ith h ig h e r r a n k

( 1 2 c o u n t r ie s )

( 1 2 c o u n t r ie s )

(1 1 c o u n t r ie s )

( 1 1 c o u n t r ie s )


Finding 7 – Public infrastructure investments remainsjust above 3 percent of GDP

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%of

GD

P

Private Govt. SOEs Total

13


Finding 8 – Central government expenditures aretypically very different from the initial budget but in

2006 the budget was credible


Finding 8 – Back-loaded disbursements of capital spending -Medium Term Expenditure Framework (MTEF) is needed

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Monthly 06 Monthly 05 Monthly 01-04Cumulative 06 Cumulative 05 Cumulative 01-04

14


Eight potentially high-impact reforms

3. Allocate teachers based on the number of students with a weighting forsmaller schools

3. Increase spending on infrastructure, particularly central governmentspending on large scale infrastructure

7. Further strengthen the capacity and regional presence of BPK, andconsolidate the functions of the internal audit agencies.

6. Establish a Medium-Term Expenditure Framework and allow theauthorization of multi-year budget appropriations.

Impact on budget processes

5. Reallocate electricity subsidies (all but 450VA) towards connections toexpand the electricity network.

4. Reduce fuel subsidies and redirect to pro-poor spending/subsidies.

Fiscal impact

2. Adjust the definition of the”20 percent mandate” to include teachersalaries and combine central and regional government spending

1. Remove coverage of civil service salaries from the DAU

Impact on service delivery and personnel management


Finding 4 – Subsidies: The rich benefit from theelectricity subsidy most

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1Poorest

2 3 4 5 6 7 8 9 10R ichest

6600V A2200V A1300V A900V A450V A

R p.trillion

1

POLITIK LOKAL DIPOLITIK LOKAL DIINDONESIAINDONESIA

MaswadiMaswadi RaufRaufGuruGuru BesarBesar IlmuIlmu Politik FISIP UIPolitik FISIP UI

BahanBahan CeramahCeramah dalamdalam SeminarSeminar InternasionalInternasional tentangtentang ““Six YearsSix YearsIndonesiaIndonesia’’s Decentralizations Decentralization”” yangyang diadakandiadakan oleholeh FE UIFE UI didi HotelHotel

NikkoNikko, Jakarta, 4, Jakarta, 4--55 JuliJuli 20072007

DEMOKRATISASI DANDEMOKRATISASI DANOTONOMI DAERAHOTONOMI DAERAH

DemokratisasiDemokratisasi didi IndonesiaIndonesia setelahsetelahtumbangnyatumbangnya OrdeOrde BaruBaru jugajuga mencakupmencakupdemokratisasidemokratisasi pemerintahpemerintah daerahdaerah..

PembentukanPembentukan UU Politik yangUU Politik yang lebihlebihdemokratisdemokratis padapada JanuariJanuari 19991999 disusuldisusul oleholehkeluarnyakeluarnya UUUU tentangtentang pemerintahpemerintah daerahdaerah(UU No. 22/1999)(UU No. 22/1999) padapada bulanbulan MeiMei 19991999yangyang memberikanmemberikan otonomiotonomi daerahdaerah..

2

OTONOMI DAERAH DANOTONOMI DAERAH DANPOLITIK LOKALPOLITIK LOKAL

DemokratisasiDemokratisasi dandan otonomiotonomi daerahdaerahmemberimemberi warnawarna barubaru bagibagi politikpolitik lokallokal didiIndonesia.Indonesia.

KepalaKepala daerahdaerah tidaktidak lagilagi merupakanmerupakanpenguasapenguasa tunggaltunggal dandan DPRDDPRD menjadimenjadilembagalembaga legislatiflegislatif daerahdaerah yangyang sejajarsejajardengandengan kepalakepala daerahdaerah..

PartaiPartai--partaipartai politikpolitik bermunculanbermunculan sesuaisesuaidengandengan perkembanganperkembangan didi tingkattingkat nasionalnasional..

PILKADAPILKADA

DemokratisasiDemokratisasi padapada tingkattingkat pemerintahpemerintahdaerahdaerah mencapaimencapai puncaknyapuncaknya dengandengandiperkenalkannyadiperkenalkannya pemilihanpemilihan umumumum bagibagikepalakepala daerahdaerah ((pilkadapilkada)) didi seluruhseluruhIndonesiaIndonesia melaluimelalui amandemenamandemen UUD 1945.UUD 1945.

DenganDengan adanyaadanya pemilihanpemilihan umumumum untukuntukmemilihmemilih presidenpresiden dandan wakilwakil presidenpresiden((pilprespilpres),), pilkadapilkada menjadimenjadi tidaktidak terelakkanterelakkan..

TidakTidak adaada suarasuara yangyang menentangmenentang pilkadapilkada..

3

PENERIMAAN PILKADAPENERIMAAN PILKADA

SemangatSemangat demokratisasidemokratisasi menyebabkanmenyebabkankurangkurang diperhatikannyadiperhatikannya dampakdampak negatifnegatifyangyang dapatdapat dihasilkandihasilkan oleholeh pilkadapilkada..

PilkadaPilkada dapatdapat menimbulkanmenimbulkan konflikkonflik sosialsosialyangyang hebathebat didi dalamdalam masyarakatmasyarakat karenakarenadukungandukungan terhadapterhadap parapara caloncalon dapatdapatbersifatbersifat fanatikfanatik dandan individual.individual.

PilkadaPilkada dilaksanakandilaksanakan secarasecara serentakserentak didiIndonesia.Indonesia.

MASALAH OTONOMI DAERAH (1)MASALAH OTONOMI DAERAH (1)

MeskipunMeskipun otonomiotonomi daerahdaerah sudahsudah berjalanberjalanselamaselama 66 tahuntahun,, manfaatnyamanfaatnya masihmasih belumbelumdirasakandirasakan oleholeh hampirhampir semuasemua propinsipropinsi dandankabupaten/kotakabupaten/kota..

PadahalPadahal,, sepertiseperti halhal demokratisasidemokratisasi,,otonomiotonomi daerahdaerah dianggapdianggap sebagaisebagai jalanjalankeluarkeluar bagibagi berbagaiberbagai kesulitankesulitan yangyangdihadapidihadapi rakyatrakyat..

4

MASALAH OTONOMI DAERAH (2)MASALAH OTONOMI DAERAH (2)

KekecewaanKekecewaan rakyatrakyat dapatdapat mengganggumengganggukestabilankestabilan politikpolitik padapada tingkattingkat daerahdaerah dandannasionalnasional..

LambatnyaLambatnya otonomiotonomi daerahdaerah mencapaimencapai hasilhasilnyatanyata bagibagi rakyatrakyat banyakbanyak bisabisa menimbulkanmenimbulkan rasarasaantipatiantipati terhadapterhadap demokrasidemokrasi dandan otonomiotonomi daerahdaerahdandan kerinduankerinduan padapada masamasa OrdeOrde BaruBaru yangyangmemberikanmemberikan kehidupankehidupan ekonomiekonomi yangyang lebihlebihbaikbaik..

FAKTOR PENGHAMBAT OTONOMIFAKTOR PENGHAMBAT OTONOMIDAERAH (1)DAERAH (1)

OrdeOrde BaruBaru yangyang sentralistissentralistis menghasilkanmenghasilkanbirokratbirokrat daerahdaerah yangyang tergantungtergantung padapada PusatPusat,,padahalpadahal otonomiotonomi daerahdaerah memerlukanmemerlukan birokratbirokratyangyang mandirimandiri dandan mampumampu membuatmembuat keputusankeputusanyangyang tepattepat dandan cepatcepat..

OrdeOrde BaruBaru menghasilkanmenghasilkan birokratbirokrat yangyang lebihlebihbanyakbanyak mengerjakanmengerjakan rutinitasrutinitas,, padahalpadahal otonomiotonomidaerahdaerah memerlukanmemerlukan birokratbirokrat yangyang kreatifkreatif dandaninovatifinovatif..

5

FAKTOR PENGHAMBAT OTONOMIFAKTOR PENGHAMBAT OTONOMIDAERAH (2)DAERAH (2)

BirokrasiBirokrasi pemerintahpemerintah daerahdaerah yangyang tidaktidakmenunjangmenunjang pelaksanaanpelaksanaan otonomiotonomi daerahdaerahkarenakarena gemukgemuk,, korupkorup,, tidaktidak efisienefisien,, dandantidaktidak berorientasiberorientasi padapada prestasiprestasi..

AdanyaAdanya tariktarik menarikmenarik kewenangankewenangan dengandenganPemerintahPemerintah PusatPusat sehinggasehingga beberapabeberapakewenangankewenangan pentingpenting tetaptetap didi tangantanganPusatPusat yangyang dianggapdianggap merugikanmerugikan daerahdaerah..

MASALAH PILKADA (1)MASALAH PILKADA (1)

PilkadaPilkada ternyataternyata menghasilkanmenghasilkanketergantunganketergantungan merekamereka yangyang ingininginmenjadimenjadi caloncalon kepadakepada partaipartai politikpolitik((parpolparpol)) karenakarena pencalonanpencalonan hanyahanya bisabisamelaluimelalui parpolparpol..

KetergantunganKetergantungan ituitu kemudiankemudianmenghasilkanmenghasilkan ““sewasewa perahuperahu”” yakniyaknisejumlahsejumlah uanguang yangyang harusharus dibayardibayar oleholehcaloncalon kepadakepada parpolparpol supayasupaya dicalonkandicalonkan..

6


MeluasnyaMeluasnya politikpolitik uanguang untukuntukmemenangkanmemenangkan pilkadapilkada yangyang sulitsulit dibasmidibasmi..

PolitikPolitik uanguang membuatmembuat danadana yangyangdikeluarkandikeluarkan untukuntuk ikutikut pilkadapilkada dianggapdianggapsebagaisebagai investasiinvestasi yangyang harusharus didapatkandidapatkankembalikembali selamaselama menjadimenjadi kepalakepala daerahdaerahyangyang menyebabkanmenyebabkan meluasnyameluasnya korupsikorupsi dididaerahdaerah..


KelemahanKelemahan parpolparpol dalamdalam rekrutmenrekrutmenmenghasilkanmenghasilkan caloncalon--caloncalon dalamdalam pilkadapilkada yangyangdekatdekat dengandengan rakyatrakyat,, namunnamun kurangkurangberpengalamanberpengalaman dalamdalam pemerintahanpemerintahan dengandengankemampuankemampuan manajerialmanajerial yangyang lemahlemah..

CalonCalon--caloncalon yangyang dekatdekat dengandengan rakyatrakyatmempunyaimempunyai kemungkinankemungkinan yangyang lebihlebih besarbesaruntukuntuk menangmenang sehinggasehingga kualitaskualitas kepalakepala daerahdaerahmenjadimenjadi masalahmasalah barubaru..

7

SOLUSI OTONOMI DAERAHSOLUSI OTONOMI DAERAH

PemerintahPemerintah PusatPusat perluperlu mendorongmendorongpertumbuhanpertumbuhan otonomiotonomi daerahdaerah dengandenganmenunjukkanmenunjukkan keinginankeinginan untukuntuk mengurangimengurangikewenangankewenangan sehinggasehingga kewenangankewenangandaerahdaerah lebihlebih besarbesar..

PerluPerlu dikembangkandikembangkan kemampuankemampuan kepalakepaladaerahdaerah dandan birokrasibirokrasi daerahdaerah dalamdalammanajemenmanajemen pemerintahanpemerintahan yangyang sesuaisesuaidengandengan semangatsemangat otonomiotonomi daerahdaerah..

SOLUSI BAGI PILKADASOLUSI BAGI PILKADA

ParpolParpol harusharus mampumampu melakukanmelakukan prosesprosesrekrutmenrekrutmen sehinggasehingga dihasilkandihasilkan kaderkader--kaderkader partaipartai yangyang berkualitasberkualitas yangyang akanakandicalonkandicalonkan dalamdalam pilkadapilkada..

ParpolParpol harusharus mencalonkanmencalonkan kadernyakadernyasendirisendiri dalamdalam pilkadapilkada sehinggasehingga politikpolitikuanguang dapatdapat dikurangidikurangi..

8

SEKIANSEKIAN

TERIMA KASIHTERIMA KASIH

1

Good Governance and Lawin Indonesia

Safri NugrahaCenter for Law and Good Governance Studies

Development of Good Governance

• Algemeene Beginselen van BehoorlijkBestuur (Asas-Asas Umum Pemerintahanyang Baik)

• Principles of Proper Administration• Principles of Good Administration

(Code of Good Administrative Behaviour )• Principles of Good Governance

2

Good Governance

• In relation to Administration, Legislation,Judiciary

• In relation to National, Regional,International

• In relation to specific field of administrativelaw

• Others

Principles of Good Governance

• Proper Administration• Democratic Administration• Transparent Administration• Human Rights Administration

3

Governance

• Public Governance (GPG)• Corporate Governance (GCG)

Good Governance(UN-ESCAP)

• Consensus Oriented• Participatory• Transparency• Responsiveness• Consensus Oriented• Equity and Inclusiveness• Effectiveness and Efficiency• Accountability• Follows the Rule of Law

4

The rule of law

• Rechtsstaat• Constitutional Rule• Ideology• Ideal Norm• Idiom

Good Governance and Law

• Law as Tool• Law as Goal• Law as Ideal

5

Good Governance &Administrative Law

• AL as a law of public administration• AL gives sanctions and rewards to the

administration• AL pushes the implementation of Good

Governance• AL as a multi-sector-law

Good Governance in Indonesia

• Public and Corporate Governance• Participation of Government and Civil

Society• Political Will• Reformation of public administration

(Central and Local)• Development of Good Governance• Who supervise the implementation ?

6

Penutup

• Good Governance as An Ideology• Good Governance as A Principle• Good Governance as A Norm• Good Governance as A Rule

Conclusion

• Toward a Better Government• Toward a Better Future

1

Disampaikan pada :International Seminar on DecentralizationLPEM FE UI : “Six Year of Indonesia’s Decentralization”Hotel Nikko, Jakarta, 4 Juli 2007

Oleh:Max H. Pohan

Deputi Bidang Pengembangan Regional dan Otonomi DaerahKementerian Negara PPN/Bappenas

MASALAH-MASALAH DALAMPELAKSANAAN DESENTRALISASI DANOTONOMI DAERAH DALAM KONTEKS

PEMBANGUNAN DAERAH

PembangunanPembangunanDaerahDaerah::

Bagian integral dan merupakanpenjabaran dari pembangunan nasionaldalam rangka pencapaian sasaranpembangunan nasional yang disesuaikandengan potensi, aspirasi, danpermasalahan daerah.

2

Hubungan & Kinerja Pembangunan Daerah -Nasional

Kinerja PembangunanKabupaten/Kota








KinerjaPembangunan

Provinsi

KinerjaPembangunan

Provinsi

KinerjaPembangunan

Nasional

KinerjaPembangunan

Nasional

KinerjaPembangunan

Provinsi

KinerjaPembangunan

Provinsi

Agregasi

Agregasi

Agregasi

Pemerintah

Dunia UsahaMasyarakat

Pelaku Pembangunan Daerah

3

PEMERINTAHSEBAGAI PELAKU PEMBANGUNAN DAERAH

PEMERINTAH PUSAT

PEMERINTAH DAERAHPROVINSI

PEMERINTAH DAERAHKOTA

PEMERINTAH DAERAHKABUPATEN

PEMERINTAH DAERAHKOTA

PEMERINTAH DAERAHKABUPATEN

DimensiDimensiPembangunanPembangunan DaerahDaerah

Pembangunan daerah dapat dilihat dari berbagai segi,yaitu :

1. Dari segi Pembangunan Sektoral. Pencapaiansasaran pembangunan nasional dilakukan melaluiberbagai kegiatan pembangunan sektoral yangdilaksanakan di daerah.

2. Dari segi Pembangunan Spatial yang meliputipembangunan wilayah, pembangunan kawasankhusus, perkotaan dan perdesaan sebagai pusat danlokasi kegiatan sosial ekonomi dari wilayah tersebut.

3. Dari segi Pemerintahan. Pembangunan daerahmerupakan usaha mengembangkan dan memperkuatpemerintahan daerah dalam rangka makinmantapnya otonomi daerah.

4

KUNCI KEBERHASILANPEMBANGUNAN DAERAH

Koordinasi dan keterpaduan antarapemerintah pusat dan daerah, antarsektor,antar daerah dan antara sektor dan daerah.

Sinkronisasi kebijakan, program dankegiatan pembangunan dalammengoptimalkan pengelolaan danpemanfaatan sumberdaya yang terbatas

Perencanaan pembangunan daerahyang tidak terpisahkan dari sistemperencanaan pembangunan nasional.

Desentralisasi danDesentralisasi danOtonomi DaerahOtonomi Daerah

Penyerahan wewenang pemerintahan olehPemerintah kepada daerah otonom untukmengatur dan mengurus urusan pemerintahandalam sistem Negara Kesatuan RepublikIndonesia.

Hak, wewenang, dan kewajiban daerah otonomuntuk mengatur dan mengurus sendiri urusanpemerintahan dan kepentingan masyarakatsetempat sesuai dengan peraturan perundang-undangan

Desentralisasi

Otonomi Daerah

5

Tujuan Desentralisasi DanOtonomi Daerah

Meningkatkan kesejahteraan masyarakatmelalui pendekatan pelayanan kepadapublik dan pemberdayaan masyarakat

Mendukung demokratisasi di tingkat lokaluntuk mendukung demokratisasi ditingkat nasional;

Peraturan Perundang-undangan Terkait

Undang-Undang No. 32 tahun 2004 tentangPemerintahan Daerah;

Undang-Undang No. 33 tahun 2004 tentangPerimbangan Keuangan Pusat dan Daerah;

Undang-Undang No. 25 tahun 2004 tentang SistemPerencanaan Pembangunan Nasional (SPPN);

Undang-Undang No. 17 tahun 2007 tentang RencanaPembangunan Jangka Panjang Nasional (RPJPN),

Peraturan Presiden No 7 Tahun 2005 tentang RencanaPembangunan Jangka Menengah Nasional (RPJMN),Bab 13 mengenai Revitalisasi Proses Desentralisasi danOtonomi Daerah; serta

Berbagai Peraturan Pemerintah (PP) sebagai peraturanpelaksana seluruh UU tersebut.

6

PermasalahanPermasalahan && TantanganTantangan DalamDalamImplementasiImplementasi DesentralisasiDesentralisasi dandan OtdaOtda

1. Masih adanya perbedaan persepsi tentangdesentralisasi dan otonomi daerah.

2. Masih adanya sejumlah peraturan pelaksanaanyang belum selesai disusun, khususnya PPtentang pembagian kewenangan.

3. UU sektoral belum semuanya disesuaikandengan UU 32/2004 tentang PemerintahanDaerah; perlu pembagian kewenanganditetapkan dalam konstitusi, bukan PP.

4. Belum terbentuknya kelembagaan daerah yangefektif dan efisien;

5. Masih rendahnya dan terbatasnya kapasitasaparatur pemerintah daerah;

PermasalahanPermasalahan && TantanganTantangan DalamDalamImplementasiImplementasi DesentralisasiDesentralisasi dandan OtdaOtda

6. Masih terbatasnya kapasitas keuangan daerah;7. Kapasitas fiskal tidak merata antardaerah,

DAU belum berfungsi sebagai penyeimbang(ekualisasi); kuatnya intervensi politik dalampenetapan alokasi DAU, DBH, DAK.

8. Belum mantapnya hubungan provinsi dengankabupaten/kota.

9. Praktek kepemerintahan lokal yang buruk;10. Rendahnya kapasitas pengaturan dan

manajemen pelayanan publik di pemerintahdaerah;

11. Visi politisi rata-rata berjangka pendek.

7

Anatomi Urusan Pemerintahan

URUSAN PEMERINTAHAN

ABSOLUT(Mutlak urusan Pusat)

CONCURRENT(Urusan bersama

Pusat, Provinsi, dan Kab/Kota)

PILIHAN/OPTIONAL(Sektor Unggulan)

WAJIB/OBLIGATORY(Pelayanan Dasar)

SPM(Standar Pelayanan Minimal)

- Hankam

- Moneter

- Yustisi

- Politik Luar Negeri

- Agama

Contoh: kesehatan,pendidikan, lingkunganhidup, pekerjaan umum,dan perhubungan

Contoh: pertanian,industri, perdagangan,pariwisata, kelautan dsb

Hubungan Antar Tingkatan PemerintahHubungan Antar Tingkatan Pemerintah

Adanya interkoneksi dan interdependensi antar tingkatanPemerintahan dalam mengatur dan mengurus urusannya.

Ada hubunganinterelasi daninterdependensi

Contoh 1:Urusan Pendidikan Dasar & SLTP Kab/KotaUrusan Pendidikan Menengah oleh ProvinsiUrusan PT oleh Pemerintah Pusat

Contoh 2:Jalan Kab/Kota oleh

Pemkab/KotaJalan Prov oleh PemprovJalan negara oleh Pem. Pusat

Ada hubunganinterelasi daninterdependensi

TINDAK LANJUT:

PP PEMBAGIAN URUSAN PEMERINTAHAN

8

Visi Dan Misi Pembangunan Daerah

Visi pembangunan daerah adalah berupaya mewujudnya kapasitasdaerah yang maju dengan masyarakat yang mandiri.

Misi pembangunan daerah, antara lain:1. Memantapkan otonomi daerah dalam pelaksanaan tugas-tugas

pemerintahan dan pembangunan;2. Mempercepat pengembangan wilayah dengan mengutamakan

peningkatan daya saing sebagai dasar pertumbuhan daerah;3. Pemerataan antardaerah;4. Pengelolaan dan pemanfaatan sumber daya alam secara

berkelanjutan;5. Meningkatkan kapasitas masyarakat dengan memberikan hak

kepada masyarakat untuk pengembangan diri; serta6. Mempercepat penyelesaian masalah sosial, ekonomi, politik

serta hukum di beberapa daerah.

RPJPDaerah

RKPRPJMNasional

RPJPNasional

RKPDaerah

RenstraKL

Renja -KL

RenstraSKPD

Renja -SKPD

RAPBN

RAPBD

RKA-KL

RKA -SKPD

APBN

RincianAPBN

APBD

RincianAPBD

Diacu

PedomanDijabar

kan Pedoman

Pedoman

Pedoman

Pedoman

Pedoman

Diperhatikan

Dijabarkan

Pedoman

Pedoman

Pedoman

Pedoman

Diacu

Diacu

Diserasikan melalui Musrenbang

UU SPPN

Pemerintah

PusatPem

erintahD

aerah

UU KN

Perencanaan dan AnggaranPerencanaan dan Anggaran

RPJMDaerah

9

Langkah Kebijakan DesentralisasiDan Otonomi Daerah Dalam RKP 2007

Menyelesaikan dan memantapkan peraturan perundangan mengenaipenyelenggaraan pemerintahan daerah, termasuk peraturanperundang-undangan yang mengatur otonomi khusus

Penyelarasan dan harmonisasi peraturan perundang-undangansektoral yang bertentangan dengan UU No. 32 Tahun 2004 dan UUNo. 33 Tahun 2004.

Mendorong terbentuknya kelembagaan pemerintah daerah yangefektif, efisien dan akuntabel

Meningkatkan kapasitas aparatur pemerintah daerah yangprofesional dan kompeten dalam pelayanan publik, peningkataniklim berusaha dan investasi, serta mitigasi bencana dan penangananpasca-bencana

Meningkatkan kerjasama antar daerah dalam penyediaan pelayananpublik dasar, peningkatan iklim usaha dan investasi, penanganandisparitas antarwilayah, dan penanganan kawasan perbatasan.

Meningkatkan kapasitas pengelolaan keuangan pemerintah daerah,serta pemantapan pelaksanaan perimbangan keuangan Pusat danDaerah.

Terima Kasih

1

January 30 2007

Fiscal Decentralization in Asia: Revisited

Motohiro Sato

Hitotsubashi University, Japan

1. Introduction

In the last decades, two forces have shaped the world, namely globalization and localization. The former

designates the integration of country economies, whereas the latter implies self-determination and the

devolution of power and is cited as as decentralization - the division of public-sector functions among multiple

types of government (Ebel and Taleicio(2004)). Indeed, there has been a growing interest in fiscal

decentralization in both developed and developing nations. Asia is not an exception of this worldwide trend.

Many of Asian countries have conducted fiscal decentralization, seeking for sustainable economic and social

developments and for political accountability, although its extents and economic consequences differ

substantially among them.

In Philippines, after the end of the Marcos regime, decentralization was perceived to be an effective means of

diffusing power from the center that would effectively prevent an authoritarian regime from re-emerging in the

future” (Guevara(2004)). Since 1999, Indonesia has carried out a large scale reform of the state structure by

devolving power to sub-national governments. Fiscal decentralization in this country with ethnic, linguistic

and graphical diversity aimed to cope with separation movements in the provinces such as Ache and Papua

and to keep integrity of the nation. Fiscal decentralization is mandated by the constitution of 1997 in

Thailand. In Korea, democratic movement in 1980s paved the way for fiscal decentralization started in 1995

(Kim(2004)). Fiscal decentralization has been a critical component of market oriented reform in China since

1979, its highly centralized fiscal management by various forms of fiscal contracting systems (Shen et

al(2006)). Consequently, two ratios, i.e., central share of fiscal revenue and revenue ratio to GDP, declined

steadily in 80s. The former decreased from 40% in 1984 to 22% in 1993. Tax reform in 1994 was the central

government’s attempt to reverse this trend and recentralize Chinese tax system. In India, alongside with

economic liberalization, the end of single party rule that increased presence of regional parties in the political

affairs has forced decentralization. The amendment of the Constitution in 1992 empowered rural and urban

local governments. In Japan, under Koizumi government, comprehensive decentralization reform has been

initiated since 2004. It includes three trillion yen tax devolution and intergovernmental transfer cuts along

with amalgamation of municipality governments aiming to improve efficiency of local fiscal management,

enhance local autonomy and to strengthen fiscal discipline on local level governments, whereas effects of such

decentralization remain to be seen.

“Decentralization in developing countries sometimes seems to be viewed as either a panacea or a plague-

either a cure for all the ills of such countries or an addition to their already heavy burdens” (Bird and

2

Vaillancourt(1998)). The meaning of decentralization is being interpreted in many different ways, depending

on the interests of the various parties involved. Rich local governments view fiscal decentralization as a

process to shift tax bases to local governments. On the other hand, poor local governments interpret it as a

process to guarantee them more intergovernmental grants to better their economic conditions

(Kim(2004)).Moreover, the cultural, ethnical and historical diversity between and within countries have

generated a variety of implementation strategies for fiscal decentralization, including the “Big Bang”

approach in Indonesia, the “Revenue First—Democratization” approach in Latin America, “Expenditure

First—Market & Democratic Transition” in transitional countries, and the “Efficiency Improvement—Post

Welfare State Era” approach in developed countries (Kelly(2004)).

Table 1:

Year China(a) India Indonesia Japan Korea PhilippinesThailand(1)Population (Milions) 2004 1,296 1,080 218 128 48 82 64(2)Surface area(Thousand sq.km) 2004 9,598 3,287 1,905 378 99 300 513(3)Population density(People persq.km) 2004 139 363 120 351 487 274 125(4)Average annualpopulation growth rate 1994-2004 0.9 1.7 1.4 0.2 0.8 2.1 1.1(5)Grossnationalincomes($billions) 2004 1,938.00 673.2 248 4,734.30 673.1 95.1 158.4(6)Percapitagrossincome ($) 2004 1,500 620 1,140 37,050 14000 1170 2,490(7)Grossdomestic productgrowth rate(2004) 2003-2004 10.1 6.9 5.1 2.7 4.6 6.1 6.2(8)Inflation rate(%)(b) 2000-2004 1.0 3.9 9.1 -0.5 3.4 4.5 1.6(9)Giniindex(%)(c ) 44.7(2001)32.5(1999-2000)34.3(2002)n.a 31.6(1998)46.1(2000)42.0(2002)(10)Public expenditure on education (% ofGDP) 2004 n.a. n.a. 1.1 3.6 4.2 3.2 4.2(11)Public expenditure on health (% ofGDP) 2003 2.0 1.2 1.1 6.4 2.8 1.4 2.0(12)Centralgovernmentexpenditure (% ofGDP) 2004 10.4 15.9 16.8 n.a 18.6 15.9(d) 17.1

(Note) (a)China doesnotinclude HonKong(b)Inflation rate isconsumerprice indexaverate annualgrowth rate(c )Yeardatataken isin parenthesis(d)Data isin 1995

(Source) World DevelopmentIndicators(World Bank(2005))

Table 1 summarizes key features of Asian countries overviewed. They substantially differ in terms of size,

economic development and fiscal structure. Admittedly, “decentralization has taken many forms in different

countries at different times and even exactly the same variety of decentralization may have very different

effects under different conditions” (Bird and Vaillancourt(1998,p.2)). There should be some common grounds,

however, for fiscal decentralization to work.

2. Key Features of Decentralization

In theory, Musgrave’s tripartite division dictates desirable way of decentralizing government functions with

provisions of local public goods and services being devolved and income redistribution and macro economic

stabilization along with national public goods supplies being retained at the upper level of governments. Not

surprisingly, practice of fiscal decentralization has exhibited quite different picture because it has been

motivated by political reasons such as democratization and national integrity rather than economic rationales

and has been the consequences of political bargaining and compromises rather than solving optimization

problem (Dixit(1996)). For instance, revenue-led decentralization has been the case in countries such as

Indonesia and Russia where collapse of the central authoritarian regime was followed by power shifting to

local governments and may be motivated due to lack of confidence in central grants. So local level

3

governments attempting to assure their financial resources by capturing buoyant tax bases within own

jurisdictions such as business/personal income taxes and natural resource taxes.

Furthermore, as Bird and Smart(2002) note, major changes in intergovernmental fiscal arrangements often

occur due to significant political development such as collapse of dictatorial regime giving rise to “the need for

change but not the time to think” carefully. This is the case in Indonesia of 1998. Kim (2004) also addresses

that there was not much preparation for fiscal decentralization in Korea when decentralization started in

1995.

It is noteworthy that politically motivated decentralization in any forms has economic consequences that

could be harmful to economy if it is mis-designed. Design of fiscal decentralization that shapes “rule of

political game” among stakeholders including local governments does matter. Sato (2004) considers fiscal

decentralization as constitutional rule. Actual implementation of decentralization reforms is also a key for it

to succeed delivering the benefits of responsive and accountable improved service delivery and governance.

To be successful, reformers must both understand this theory and then be able to design and creatively tailor

an appropriate decentralization implementation strategy adapted to the political, legal and institutional

environment within each country(Kelly(2004)). In the following, therefore, our consideration is not only on

how decentralization is intended and designed (i.e, de jure nature of decentralization) but also how it has been

in place (i.e., de facto nature).

Expenditure Assignment

Fiscal decentralization must be systemic. The assignment of expenditure and revenues responsibilities cannot

be done as separate tasks. The revenue raising powers of local governments must be adequate and robust to

finance the public services that they are expected to deliver. Such coherence has been missing in devolution

process in some countries.

In Philippines, the Local Government Code of 1991 provides the policy framework for devolution, outlining

powers and authority on local government units (LGUs) to perform specific functions and responsibilities

(Guevara(2004)). The assignment of revenues to LGUs was also formulated separately from the expenditure

assignment, however. Indeed, Local Government Code was a product of political compromises made in the

Senate and the House, the former taking charge of the political and expenditure side of decentralization and

the latter having power in deciding on the revenue side. In the process of designing the basic policy of

decentralization, there was little interface between the two wings of the Legislature, which had resulted in

incongruity in the shape of local governments’ public finance structure. Functions and expenditures such as

health and social services had been devolved to local governments, together with personnel and some fiscal

resources, but the revenue side of the equation had been changed little from the old regime and the crucial tax

autonomy had not been increased. (Asanuma(2004)).

In Indonesia, Law No.22 and N0.25 of 1999 that shape fiscal decentralization were drafted in a relatively

4

short period by MOHA and MOF respectively with coordination between the two ministries being absent.

Lack of leadership at central level contributes significantly to the coordination problems. Brodojonegoro

(2004） overviews the amendment process of both law 22/1999 and law 25/1999 and he note that it revealed

the old and continuous problem at the central level, lack of coordination among the ministries and especially

rivalry relations between MOHA and ministry of finance (MOF).

In China, the introduction of the Tax Sharing System in 1994 aimed to re-centralized revenues without cutting

expenditure assignments to localities. The 1994 reform did not change the responsibility assignments that

existed by law and practice before 1994, which is largely a result of the division of budgetary agencies’

affiliations. Say, the central budget is responsible for state-owned enterprises, universities, hospitals, and

research institutions; expenditures of budgetary agencies “owned“ by local governments.(Shen et al(2006)).

In this circumstance, expenditure assignment does not necessarily match revenue assignment. Moreover, it

remains discretionary and ambiguous.

Martinez-Vazquez (2001) notes that “the focus of revenue side of decentralization and the neglect of clearer

assignment of expenditure responsibilities has been a common problem in the decentralization reforms of

many developing and transition countries.”

Kim(2004) claims that the distinction between central and local functions is not very clear in practice on the

spending side due to the legacy of long period of centralization. The blurred nature of expenditure assignment

thus makes it possible for local governments to ask for more intergovernmental transfers from the central

government whenever there arise more local expenditure needs. Supata (2004) also note that expenditure

assignment between different level governments in Thailand is not clearly defined in Thailand.

In Indonesia, No.22/1999 stipulates a new assignment of expenditure functions between the central and local

governments. Local government responsibilities have been only rather vaguely defined via a negative list but

they are nonetheless considerable. Lack of clear alignment of expenditures has triggered bargaining and

disputes over authority allocations between the central and local governments leading to inconsistency and

conflicts (Smoke (2002)). In addition, the process of defining and establishing minimum service standards has

been delayed. In short, it is not yet clear or agreed which level of governments should be in charge of which

services/functions and what minimums should be ensured for them. Without determination of expenditure

assignments, the fiscal needs in the equalization grants, DAU, cannot be calculated in an objective manner.

In the case of India, the constitutional amendments in 1992 has clarified roles and responsibilities of rural and

urban local governments (Rao(2004)). However, many functions of local governments have to be carried out

concurrently with the States and the actual assignment of specific revenue sources and expenditures depends

on the extent to which the State is willing to devolve. Guevara(2004) point outs that in Philippines, central

government agencies implement devolved programs such as tourism and basic health that are supposed to be

discharged by local governments. Such concurrency and duplication could blur expenditure responsibilities.

5

Revenue assignment

For local governments to discharge decentralized expenditure functions, adequate and reliable revenue

sources must be assigned. They include local own revenue, intergovernmental transfers and local borrowing.

Regarding the last source, there is concern on its disturbing effect on macro economy. In the following, we

focus on local own revenue and tax revenue sharing leaving discussion on intergovernmental grants

(equalization and specific purpose grants) to the next section.

In Philippines, the assignment of taxing powers to local governments largely confirms to the criteria of Good

Local taxes, and the local business tax remains to be the major revenue-source of municipalities

(Guevara(2004)). In India, a number of tax handles have been assigned to the States, but from the viewpoint

of revenue productivity, only the sales tax is important (Rao(2004)). The states have set upon reforming their

sales tax systems into a destination based value added tax beginning April 2005. In Indonesia. the local

governments are authorized to levy a number of small taxes, including hotel and restaurant tax, entertainment

tax, advertisement tax, street lightning tax, base mineral extraction tax and water tax. As opposed to the

expenditure side, the revenue assignment and grant funding have been laid out relatively in details in this law

including tax revenue sharing arrangements. Every local government regulation including local tax needs the

approval of MOHA; the ministry has 30 days after the request to evaluate. Without comments from MOHA

within 30 days, the local regulation can become effective. 1994 tax reform in China introduces the tax

assignment system in which VAT is shared between the central and provincial governments and land related

taxes are devolved. The profit and tax contracts under which the governments negotiated annual tax payments

with SOEs were largely removed (Shen (2006)).

An interesting feature of local tax system in Korea is its progressive tax structure of the property tax. Kim

(2004) points out that due to its highly redistributive nature, local governments are reluctant to collect the

property tax, which may explain why property tax revenue has not increased compared to other local taxes.

The introduction of the national property tax is expected to improve the situation since tax rates of local

property tax is now much less progressive (Kim(2004)).

Table 2: Tax Assignment

Country Major local taxes % in total local tax

revenue

VAT (Local share) 21.5

Business tax 32.9

Corporate income tax 14.0

China (2003) (1)

Personal income tax 6.7

India (2) Tax on land and agricultural income 2.8

6

Stamp duties and registration fees 9.6

Sales tax 60.4

(2003-2004)

Sate exercise tax 12.5

Personal income tax 23.58

Sure tax on central corporate income tax 6.89

Local enterprise tax 11.11

Local consumption tax 7.33

Japan (3)

(2003)

Property tax 26.84

(Sources) (1) Finance Year Book of China (2004)

(2) Rao (Ch.8)

(3) Local Government Statistics Year Book of Japan (2005)

Kim(2004) notes that in Korea, the basic principle of the determination of national and local taxes in Korea is

“tax base separation.” In practice, however, the exceptions such as Local Education Tax that is surtax on local

taxes and de facto central revenue have become too prevalent to be meaningful. In India, the tax powers are

assigned on the basis of the principle of separation, exclusively either to the Center or to the States.

Rao(2004) addresses, however, exclusivity is only in the legal sense and this gives rise to anomalous situations.

The center cab levy taxes on production but the tax on the sales of goods is imposed by the Sates. Their tax

bases are overlapped in economic sense. In Japan, major local taxes such as local inhabitant taxes and local

enterprise taxes share the same tax bases as the central personal and corporate income taxes, respectively as

well.

Overlapping tax bases between governments can give rise to “tragedy of commons” in the absence of tax

policy coordination among them (Keen(1997)). Unilateral increase of tax rate by one level government

generates negative external effects on other government’ revenue with shared tax base being diminished. This

is known as “vertical tax externality”(See Sato(2004)). Consequently combined tax burden becomes excessive,

which in turn distorts economic activities to considerable extent. To avoid this consequence, tax policy

coordination may be called for. Intergovernmental tax revenue sharing arrangement could be one of such

coordination.

Formal tax revenue sharing arrangements can be found in China, Indonesia and Thailand. In China, the tax

sharing reform in 1994 explicitly defined fiscal revenue as the central revenue, shared revenue and the local

revenue; for instance, VAT is shared between the central and provincial governments at the ratios of 75% and

25%. Consequently, the share of the central government’s revenue to the total jumped from 22 percent in 1993

to about 56 percent in 1994(Shen et al(2006)). In Indonesia, Law No.22/1999 enhances local share of buoyant

tax revenues such as natural resource taxes. For instance, 15% and 30% of oil and natural gas tax revenues,

respectively, are allocated to revenue generating province and municipalities, while the local ratios are higher

for Ache as an effort to contain the separation movement. This arrangement, however, exacerbates the

horizontal fiscal imbalance, favoring natural resource rich provinces/regions. In the case of Thailand, the

7

Decentralization Act of 1999 mandates increase of local revenue (inclusive of grants) up to 35% of

government total revenue in 2006(Amornivivat(2004))

At this point, it is noteworthy to address different natures of different tax revenue sharing arrangements. In

China, local share of VAT(25%) is accrued to revenue collecting provinces, whereas intra provincial allocation

is left to discretions of the provincial governments. Likewise, natural resource tax revenue sharing is largely on

origin basis in Indonesia. In Japan, local consumption tax revenue is allocated according to destination

principle, so it being directed to prefectures where consumption takes place. In Thailand, inter-regional

allocation formula for shared revenues (VAT and Excise taxes) accounts for population and socio economic

and demographic factors, and thus de facto, tax revenue sharing involves equalization (Amornivivat(2004)).

Local autonomy would not be enhanced under tax revenue sharing since it does not provide local government

with the authority to determine tax rates and tax bases. Ebel and Taliercio(2004) measure fiscal

decentralization on revenue side by degree of tax autonomy of sub-national governments. They note that

except for Philippines, East Asian countries reveal a low level of local own source autonomy (Ebel and

Taliercio (2004)). If decentralization is measured by local revenue autonomy, some studies show the case for

decentralization to enhance economic growth and stability (Ebel and Yilmaz(2003)). Related to it, Sato(2004)

raises distinction between decentralization in quantity and that in quality. It is also noteworthy that for fiscal

accountability to be assured, local residents must bear cost of public expenditure in margin, i.e., last one dollar

must be spent out of own pocket, which is referred to as marginal fiscal accountability (Bird(1999)) This

requires that local governments need to be able to control size of own expenditure, which in turn implies that

they must hold tax autonomy. Bird and Vaillancourt(1998) address that the root of the problem associated

with decentralization lies in the very limited taxing powers available to sub-national governments to carry out

own expenditure functions without extensive reliance on central financial support either through transfers or

bailout.

Granting local tax autonomy is one thing, exercising it is another, however.. The Local Tax Act in Korea

allows local governments to determine the tax rates of eleven local taxes within certain limits, but it is not

exercised in reality (Kim(2004)). In Japan, local governments are reluctant to tax more than centrally

determined rates on their residents whereas many of them set higher than standard tax rates on local

enterprise and corporate inhabitant taxes, both of which are local corporate taxes. As addressed by Kim(2004),

the latter may illustrate local governments’ motive of exporting tax burden to non-residents. The use of local

tax autonomy is not necessarily aligned with a nation interest (Sato(2004)).

Fiscal Imbalances:

Vertical and horizontal fiscal imbalances are evident in many Asian countries. These gaps must be filled by

intergovernmental transfers but may not be so in practice. In India, the States raise about 41 per cent of

revenues and incur 57.5 per cent of expenditures in 2002-2003. Inter-State disparities in India are not only

high, but also have shown an increasing trend. This is largely because of the inability of the transfer system to

8

offset fiscal disabilities of poorer states (Rao(2004)). In Philippines that exhibits large vertical fiscal gap, local

governments are heavily dependent on grants from the center, which accounts 65% of local revenue in

2004(Guevara(2004)). Guevara(2004) addresses that the exercise of matching expenditures and resources

ended on the macro level and did not consider diversities among local governments. The latter has led to

increasing horizontal fiscal gap across regions. In China, the recentralization of tax revenue after 1994 has

expanded vertical fiscal gap in favor of the center, reversing “negative fiscal gap” in 80s under fiscal

contracting system in which the provinces remitted portions of their collecting revenues to the central

government. The central government has not directed its increased revenue to fulfill horizontal gaps, however.

Decentralization had a significant and positive effect on the degree of regional inequality, but its fiscal transfer

system, with most transfers determined by vested interests and political influences, has played little role in

equalization efforts (Shen et al (2006)). Consequently, China’s regional disparity in income level and fiscal

capacity has become one of the largest in the world.

In Korea, Seoul has been a target of a large immigration, which is because it had benefited from the

centralized regime (Kim(2004)). Fiscal decentralization has not lessened the trend of agglomeration around

Seoul, called “Capital Region Problem” however. Inter regional fiscal disparity is more significant with the tax

share of Seoul capital region being larger than that of population share. Interestingly, per capita local

expenditure of big cities is significantly lower than that of provinces, which implies that intergovernmental

transfers serve to equalization (to a possibly excessive degree). This tendency can be found in Japan as well

where transfers reverse the order of regional fiscal capacities with per capital revenue becoming higher in rural

areas than in cities such as Tokyo after transfers.

9

Table 3: Vertical Fiscal imbalance

Local own revenue share in

total revenue (%)

Local expenditure share in total

expenditure (%)

China (2002) 45.1 69.3

India (2002-03) 41.4 57.5

Indonesia (2003) 6.08 26.51

Japan (2002) 42.1 61.9

Philippines (2004) 8.1 20.48

(Sources) Data are taken from the country papers and they are not comparable.

Income redistribution

Not only inter regional but also inter personal distribution of income is concerned. A traditional view of fiscal

federalism literature that has developed in advanced federations, income redistribution is better served by the

central government. The reason is due to openness of local economy, free mobility of residents in the present

context. Decentralized income redistribution will lead to tax induced out-migration of taxpayers bearing cost

of redistribution and tax induced in-migration of transfer recipients. Consequently, such income

redistribution becomes unsustainable. Thus the federalism literature often raises concern, therefore, that fiscal

decentralization that devolves responsibility of income tax and transfer policies to lower level government

undermines function income redistribution.

There is an opposing view, however. In practice, income transfers often take form of in-kind transfers, such as

health care and education. They may be targeted to the needy with certain entitlement criteria. Then local

governments may be better position in targeting services to the needy and/or making them better suitable to

the regional preferences/needs due to informational advantage as is claimed by the Decentralization Theorem.

Indeed, in China, local governments play the key role in providing social services including education, health

care, social security and housing (Shen et al.(2006)).

Von Braun and Grote(2002) examine whether or not decentralization serves to alleviate poverty. Their major

findings are (i) political and administrative decentralization must precede fiscal decentralization to assure

political participation and accountability, (ii) participation by the poor may be enhanced by increased

supervision power and improved governance due to political decentralization and (iii) quality and efficiency

of services such as health and education very much depend upon institutions and management capacities.

For distribution responsibility, therefore, the central vs. subnational division becomes less clear-cut. Ebel and

Taliercio (2004) note that this is because distribution has a "place" as well as a "people" dimension. Then they

address that intergovernmental transfers can serve as device to bridge the central government’s advantage in

financing public expenditures for redistribution purpose with local government ones in delivering them. To be

specific, the central government will have to find many of the fiscal resources for poverty alleviation programs,

10

whereas local governments will undertake program design and implementation.

3. Some specific issues to developing and transition economies

Theories of fiscal decentralization have largely developed in advanced decentralized countries such as Canada

and U.S. There are, however, issues associated with decentralization that are specific to developing and

transitional economies including the following.

Formal versus informal authority

In the context of developing and transition economies where regulation enforcement by the center is often

weak, a careful consideration must be paid on not only legal but also informal authorities possessed by local

level governments. Important are the formal and informal social systems that make tax polices work, which a

developed country can take for granted, but that may be weak or even nonexistent in a developing country

(Ebel and Taliercio(2004)).

In 1994, China's tax reform aimed at clarifying “who shall administer by creating created two separate tax

administrations - one central to administer national and shared revenues, and a provincial tax administration

tasked with all subnational government revenues. The creation of the NTS has also certainly made a

difference. The establishment of NTSs offered a better control over general tax collection and local tax

exemption policies. The interference of local authorities in tax administration and collection of central and

shared revenues are substantially restrained (Shen et al(2006)). But Ebel and Taliercio(2004) address that there

is still a problem of de facto dual subordination of central tax administrators to local governments, because of

old allegiances and local governments providing bonuses and penalties to stimulate collection performance

Under China’s 1994 budget law, local governments are forbidden to incur either domestic or foreign

indebtedness unless otherwise permitted by law. Shen et al(2006) address that in practice, however, the law

and regulations of local borrowing were widely violated by local government. Although practiced informally

or illegally, local borrowing played an important role in local economic development. Shen et al(2006) also

report wide spread use of unauthorized collection and use of local revenues. The 1994 tax-assignment reform

did little to discipline the opaque and regressive extra-budgetary funds, which poses substantial challenges to

the national fiscal discipline, economic reforms, and political stability.

In addition, the proliferation of "illegal" fees at the local level has become a matter of concern because the

overall fairness of the system is undermined in China(Shen et al(2006)). Ebel and Taliericio (2004) also note

that the octroi, a sort of sales tax on goods crossing regional borders, that is informal charges continues to be

an important revenue source, particularly in some Indian and Pakistani jurisdictions where tradition has made

the octroi politically acceptable and a financial necessity despite that is has been condemned regularly by

government finance commissions, academics, and World Bank reports.

11

Human resources

In decentralized regime, local governments need not only adequate financial revenue but also management

capacities to discharge devolved functions and responsibilities. In Philippines, the devolution of

responsibilities was accompanied by devolution of personnel (Guevara(2004)). Central government personnel

who were previously assigned with the devolved functions were transferred to LGUs. Some 70,283 personnel

representing 51.5 percent of the total personnel of affected agencies were transferred to LGUs. Ebel and

Taliercio(2004) point out that in countries such as Philippines, it is difficult for local governments to attract

and retain qualified staff. One option is to contract out appropriate functions to the private sector, such as tax

collection and assessment. That is indeed the case with Lima's Tax Administration Service, which collects

property taxes for two other Peruvian municipalities (Ate and La Victoria) for a 25 percent commission. One

could envision local governments taking over more functions as they developed capacity in those areas.

Lack of management capacity is also reported by Amornivivat(2004) in the case of Thailand where

personnel reallocation has been delayed.

Sub-provincial/ state governments

Policy literature on fiscal decentralization has largely centered on central-provincial(state)fiscal relations and

little attention has been paid on provincial-local dimensions(Bahl and Wallace(2003)).

In India, with 73rd and 74th Constitutional amendments in 1992, statutory recognition was accorded to rural

and urban local governments (Rao(2004)). Then the State governments were required to pass legislation

appointing Panchayat Raj institutions and urban local bodies. The actual assignment of specific revenue

sources and expenditures, however, depends on the extent to which the State is willing to devolve. In Korea,

amalgamation of local governments took place to a significant extent in 1995, with many counties merged

with neighboring cities (Kim (2004)). This aimed at exploring economies of scale in the provision of local

public services and improving administrative efficiency, which should in turn serve to enhance management

functions of local governments.

Shen et al (2006) address that in China, with no specific central government guidelines, the actual division of

expenditure responsibilities among sub-provincial governments is left to the discretion of each level of

government. The higher-level government has discretion to determine the expenditure assignment of the level

immediately below it. Then the process of recentralizing revenues upward and devolving expenditures

downward after 1994 tax reform extends from the central to the provincial, to the prefecture to the county and

ultimately to the township and village level. Each level offload fiscal responsibilities down to lower levels while

asserting the largest possible claim on revenue residuals.

Fiscal decentralization in Indonesia aimed at the district (i.e., the second tier), and the provinces have no

hierarchical authority over districts and perform largely coordinating tasks. The central authority prefers the

delegation to the second tier because it is likely to exercise more influence over relatively weak districts than

12

over strong provinces (Ahmad and Mansor (2002), Hofman and Kaiser (2002)). It is then conceivable that the

local governments in charge are too week in terms of fiscal resources and too small to exploit a scale of

economy in delivery and production of public services.

Intergovernmental Transfers

Fiscal decentralization does not indicate that local governments must be self reliant in financing their

expenditures. On contrary, intergovernmental grants must play a very important role as device to coordinate

central and local policies, to assure national minimum expenses on key local services such as education,

health and infrastructure and to improve equity across regions (Boadway and Hobson(1993))

In practice, however, intergovernmental transfers have not been adequate to finance local expenses and have

failed to fulfill inter regional fiscal imbalances. Guevara(2004) notes that the grant formula in Philippines

called IRA does not incorporate any equalization factor to address horizontal imbalances. The allotment has

been counter-equalizing and LGUs with more revenues, higher taxable capacity, and more expenditure

outlays receive more grants. In China, the equalization transfer has remained small (about 4.7 percent of the

total central transfers in 2003) and majority of central transfers, in the format of tax rebate, have been

negotiated with provinces, thus virtually preserving the pre-1994 pattern of interregional fiscal distribution

(Shen et al(2006)). The transfer of “tax rebate” especially favors the rich regions. Moreover, even other

discretionary transfers, including earmarked grants and equalization grants, are not targeted to poorer

provinces. In India, there are three channels of transferring funds from the center to the States, Finance

commission transfers, Planning commission transfers and specified purpose ones granted by various central

ministries. These transfers do not sufficiently offset inter regional fiscal disparities (Rao(2004)).

Moreover, disbursement of transfers may not be transparent and perverse incentive effects may be imbedded.

Amornivivat(2004) claims that in Thailand, most grants are distributed in an ad hoc and highly politicized

manner. The “gap-filling” methodology has prevailed in India (Rao(2004)). To be specific, the gap estimated

between projected revenue receipts and non-plan expenditures was first filled in by the tax devolution and the

remaining gap is filled by grants. Rao (2004) addresses that such gap filling has led to both inequity and

disincentives for fiscal management in states. Consequently state finances have been deteriorated.

Guevara(2004) also notes the grant distribution formula does not induce LGUs to increase their revenue effort.

LGU officials are "saved" from bearing the costs of under-utilizing their taxing powers through the pork barrel

system and subsidies that are doled out based on political patronage. Thus, local governments in Philippines

are under no hard budget constraint. Moreover, equal sharing component of IRA that accounts for 25 percent

of the total introduced the incentives for an LGU to split itself to receive additional IRA.

Asymmetric Federalism:

“Rule of the game” outlined by decentralization reform could be asymmetric, regions with special

characteristics being treated in a special manner. Asymmetric federalism has been experienced in countries

13

such as Italy and Spain. Davies et al(2002) report that asymmetric arrangements of transfers and autonomy

has served to contain secessionist activities and thus to preserve national integrity although inter regional

equity may be jeopardized and political demand for comparable treatment could occur in other regions. They

also address that there should be a scope for periodic re-negotiation between the center and regions with

special status (rather than enshrining special treatments in constitution) so as to adopt changing economic and

political circumstances.

Rao(2004) addresses that asymmetrical federalism in India has been a way of accommodating diverse social,

religious, linguistic and ethnic groups and protecting the interest of minorities. Guevara(2004) also note that

more consideration should be made on designing asymmetrical fiscal federalism in Philippines. “Such an

approach can focus on what may work rather than on fitting everyone into the same centrally determined box”

(Guevara(2004)). This should be applicable to Indonesia where “unity in diversity” with “one nation, one

people and one language”.

3. What do we learn?

We have attempted to identify common issues associated with fiscal decentralization, which are summarized

as follows:

[1] Broad design and implementation strategy of fiscal decentralization has been absent in countries like

Indonesia and Philippines without expenditure and revenue assignments being properly matched.

[2] Expenditure assignment is not clearly defined, which eases the central and local governments shifting

blame for their failure to deliver services one another and make it difficult to determine necessary revenue for

local governments.

[3] Local tax autonomy has been limited or not properly practiced although decentralization has enabled local

governments to access to more financial resources say in form of tax revenue sharing. Tax revenue sharing has

increased inter regional fiscal imbalances to substantial manner.

[4] In countries like China, India, and Philippines, vertical and horizontal fiscal imbalances are not adequately

filled by transfers. On contrary, intergovernmental transfers could be regressive, unreliable and give rise to

perverse incentive effects on grant receiving governments.

[5] With enforcement of central regulations being weak, local governments have often exercised informal

authority charging fees and borrowing despite that these are illegal.

[6] Local governments are not only inadequately funded but also suffer from lack of management capacity to

discharge devolved functions.

[7] A careful consideration must be made not only on central-provincial fiscal relations but also on provincial

–local ones. The latter could dilute the central government’s effort to equalize fiscal capacities across regions

and to promote regional incentives for revenue mobilization and economic development.

For fiscal decentralization to be successful, of particular importance is the changing and supportive role of the

central government. Central governments must establish and follow clear ‘rules of the game’ not create a

14

separate “game of rules”. They must enforce “hard budget constraints” in order to provide proper incentives

for both central and local government. They must preserve and enforce the common market to minimize

possible regional distortions and enhance economic growth. They must facilitate information flows among

citizens, elected politicians, management, operational staff, and other stakeholders to promote more

responsive, efficient and accountable decision making(Kelly(2004)). Fiscal decentralization does not mean

that different governments act independently but policy coordination and intergovernmental cooperation are

called for. Then intergovernmental transfers play an important role. Transfers must be accountable as well as

adequate. The local governments need to feel that the transfers are assured and allocation of transfers is fair,

invulnerable to political manipulations. Lack of confidence in intergovernmental relations could turn fiscal

decentralization to rent seeking or pie dividing game in which governments aim to capture buoyant revenue

sources and regulatory rents (say bribes) whereas offloading costly expenditures. Then danger of

decentralization would emerge.

References

Fiscal decentralization in Asia revisited:

http://www.econ.hit-u.ac.jp/~kokyo/APPPsympo04/index-nov.htm

[1] Ahmad, E. and A. Mansor, 2002, “Indonesia; Managing Decentralization,” IMF Working Paper 136.

Asanuma(2004)

[2] Bahl R and S. Wallace (2003) “Fiscal decentralization: the provincial-local dimension”

[3] Bird, R. M. 1999, "Threading the Fiscal Labyrinth: Some Issues in Fiscal Decentralization,": in Slemrod, J.

ed, Tax Policy in Real World, Cambridge University Press.

[4] Bird, R. M. and M. Smart (2002) “Intergovernmental Fiscal Transfers: International Lessons for

Developing Countries,” World Development vol 30(6) pp. 899-912.

[5] Bird, R. M. and F. Vaillancourt ed, (1999?), Fiscal Decentralization in Developing Countries, Cambridge

Press.

[6] Boadway R. and P. Hobson (1993), Intergovernmental Fiscal Relations in Canada, Canadian Tax

Foundation.

[7] Davies, M., P. Giarda, S. Piperno and J. Vinuela(2002) “Asymmetric fiscal federalism in Italy and Spain,”

in Ahmad, E. and V. Tanzi ed. Managing Fiscal Decentralization, Ch. 7, Routledge

[8] Dixit A.K. (1996) The Making of Economic Policy: A Transaction – Cost Politics Perspectives, CES The

MIT Press.

[9] Ebel, R.D. and S. Yilmaz, 2003, “On the Measurement and Impact of Fiscal Decentralization,” :in J.

Martinez-Vazquez and J.Alm ed, Public Finance in Developing and Transitional Countries, Edward Elgar.

[10] Hofman, B. and K. Kaiser, 2002, The Making of the Big Bang and its Aftermath; Political Economy

Perspective, A paper for conference “Can Decentralization Help Rebuild Indonesia?” sponsored by the

Andrew Young School of Policy Studies, Georgia State University.

[11] Keen, M. (1997) “Vertical tax externalities in the theory of fiscal federalism,” IMF staff papers 45, pp.

454-485.

15

[12] Kelly, R.(2004) “Comments” in the Proceedings for international symposium on Fiscal decentralization

in Asia revisited, Hitotsubashi University.

[13] Martinez-Vazquez, J. and J. Boex, 2001, Russia's Transition to a New Federalism, The World Bank.

[14]Smoke, P. 2002, Expenditure Assignment under Indonesia’s Expenditure Decentralization: A review of

progress and Issues for the Future, A paper for conference “Can Decentralization Help Rebuild Indonesia?”

sponsored by the Andrew Young School of Policy Studies, Georgia State University.

[15] Von Braun, J. and U.Grote(2002) “Does decentralization serve the poor?” in Ahmad, E. and V. Tanzi ed.

Managing Fiscal Decentralization, Ch. 4, Routledge

1

Fiscal Decentralization inIndonesia Revisited

Motohiro SatoHitotsubashi University

Plan of the Presentation

Part I: Overview of Fiscal Decentralization inIndonesia

Part II: Decentralization in Developing Countries.

Part III: Design of Decentralization

PART IV Concluding Remarks

2

Part I: Overview of FiscalDecentralization in Indonesia

Decentralization in Indonesia

Indonesia took big bang approach in terms of bothdegrees and speed toward fiscal decentralization,which is reflected in the two new laws, No.22/1999and No.25/1999

Major changes in intergovernmental fiscalarrangements often occur due to significant politicaldevelopment such as collapse of dictatorial regimegiving rise to “the need for change but not the time tothink” carefully (Bird and Smart(2002))

3

Fiscal Decentralization in Indonesia

Expenditure Side: (a) Decentralization is radical but local government

responsibilities have been only rather vaguely definedvia a negative list.

(b) Scope of local expenditure responsibilities as wellas national minimums of local public services havenot yet been agreed among governments.

(c) Decentralization aims at the second tier, or themunicipality level governments.

Revenue Side: (d) Local shares of natural resource taxes and

personal income tax are increased, which serves tomitigate the vertical fiscal gap, but exacerbatehorizontal one.

(e) DAU, Indonesia’s general purpose grants can beused to fulfill vertical and horizontal fiscalimbalances, but its use for these purposes is limiteddue to the political constraints given as the hold-harmless provision.

(f) There are specific or conditional transfers, DAK,but so far they play only a minor role (Brodjonegoro(2002)).

4

Intergovernmental Relation: (g) The province as an autonomous region has only a

minor role, mainly in coordinatingmunicipalities/districts within own jurisdictions; thereis no hierarchical relationship between province andthe districts (Hoffman and Kaiser(2002))

(h) The central skills as well as incentives ofmonitoring and regulating local governments in thedecentralized expenditures and regulations may beweak(Ahmad and Mansor (2002)).

Fiscal Decentralization in Indonesia

FiscalDecentralization in Indonesia

5.04

7.046.08

26.51

34.2127.31

0

5

10

15

20

25

30

35

40

2001 2002 2003

%

Localexpenditure/Totalexpenditure Localtaxrevenue/NetDomestic Revenue

Source: Bambang Brodjonegoro (2005)

5

Intergovernmental Transfers in Indonesia

FY2001 FY2002

Billion Rp. % of GDP Billion Rp. % of GDP

Central 258,849 17.63 246,040 14.60Expenditure

Local 93,116 6.34 119,354 7.08

Central 185,257 12.62 219,628 13.03Tax revenue

Local 10,727 0.73 10,949 0.65

DAU 60,929 4.15 68,472 4.06

DAK 1,009 0.07 2,008 0.12

Intergovernmental

transfers

Tax Rev. Sharing 10,072 0.69 9,661 0.57

Challenge of Fiscal Decentralization inIndonesia

Fiscal decentralization was spontaneous and revenue-led without clear expenditure assignment.

Many local governments remain dependent ontransfers.

Tax revenue sharing exacerbates horizontal fiscalimbalance.

General purpose transfers (DAU) have beenconstrained by the hold harmless provision and fail toequalize fiscal capacities across regions.

6

Revenue Sharing(Indonesia)

84.5

69.5

20 20

3.16.1

16 16

6.2

12.2

64

32

6.2

12.2

0

32

0

10

20

30

40

50

60

70

80

90

Central Province Resource producinglocalgov. Otherlocalgov.in the same prov.

%

Oil LNG Mining:Land rent Mining:Royality

Revenue Sharing in Indonesia



HorizontalFiscalImbalance(Indonesia)

2.46

1.99

0.77

3.62

0.96

0.44

1.17 1.17

0.85

0

0.5

1

1.5

2

2.5

3

3.5

4

2001 2002 2003

Year

CV

Localtaxandcharge percapita Localrev.percapita Localexp.percapita

7

DAU allocation by Formula per capita DAU2002+Balancng Fund per capitaDependent variable

(1) (2) (3) (4)

Const -466.54**

(-4.18)

-376.97**

(-3.65)

-468.17**

(-4.08)

-392.39**

(-3.72)

Population(Thousands) -0.25**

(-4.86)

-0.22**

(-4.5)

-0.3**

(-5.6)

-0.27**

(-5.24)

Population*Population 0.7E-04**

(4.17)

0.59E-04**

(3.61)

0.81E-04**

(4.65)

0.67E-04**

(4.07)

Land Area -0.55E-03

(-0.48)

0.78E-03

(0.71)

-0.11E-02

(-0.91)

0.32E-03

(0.28)

Poverty Index 10.52**

(3.59)

16.7**

(5.9)

8.32**

(2.75)

14.46**

(5.0)

Construction Price Index 4.14**

(4.83)

2.82**

(3.49)

4.79**

(5.43)

3.52**

(4.29)

GDP per capita -0.42E-02**

(-3.9)

-0.37E-02**

(-3.32)

Estimated Own Rev. per capita 4.81**

(7.0)

5.01**

(7.14)

Natural Resource Revenue.

Sharing per capita

0.09**

(3.4)

0.016

(0.66)

0.29**

(10.7)

0.22**

(8.55)

Civil Servant Salary per capita 1.7**

(17.82)

1.4**

(15.1)

1.48**

(15.09)

1.19**

(12.54)

Adjusted R2 0.77 0.79 0.77 0.8

(Note1) Sample contains 336 observations of the municipality level governments.

(Note2) ** and * indicate statistical significance at 1% and 10% levels, respectively.

(Note3) Measurement units for dependent and the last four variables are taken to be thousand Rp.

(Note 4) DAU by formula includes formula factor, balancing factor and lump-sum factor.

Regression Analysisof DAU (MunicipalityFY2002)

B. Brodjonegoro,H. Paddue, andM. Sato(2003)

Hold-Harmless Provision

Table: DAU in FY2002

Billion Rupiahs

Province Municipality Total

DAU Budget 6,911 62,203 69,114

+ Balancing Fund 8,111 63,057 71,169

Hold Harmless Provision 7,465 55,883 63,349

% of the hold-harmless provision 92% 88.6% 89 %

B. Brodjonegoro, H. Paddue, and M. Sato(2003)

8

Hold-Harmless Provision

DAU2002 and Hold- Harmless ProvisionPer Capita Transfer

Provincial Governments (FY2002)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

DI

Ace

h

Sum

ut

Sum

bar

Ria

u

Ja

mb

i

Sum

sel

Ben

gk

ulu

La

mp

ung

DK

IJa

ka

rta

Ja

bar

Ja

ten

g

DI

Yo

gya

Ja

tim

Kalba

r

Kalte

ng

Kalse

l

Kaltim

Sulut

Sulte

ng

Sulse

l

Sultra

Bali

NT

B

NT

T

Malu

ku

Irja

Malu

ku

Utara

Ban

ten

Ban

gk

aB

elitu

ng

Go

rontalo

DA

U20

02

+B

ala

ngin

gF

un

d(T

ho

usa

nd

Ru

pia

hs)

Hold- Harmless Provision Net Increase

B. Brodjonegoro, H. Paddue, and M. Sato(2003)

Part II: Decentralization in DevelopingCountries

9

Fiscal Decentralization Movement

In the last decades, two forces have shaped the world,-Economic globalization/integration-Fiscal decentralization

“Decentralization in developing countries sometimes seems tobe viewed as either a panacea or a plague- either a cure for allthe ills of such countries or an addition to their already heavyburdens” (Bird and Vaillancourt(1998))

The meaning of decentralization is being interpreted in manydifferent ways.

Fiscal Decentralization in Asia

Year China(a) India Indonesia Japan Korea PhilippinesThailand(1)Population (Milions) 2004 1,296 1,080 218 128 48 82 64

(2)Surface area (Thousand sq.km) 2004 9,598 3,287 1,905 378 99 300 513(3)Population density(People persq.km) 2004 139 363 120 351 487 274 125

(4)Average annualpopulation growth rate 1994-2004 0.9 1.7 1.4 0.2 0.8 2.1 1.1(5)Grossnationalincomes ($billions) 2004 1,938.00 673.2 248 4,734.30 673.1 95.1 158.4(6)Percapita grossincome ($) 2004 1,500 620 1,140 37,050 14000 1170 2,490(7)Grossdomestic productgrowth rate(2004) 2003-2004 10.1 6.9 5.1 2.7 4.6 6.1 6.2(8)Inflation rate(%)(b) 2000-2004 1.0 3.9 9.1 -0.5 3.4 4.5 1.6(9)Giniindex(%)(c ) 44.7(2001)32.5(1999-2000)34.3(2002)n.a 31.6(1998)46.1(2000)42.0(2002)(10)Public expenditure on education (% ofGDP) 2004 n.a. n.a. 1.1 3.6 4.2 3.2 4.2(11)Public expenditure on health (% ofGDP) 2003 2.0 1.2 1.1 6.4 2.8 1.4 2.0(12)Centralgovernmentexpenditure (% ofGDP) 2004 10.4 15.9 16.8 n.a 18.6 15.9(d) 17.1

(Note) (a)Chinadoesnotinclude HonKong(b)Inflation rate isconsumerprice indexaverate annualgrowth rate(c )Yeardata taken is in parenthesis(d)Datais in 1995

(Source) WorldDevelopmentIndicators (WorldBank(2005))

10

Fiscal Decentralization in Asia

Vertical Fiscal imbalance

Local own revenue share

in tota l r evenue (%)

Local expenditur e share in

tota l expenditure (%)

China (2002) 45.1 69.3

India (2002-03) 41.4 57.5

Indonesia (2003) 6.08 26.51

J apan (2002) 42.1 61.9

Philippines (2004) 8.1 20.48

(Sources) Data are taken fr om the count ry paper s and they are not comparable.

Different types of decentralization

Decentralization may be

- on either expenditure side or revenue side.- in terms of quantity or quality.- to promote political freedom/ democracy (Politicaldecentralization)- to enhance administrative capacity of localgovernments as agency of the center (policyimplementation)- be from the bottom or from the top.

11

Design of Decentralization

Fiscal decentralization is not good or bad in naturebut its benefit relies on design and implementation ofdecentralization.

Normative criteria versus political motives- Function assignment- Decentralization theorem

=> Decentralization in practice does not necessarilyfollow economic rationale, but politically favored buteconomically ill-designed decentralization is harmfulto economy.

Design of Decentralization:Developing and Transition economies

Functions need to be allocated not only properly butalso clearly: In practice, however, expenditureassignment may not clearly defined which blursresponsibility

Real versus formal authority: formally localgovernments may be prohibited from borrowing orcollecting fees/ taxes, but they may exercise theseauthorities in informal manner.

12

Design of Decentralization

Local government in charge of expenditure obligation(ex. education) needs to possess (i) authority overown expense (ex. wage and employment), to be (ii)adequately and stably financed.

Not only financial but also human capacity/management ability of local governments must beconcerned.=> Management capacities must be enhanced fordecentralization to work.

Politics versus Economics

In practice, fiscal decentralization is politicallymotivated (ex. Philippines, Indonesia…)

Decentralization may aim to promote democracy ormay be merely power shifting from the center toregions after collapse of authoritarian regime.

Decentralization may be perceived to be an effectivemeans of diffusing power from the center that wouldeffectively prevent an authoritarian regime from re-emerging in the future(Guevara(2004)).

13

Decentralization in Practice

Vertical fiscal gap between the central and localgovernments may not be filled.

=> Local governments do not have adequate revenue todischarge expenditure functions.

The central government may impose “unfundedmandate” on local governments.

=> The center simply offloads expenditureresponsibility.

Macroeconomic Impact

Macroeconomic consequences of fiscaldecentralization are major concern in developingcountries.

Is fiscal decentralization growth- promoting?

Decentralization theorem versus decentralizationfailure.

=> Mixed views, theories and empirical evidences.

14

Table 5 Summary of Relevant Studies

Independent Variables

Davoodi-Zou [3]

(five-year average)

Zhang-Zou [16]

(base case)

Meloche et al.[8]

CT: -0.058

(1.364)

Average tax rate -0.01

(0.14)

PT: -0.329

(1.818)

Fiscal decentralization -0.08

(2.00)

-0.054

(3.617)

0.112

(P-value = 0.084)2

Population growth -2.91

(3.73)

0.341

(1.501)1

-1.783

(0.297)

Human capital -0.06

(1.68)

0.001

(0.996)

Initial income -6.17

(3.58)

-0.037

(0.217)

Investment share 0.23

(2.95)

0.274

(0.030)

Gini Index

Constant 51.95

(3.98)

R-square 0.62 0.17 0.97

Obs 145 196 30

No. of countries 43 developed and

developing countries

28 provinces in China 10 European transition countries

1 Zhang and Zou [16] use growth of provincial labor force

2 Subnational revenue autonomy defined as ratio of subnational governments own source revenue over its total revenue

CT: the ratio of central budgetary revenue to national GDP, which is the same to all provinces

PT: the ratio of provincial revenue (collection) to provincial income.

RI : ratio of local government revenue to state and local government revenue

PI : ratio of local government expenditure to state and local government expenditure

Fauziah Swasono(2007)

Local Development Exp. In IndonesiaDevelopmentExpenditure

1.982.61

2.21

8.8

12.62

11.86

0

2

4

6

8

10

12

14

2001 2002 2003

%

LocalDevelopmentExp./GDP LocalDevelopmentExp./TotalExp.


15

Macroeconomic Impact

Market preserving versus market disturbingdecentralization.

=> Depend on design and implementation ofdecentralization.

“Market preserving federalism” view presentsconditions for fiscal decentralization to promoteeconomic development.

Market preserving federalism

[1] Authority and responsibility must be clearlydefined and separated between different levelgovernments.[2] A common (internal) market must be preserved sothat economic activities can be freely mobile acrossregions.[3] Local governments must face “hard budget” so thatno external fund is provided ex post when they are infiscal difficulty.[4] A decentralized fiscal system must be sustainableor should not be altered ex post.

16

Corruption and Decentralization

Corruption in governments hinders economic growthto a considerable degree (Mario(1995))

Closeness to people is often cited as a virtue ofdevolving responsibility to lower level governments=> But it can be a source of corruption as localofficials/politicians are also closer to special/vestedinterest groups.

Decentralization may increase or decrease corruption.=> Mixed evidence and theories (Fisman and Gatti

(2002), Huther and Shah (1998), Treisman (2000)).

Corporate and Public Ethics Indices

93

27

8

32

4247

90

53

18

60

42 40

0

10

20

30

40

50

60

70

80

90

100

Singapore Thailand Philippines India China Indonesia

Public SectorEthics Index Judical/LegalEffectiveness

www.worldbank.org/wbi/governance/pubs/gcr2004.html

17

Remarks on World Bank Index

PSEI (Public Sector Ethics Index): Percentage firms in thecountry giving satisfactory ratings (answers 5, 6 or 7) to thequestions on honesty of politicians, government favoritism inprocurement, diversion of public funds, trust in postal officeand average bribe frequencies for permits, utilities and taxes.

JLEI (Judicial/Legal Effectiveness Index): Percentage firms inthe country giving satisfactory ratings (answers 5, 6 or 7) toquestions on judicial independence, judicial bribery, quality oflegal framework, property protection, parliament and policeeffectiveness.

TICorruption Index

012345678910

1995 96 97 98 99 2000 01 02 03 04 05

Singapore Thailand Philippines IndiaChina Indonesia WorstCountry

http://ww1.transparency.org/cpi/2005/2005.10.18.cpi.en.html

18

Remarks on IT Index:

TI index reflects perceptions of corruption.

Rank and score relate to the results drawn from a number ofsurveys and reflects only the perception of business peopleparticipating in these surveys.

Different years cover different number of countries anddifferent surveys, so comparison between years is at the bestrough.

Macro and Micro Efficiency:

Decentralization can enhance micro efficiencytailoring local public services to local needs(Decentralization theorem).

Macro efficiency, i.e., fiscal sustainability and macrostability, must be concerned as well.

Aggregate local expenditure, taxes and debts need tobe compatible with economic growth.

Especially local borrowing needs to be regulated.

19

Public service Y

Public service X

Relative price of X to Y

Regional welfare

E

TotalSpending

0

F Improving micro efficiency

Sustainingmacroefficiency

20

LPFP in FY2006 in Japan

LocalRevenue LocalExpenditure\Billion \Billion

LocalTax 34,898 Payrollrelated expense 22,577LocalTransferTax 3,732 ofWages 20,483LocalSpecialGrants 816 (i)Elementary and secondaryschoolteachers 6,157LAT 15,907 ofArticle 10(1) 5,029

of Statutoryamounts 12,527 (ii)Policemen 2,414NationalDisbursement 10,202 (iii)Fire fighters 1,184LocalBond 10,817 (iv)Others 10,727

of Deficitfinance bond 2,907 Generaladministation expenses 25,186Fee and charges 1,645 ofArtile 10 expense (otherthan 10(1)) 9,563Miscellaneousrevenue 5,133 Debtrepayments 13,298Total 83,151 Maintenance costs 977

CapitalExpenditure 16,889of CentralInitiative 1,127

Public projectworks(Article 10-2) 3,033NaturalDisaster(Article10-3) 39

Contribution to public enterprises 2,735Extra paymentsto non-LAT recipients 1,490Total 83,151

Part III: Design of Decentralization

21

How to design decentralization?

Consider “necessary” conditions for gooddecentralization.

Decentralization does not mean differentgovernments can act independently.

-What authority should be granted to which levelgovernment?

-How to combine cooperation and competition amongbetween different level governments?

How to design decentralization?

Decentralization does not mean that local expendituremust be financed solely by local own revenue.

=> Intergovernmental transfers play a key role indecentralization era.

Local government should be financially responsiblefor own expenditure in margin (marginal fiscalaccountability)

22

Good Local Tax

Revenue should follow expenditure assignment(≠Revenue led decentralization)

Tax assignment should be according to functionassignment.

Local governments should be assured (i) stable, (ii)equitable, (iii) immobile taxes. (iv) Benefit principleshould be fulfilled as well.

=> Land and Property tax should be candidate of“Good local tax”.

Tax Assignment in PracticeCountry Major local taxes % in tota l loca l tax

revenue

VAT (Local shar e) 21.5

Business tax 32.9

Corpora te income tax 14.0

China (2003) (1)

Per sonal income tax 6.7

Tax on land and agr icu ltu r al income 2.8

Stamp dut ies and regist r at ion fees 9.6

Sales tax 60.4

India (2)

(2003 -2004)

Sate exercise tax 12.5

Per sonal income tax 23.58

Sure tax on cen tr al corpora te income

tax

6.89

Local en terpr ise tax 11.11

Local consumption tax 7.33

J apan (3)

(2003)

Proper ty tax 26.84

(Sources) (1) Finance Year Book of China (2004)

(2) Rao (Ch .8)

(3) Local Government Sta t ist ics Year Book of J apan (2005)

23

Bottom line of decentralization

Fiscal decentralization must be designed, notspontaneous.

Money must follow function, so expenditureassignment must be clearly defined before revenueassignment is considered.

Local governments should be granted right andadequate authority over own policy domain and beadequately and stably financed.

Human capital/ management capacity at the locallevel must be concerned as well.

Vertical versus horizontal interactions

Horizontal competition (among local governments)may serve as a disciplinary device improving politicalaccountability.- Voting with feet- Performance comparison (Yard stick competition)

Vertical competition/ interaction (between the centraland local governments) could lead to “tragedy ofcommons” when both governments share the sametax base (ex. Business) and levy taxes independently.

=> Serving two kings instead of one.

24

Central Government’ Initiative

Decentralization does not mean that the centralgovernment be weaken.

Central government failure does not give rationale fordecentralization, but political reform is called for.

There are “Normative” roles of the centralgovernment, but different from the centralized regime.

The center can give “Stick and carrot” to localgovernments to align their interest with social/national one, with regulations and monitoring.

National Minimum Standard

National minimum standards for key public servicessuch as education and health should be preserved.=> Not only how to determine the minimums, but alsohow to evaluate whether or not they are achieveddoes matter.=> Status quo of public services must be assessed.

Fiscal affordability must be concerned as well.=> Priority must be placed for public services.

25

Education

26

Healthcare

0..12..2Physicians (per 1,000 people)

36213327333Mortality rate, under-5 (per 1,000)

28.2..27.67.8..14.9Malnutrition prevalence, weight for age (% of children under5)

72.096.080.086.096.083.4Immunization, measles (% of children ages 12-23 months)

70.098.079.087.096.083.7Immunization, DPT (% of children ages 12-23 months)

......2..2Hospital beds (per 1,000 people)

2.83.53.44.73.74.4Health expenditure, total (% of GDP)

3388367194362Health expenditure per capita (current US$)

&Pacific

Indonesia

Thailand

Philippines

China

Singapore

EastAsia

2005

Performance of Local Governments

How to measure performance of local levelgovernments?

We need information on- Local revenue (tax, transfers, fees/charges..)- Local expenditure by types and by nature- Local fiscal balance- Local outstanding debt

On timely basis

27

Performance Evaluation

Performance evaluation(i) to promote accountability toward residents/

taxpayers(ii) to feed back to planning and budgeting in

subsequent years.

Information disclosure and PDSA cycle.

Ideally performance should be assessed upon what tobe achieved (i.e., outcome basis) rather than what tobe done (i.e., input basis).

Intergovernmental Transfers

Fiscal decentralization does not mean that grants fromthe center should be abolished.

On contrary, intergovernmental transfers/ grants serveas a device to coordinate public policies and assureequity.

Transfers should be designed to minimize“decentralization failure” preserving benefit ofdecentralization.

28

Decentralization Failure

“Decentralization failure” includes

(i) Wasteful fiscal competition(ii) Expenditure/ regulation spillover(iii) Fiscal inequity (horizontal fiscal imbalance)(iv) Inadequate public service provisions (i.e., failure to

achieve national minimums)

=> Must be dealt by transfers.

Intergovernmental transfers

Normative Functions of Transfers

-Filling vertical fiscal gap-Fiscal equalization-National Minimums-Internalizing spillovers

Different types of transfers fulfill different functions.=> Different missions be achieved by different transfers.

29

Table（International Comparison

39:6136:6444:5656:44

69 :3168:32

38 :62

Expenditure（Central（Local （

47:53

50:5059:4157:43

84:1695:05

59:41

Tax Revenue（Central （Local （

Canada

Germany

U.S.Sweden

FranceU.KJapan

Federal NationUnitary NationRatio

(Note) Data taken from MOF(2002). Figures in the table are from1996-98.

Verticalfiscalgap(China)

0

10

20

30

40

50

60

70

80

90

1990 91 92 93 94 95 96 97 98 99 2000 01 02

Year

%

Subnationalexp./Totalexp. Subnationalrev./Totalfiscalrev.

30

Fu n d flow from th e cen tra l to loca l govern men t (FY2001)

Central General Account(trillion yen)

Special Account for LAT(trillion yen)

Local Public Finance Program(trillion yen)

Revenue(82.7)

Expenditure(82.7)

Revenue Expenditure Revenue(89.3)

Expenditure(89.3)

Local Allocat ionTax

(16.8)

Additions(16.8)

Borrowing(4.3)

LocalAllocation Tax

(21.3)

Labor Cost(23.7)Local Taxes

(35.6)

Others Interestpayment

National DebtService

Payments(17.2) Local Transfer

Tax (0.6) CapitalExpenditure

(27.2)

NationalTaxes(50.7)

(Contributionsto LAT:(13.9))

LocalAllocation Tax

(21.3) Local DebtServicePayment

(12.8)

Special Account NationalSubsides(13.1)

Local Bond Program

National Bond(28.3)

Local Bond(11.9)

Others(3.6)

GeneralExpenditure

(48.7)

Others(6.8)

Others(25.7)

Different forms of transfers

(a) Tax revenue sharing(b) General purpose/ unconditional grants(c) Specific purpose/conditional grants

Grants may be lump-sum (block) or take matching(cost sharing) or be formula based.

Tax revenue sharing may or may not involveequalization component.

31

Intergovernmental transfers: Practice

In practice, intergovernmental transfers often lead toexcessive central interventions in local policy-makingand/or soften local budgets.

=> Hinder local governments’ discretion and incentivesfor efficient fiscal management/fiscal independence.

Hard budget is a key to enhance efficiency in adecentralized fiscal system.

Confidence and Assurance

Centrally mandated expense( like wage and pensionfor public employees) should be financed by grants.

=> Unfunded mandate must be minimized.

Transfers should be not only adequate but be assuredand disbursed on timely basis.

Transfer policies- conditional and unconditional-mustbe coordinated.

32

PART IV Concluding Remarks

Hope and Concern

Fiscal decentralization may (i) promotedemocracy and participation in policy makingat the local level, improving politicalaccountability, (ii) make local services moresuitable to local needs and preferences, and(iii) enhance regional economic development.

33

Hope and Concern

Fiscal decentralization may however (i) lead tocoordination failure of policy making (such asinfrastructures), (ii) to wasteful competitionamong regions, (iii) to fiscal inequity withhorizontal fiscal gap being exacerbated and(iv) to more corruption and rent seeking.

Hope and Concern

Local level governments may be moreaccountable and can be better controlled bypeople due to their closeness to own residents,but they may be close to special interests andbe easily captured by them as well.

=> Local governments may be more or lesscorruptible than the central counterpart.

34

Hope and Concern

Local governments may be more innovative insupplying public services to meet regionalneeds, but such decentralized delivery ofservices may lead to inter-regional disparitywith some regions failing to meet nationalminimums.

=> Regional initiative or inter regionalequalization?

Bottom Line of Decentralization

Local budget must be hard: local borrowingespecially be regulated before local bond market isdeveloped.

Intergovernmental transfers must be not onlysufficient but also stable and reliable so that localgovernments have sense of assurance.

Local governments should be granted authority tomobilize own revenue, say land tax to decide ownexpenditure in margin.

35

Challenge of Fiscal Decentralization

[1] Broad design and implementation strategy offiscal decentralization has been absent in countrieslike Indonesia and Philippines without expenditureand revenue assignments being properly matched.

[2] Expenditure assignment is not clearly defined,which eases the central and local governmentsshifting blame for their failure to deliver services oneanother and make it difficult to determine necessaryrevenue for local governments.

Challenge of Fiscal Decentralization [3] Local tax autonomy has been limited or not

properly practiced although decentralization hasenabled local governments to access to more financialresources say in form of tax revenue sharing. Taxrevenue sharing has increased inter regional fiscalimbalances to substantial manner

[4] In countries like China, India, and Philippines,vertical and horizontal fiscal imbalances are notadequately filled by transfers. On contrary,intergovernmental transfers could be regressive,unreliable and give rise to perverse incentive effectson grant receiving governments.

36


[5] With enforcement of central regulationsbeing weak, local governments have oftenexercised informal authority charging fees andborrowing despite that these are illegal.

[6] Local governments are not only inadequatelyfunded but also suffer from lack of managementcapacity to discharge devolved functions.


[7] A careful consideration must be made not only oncentral-provincial fiscal relations but also onprovincial –local ones. The latter could dilute thecentral government’s effort to equalize fiscalcapacities across regions and to promote regionalincentives for revenue mobilization and economicdevelopment.

37

Conditions for decentralization to work:

There must be pre-conditions for decentralization,enhancing regional determination and responsibility,to work.

- Clear task assignment- Adequate and stable revenue sources- Mutual cooperation and confidence between

governments- Accountability and transparency of governments.- Human resources.

=> Need to be done separately and simultaneously.

1

Incentives for EconomicPerformance at the District level

5 July 2007

What determines growth at the district level?

Location• Kota/Kabupaten near major economic centres attract more

investment Natural and Human Resources

• Kabupaten/Kota with substantial natural resources have a clearadvantage

• Some districts can create a comparative advantage through highquality education

Local Economic Policy• Charges/retributions• Market entry and monopoly• Business licensing

2

What can Central (and Provincial) governments do to provideincentives for good economic policy in the districts?

PROCESS LOCALECONOMY

OTHERFACTORS

Target ?

OUTPUTOUTPUT OUTCOMEOUTCOME

Target ? Target ? Target ?

INPUTINPUT

Where in the policy “pipeline” should incentivesbe applied?

3

OSS LOCALECONOMY

InfrastructureMacro economy

Target ?

OSSOSSPERDAPERDA

FasterFasterCheaperCheaper

LicensingLicensing

GrowthGrowthPovertyPoverty

ReductionReduction

Target ? Target ? Target ?

Where in the policy “pipeline” should incentivesbe applied?

Pros and Cons of different types of incentive

OutcomePro: is what we want to achieveCon: may be affected by many other factors

OutputPro: More concrete and closely related to what we want to achieveCon: Not the only factor determining the outcome

ProcessPro:Specific mechanism known to produce the outputCon: Rules out other ways of achieving the output

Input:Pro: Easy to monitor and measureCon: Only vaguely related to output and outcome

4

What level of incentive to apply?

Some districts have much more capacity than others• If minimum standards can be achieved by the lowest

capacity districts, they are far too easy for the rest• If best practice standards are set then most will fail to meet

them• If standards are set in the middle then they will only be

relevant for half the country

Distribution of Performance

LowLow Medium LowMedium Low Medium HighMedium High HighHigh

WinnerWinner

Target 1Target 1 Target 2Target 2 Target 3Target 3

5

Source: KPPOD Survey, 2005

Incentives for Good Economic Governance

6

Ten Highest and Ten LowestRated Regencies, based onOverall Scores

Ten Highest and Ten LowestRated Cities, based on OverallScores

Source: KPPOD Survey, 2005

7

Incentives for better business licensing

MoHA decree requires all districts to set up a One StopShop by … tomorrow.

But need good OSS not just a new name Since 1999, The Asia Foundation has supported local

partner organizations to work with local governments tostreamline business licensing through establishing OSS

TAF has helped to establish or strengthen OSS in 52Kabupaten/Kota

Through local partners TAF has also introducedmonitoring of performance

OSS Performance Index

5 Dimensions of Performance: Structure: Legal, Authority, Licenses Operations: HR, Service, Payments Licensing Process: Cost, time, etc. Volume: Annual, new/renewals Customer Perceptions: satisfaction

8

Example: Pasuruan

0 %

10 %

2 0 %

3 0 %

4 0 %

5 0 %

6 0 %

7 0 %

8 0 %

9 0 %

10 0 %

STRUCTURE

OPERATION

VOLUME OF ACTIVITYCUSTOMER PERCEPTIONS

LICENSING PROCESS

pre-TA

post-TA

District of Pasuruan, August 2006

Steps to improve the quality of OSS

1. Assess the existence and quality of OSS throughout thecountry

2. Define (say) 3 levels of OSS (standard, enhanced,premium)

3. Decide on level of incentive for achieving each level4. Districts decide on the appropriate level of OSS that they

need/wish to aim for5. Second round survey assesses districts after 1 or 2 years

and rewards those that achieved the standard

9

Summary

Providing incentives for better local economic governance is agood idea

But it is important to ensure that the thing you measure is:• Measurable with sufficient accuracy• Achievable given the capacity of the local government• Reasonably closely linked to the desired outcome

One way to do this is to define a set of standards and allowdistricts to select their target given an incentive framework

Two areas in which this could be done are:• KPPOD’s forthcoming Economic Governance Index• Implementation of good quality OSS throughout the country

1

11

DESENTRALISASI KEBIJAKAN FISKALDESENTRALISASI KEBIJAKAN FISKALDALAM RANGKADALAM RANGKA

PEMBANGUNAN EKONOMIPEMBANGUNAN EKONOMIDI PROVINSI DKI JAKARTADI PROVINSI DKI JAKARTA

Fauzi BowoFauzi BowoKamis, 5 Juli 2007Kamis, 5 Juli 2007

22

PEMBERLAKUAN PERATURANPEMBERLAKUAN PERATURANPERUNDANGPERUNDANG--UNDANGANUNDANGAN

UndangUndang--undang Nomor 17 Tahun 2003 tentang Keuanganundang Nomor 17 Tahun 2003 tentang KeuanganNegara,Negara,

UndangUndang--undang Nomor 1 Tahun 2004 tentang Perbendaharaanundang Nomor 1 Tahun 2004 tentang PerbendaharaanNegara;Negara;

UndangUndang--undang Nomor 15 Tahun 2004 tentang Pemeriksaanundang Nomor 15 Tahun 2004 tentang PemeriksaanPengelolaan dan Tanggungjawab Keuangan Negara;Pengelolaan dan Tanggungjawab Keuangan Negara;

Peraturan Pemerintah Nomor 24 Tahun 2005 tentang StandarPeraturan Pemerintah Nomor 24 Tahun 2005 tentang StandarAkuntansi Pemerintahan; danAkuntansi Pemerintahan; dan

Peraturan Pemerintah Nomor 58 Tahun 2005 tentangPeraturan Pemerintah Nomor 58 Tahun 2005 tentangPengelolaan Keuangan Daerah;Pengelolaan Keuangan Daerah;

Permendagri Nomor 13 Tahun 2006 tentang PedomanPermendagri Nomor 13 Tahun 2006 tentang PedomanPengelolaan Keuangan Daerah,Pengelolaan Keuangan Daerah,

2

33

Sejak Kebijakan Desentralisasi Tahun 1999,Sejak Kebijakan Desentralisasi Tahun 1999,Kinerja Perekonomian Provinsi DKI JakartaKinerja Perekonomian Provinsi DKI Jakarta

Pada Tahun 2005 :Pada Tahun 2005 :

Pertumbuhan ekonomi mencapai 6,01 %Pertumbuhan ekonomi mencapai 6,01 % Produk Domestik Regional Bruto (PDRB)Produk Domestik Regional Bruto (PDRB)

Rp 436,25 triliunRp 436,25 triliun Kontribusi sektor tersier (perdagangan dan jasa)Kontribusi sektor tersier (perdagangan dan jasa)

72,00 %72,00 % Kontribusi sektor sekunder (industri pengolahanKontribusi sektor sekunder (industri pengolahan

dan bangunan) 26,30 %dan bangunan) 26,30 %

44

SISI PERMINTAANSISI PERMINTAAN

ekspor barang dan Jasa = 17,01 %ekspor barang dan Jasa = 17,01 %

Investasi = 10,62 %Investasi = 10,62 %

Konsumsi Masyarakat = 8,92 %Konsumsi Masyarakat = 8,92 %

Pengeluaran Pemerintah = 6,67 %Pengeluaran Pemerintah = 6,67 %

SISI PRODUKSISISI PRODUKSI

Sektor perdagangan, hotel dan restoran = 7,89 %Sektor perdagangan, hotel dan restoran = 7,89 %

Sektor jasa pengangkutan dan komunikasi = 13,26 %Sektor jasa pengangkutan dan komunikasi = 13,26 %

Sektor keuangan = 4,10 %Sektor keuangan = 4,10 %

Sektor jasa perusahaan = 5,06 %Sektor jasa perusahaan = 5,06 %

Sektor industri pengolahan = 5,07 %Sektor industri pengolahan = 5,07 %

Sektor bangunan = 5,89 %Sektor bangunan = 5,89 %

3

55

Besaran PDRB Rp 512,80 triliun dan besaranBesaran PDRB Rp 512,80 triliun dan besaranriilnya mencapai 312,91 triliun (harga konstanriilnya mencapai 312,91 triliun (harga konstantahun 2000).tahun 2000).

Laju inflasi sebesar 16,06 %, (lebih rendahLaju inflasi sebesar 16,06 %, (lebih rendahdibandingkan angka nasional sebesardibandingkan angka nasional sebesar17,11 %).17,11 %).

66

Menguatnya globalisasi ekonomi dunia danMenguatnya globalisasi ekonomi dunia danpembentukan zona ekonomi regional di beberapapembentukan zona ekonomi regional di beberapanegara Asia : China, India, Vietnam, Thailand,negara Asia : China, India, Vietnam, Thailand,dan di banyak negara lainnya; fenomena ini akandan di banyak negara lainnya; fenomena ini akanmengakibatkan kompetisi yang semakin ketatmengakibatkan kompetisi yang semakin ketatdalam hal menarik investasi, perdagangan dandalam hal menarik investasi, perdagangan danpariwisata antar negara.pariwisata antar negara.

Kurang ekspansifnya kebijakan fiskal danKurang ekspansifnya kebijakan fiskal danmoneter nasional, yang akan mempengaruhimoneter nasional, yang akan mempengaruhiaktifitas sektor riil.aktifitas sektor riil.

FAKTOR EKSTERNALmempengaruhi perekonomian Jakarta

tahun 2007-2009

4

77

Masih adanya distorsi perdagangan antar daerahMasih adanya distorsi perdagangan antar daerahdan transdan trans--nasional; kegiatan ini sedikit banyaknasional; kegiatan ini sedikit banyakmempengaruhi kelancaran distribusi barang kemempengaruhi kelancaran distribusi barang keJakarta dan pada gilirannya berdampak padaJakarta dan pada gilirannya berdampak padatingkat inflasi.tingkat inflasi.

Keterbatasan keuangan negara; kondisi ini akanKeterbatasan keuangan negara; kondisi ini akanmempengaruhi kemampuan pembiayaanmempengaruhi kemampuan pembiayaanpembangunan daerah.pembangunan daerah.

Gejala megapolitan dalam kesatuan tata ruang;Gejala megapolitan dalam kesatuan tata ruang;kondisi ini akan mempengaruhi keberlanjutankondisi ini akan mempengaruhi keberlanjutanpembangunan ekonomi, sosial dan lingkungan.pembangunan ekonomi, sosial dan lingkungan.

88

Jumlah pendudukJumlah penduduk

Migrasi yang masuk ke JakartaMigrasi yang masuk ke Jakarta

Iklim perekonomian daerahIklim perekonomian daerah

Stabilitas keamanan dan ketertibanStabilitas keamanan dan ketertiban

Sarana dan prasarana perkotaanSarana dan prasarana perkotaan

FAKTOR INTERNALmempengaruhi perekonomian Jakarta

tahun 2007-2009

5

99

Dalam pelaksanaan kebijakan fiskaldi DKI Jakarta perlu dilakukan :

mempertajam skala prioritas belanja

meningkatkan disiplin pengelolaan anggaran

menekan pemborosan dan kebocoranrealisasi anggaran

memanfaatkan sisa anggaran yang tidakterserap

melakukan intensifikasi dan ekstensifikasipenerimaan pajak

meningkatkan kemampuan ekonomi makro diDKI Jakarta.

1010

TerimaTerima KasihKasih

Wrapped SessionSix Year of Indonesia’s DecentralizationBy: Prof Bambang P.S. Brodjonegoro P.hd.

1st day:

Decentralization Policy: There are 7 (seven) elements of local government. Elements of

Local Government that build the system must be approachedholistically not partially, and inline with the arrangement of Law32/2004 (Made)

Kunci keberhasilan pembangunan daerah: a) Koordinasi danketerpaduan antara pemerintah pusat dan daerah, antarsektor,antar daerah dan antara sektor dan daerah, b) Sinkronisasikebijakan, program dan kegiatan pembangunan dalammengoptimalkan pengelolaan dan pemanfaatan sumberdaya yangterbatas, dan c) Perencanaan pembangunan daerah yang tidakterpisahkan dari sistem perencanaan pembangunan nasional(Max)

Public service performance since decentralization has been mixedbut mostly mediocre; central and local governments must sharethe blame in that outcome. Sub-national government saving andspending behavior has been uninspiring, given poor state ofservice quality. Decentralization policy going forward should focuson providing sub-national governments with incentives forspending more of their resources and spending them moreefficiently and on sanctions if they fail to comply. (Blane)

Central government should : a) Promote decentralization andreduce deconcentration, b) Find new strategies in controlling thecreation of new local governments, and c) Apply theintergovernmental transfer concept more appropriately. WhileLocal Government should : a) Promote efficiency in localbureaucracy, b) Invest more in basic public services, c) Focusmore on local economic growth, local job creation and localpersonal income improvement, and d) Accept the whole integratedconcept of intergovernmental transfer. (BPS)

Administrative, Case: Pemekaran, Expenditure:

Perlu survei langsung untuk melihat persepsi masyarakatmengenai dampak pemekaran. Perluasan fokus evaluasi maupunindikator yang menggambarkan “kinerja” serta kerjasamalangsung dengan BPS dan Pemda setempat untuk data yang lebihdetail. (Anton)

Regional associations, Universities, NGOs must play analytical,informational and advocacy roles more intensively on MSS(Minimum Service Standards). Donors need to integrate MSSwithin all their relevant efforts; in sectoral support, financingschemes, and civil society support. (Gabe)

So far Indonesia only reformed the macro level of localgovernment system and the central- local relationships. The microlevel of public administration such as the organizational structure,civil service system, local government management in general,bureaucratic culture (KKN), and public service so far have beenneglected or not at the heart or the focus of local governmentreform. (Roy)

Good news: a) Local governments have more revenues due highlevels of transfers (increase in level more than equalization), b)Education spending has increased considerably, and c) Servicesin some districts have improved (survey GDS). The challenges: a)Health spending is still low, b) Infrastructure spending in sectorssuch as water and sanitation and energy sectors are now in crisis,c) Spending in government apparatus is high and DAU allocationprovides incentives to keep it that way, and d) Districts need toimprove their capacity to spend.

Local Politics: Pemerintah Pusat perlu mendorong pertumbuhan otonomi daerah

dengan mengurangi kewenangan sehingga kewenangan daerahlebih besar. Perlu dikembangkan kemampuan kepala daerah danbirokrasi daerah dalam manajemen pemerintahan yang sesuaidengan semangat otonomi daerah. Dalam kaitannya denganPolitik, maka: a) Parpol harus mampu melakukan prosesrekrutmen sehingga dihasilkan kader-kader partai yang berkualitasyang akan dicalonkan dalam pilkada, dan b) Parpol harusmencalonkan kadernya sendiri dalam pilkada sehingga politikuang dapat dikurangi. (maswadi)

Dalam era desentralisasi, dalam prakteknya politik uang dankorupsi berjalan terus.- ternyata di sebagian daerah, media lokal, LSM dan civil society

juga ikut terlibat dalam korupsi- ada lagi yang diintimidasi sehingga tidak dapat menjalankan

fungsi social control (Harold) Aceh Election. A convergence of recon-rehab and reintegration

efforts fostering a more comprehensive development process forAceh (LeRoy)

2nd Day

Governance and Law Good governance must include: Participation of Government and

Civil Society, Political Will, and Reformation of publicadministration (Central and Local). (Safri)

Political leadership and credibility are crucial in combatingcorruption and increasing accountability, Predictability andconsistency in application is important, Civic engagement andsupport of stakeholders are crucial in sustaining anti-corruptionstrategies. (Simeon)

Local Governments may prevent corruption by implementing goodgovernance, i.e. efficient, effective, accountable, and transparentbasis. KPK functions as trigger and impetus to existing agencies incombating corruption. (Erry)

Fiscal Decentralization Revisited, Case. There must be pre-conditions for decentralization, enhancing

regional determination and responsibility, to work:- Clear task assignment- Adequate and stable revenue sources- Mutual cooperation and confidence between governments- Accountability and transparency of governments.- Human resources. (Sato)

Providing incentives for better local economic governance is agood idea. But it is important to ensure that the thing you measureis: a) Measurable with sufficient accuracy, b) Achievable given thecapacity of the local government, and c) Reasonably closely linkedto the desired outcome. One way to do this is to define a set of

standards and allow districts to select their target given anincentive framework. (Neil)

Dalam pelaksanaan kebijakan fiskal di DKI, perlu dilakukan:o mempertajam skala prioritas belanjao meningkatkan disiplin pengelolaan anggarano menekan pemborosan dan kebocoran realisasi anggarano memanfaatkan sisa anggaran yang tidak terserapo melakukan intensifikasi dan ekstensifikasi penerimaan pajako meningkatkan kemampuan ekonomi makro di DKI Jakarta.

(Fauzi) the outcome of decentralization depends ver y much on the local

accountability and other institutional settings, e.g., local capture,people’s participation, pro-growth incentive system. A seriousinstitutional reform is needed to motivate local officials to maximizethe net benefits of decentralization given a certain level of localcapture. (Iwan)

p110714 - 1 - six years of decentralization in indonesia

Documents

local jobcreation

local bureaucracy

significant local investment

local economic growth

local development reform

local direct taxes autonomy

regulator local budget

equalization grant