Six Years of Indonesia s Decentralization

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Six Years of Indonesia’s Decentralization International Seminar on Decentralization

Nikko Hotel, Jakarta July 4-5, 2007

INDONESIA’S 6 YEARS OF DECENTRALIZATION Bambang P.S Brodjonegoro Professor, 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 revenue sharing) • 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

1

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 the sources 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

2

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, dynamic efficiencies and local development reform.

CONCLUDING REMARKS Central government should : • Promote decentralization and reduce deconcentration • Find new strategies in controlling the creation of new local governments • Apply the intergovernmental transfer concept more appropriately Local 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

3

OVERVIEW OF FISCAL DECENTRALIZATION IN INDONESIA

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

Jakarta, 4 July 2007

Illustration of Central and Local Govt Govt Relations CENTRAL GOVERNMENT

 National Fiscal Policy (APBN & APBD relations)  Fiscal Balance Policy based on Money Follow Function principal  Funding Policy through Balancing Fund  Local Financing Policy through Loan (incl. Municipal Bond) and Grant  Local Capacity Building Policy

LOCAL GOVERNMENT

LINE MINISTRY (L/M) Related Laws

Development Implementation Aspect  Deconcentration and Co administrative Task Policy  Other Technicals Policy

Development And MONEV



Suggesti on and Consultati ve

 Division of functions  Establishment of New Region and Territories Zone  Governmental Organization  Developing Regional Financial Administration  Regional Autonomy Policy Review

Financial Aspect

S uggestion and Consul tative

Political & Administraton Aspect

(MoF : LAw 33/2004)

Deleg ating Au thorit y/Aff airs

(Ministry of Home Affairs: LAW 32/2004)

Determining Direction and Policy of National Development through Mid Term Govt Plan (RPJM) and Govt Working Plan (RKP)

S uggestion and Consultative

(Board of National Development Planning (BAPPENAS): LAW 25/2004)

Implementing Decentralization, 2 Deconcentration and co -administration

1

Map Map of of Intergovernmental Intergovernmental Relations Relations in Central and Local Fiscal Relations Management

Central Government

BAPPENAS BAPPENAS

LINE LINE MINISTRIES MINISTRIES

Development Development Planning Planning Affairs Affairs

Technical Technical Affairs Affairs in in each each field field related related to to delegating, delegating, assigning assigning authority/affairs authority/affairs in in order order to toDecon Decon// Co-Adm Co-Adm Task Task

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

Regional Regional Autonomy Autonomy Review Review Board Board (DPOD) (DPOD) -(Consultative (Consultative and and Coordinative) Coordinative)

Ministry Ministry of of Finance Finance

Cabinet Cabinet Plenary Plenary

Fiscal Fiscal Affairs Affairs

(Discussing (Discussing Work Work Plan, Plan, Problem/Constrain Problem/Constrain and and Solution, Solution, also also Policy Policy Plan) Plan)

Law Law 17/2003; 17/2003; Law Law 1/2004 1/2004 Law Law 33/2004;Law34/2000 33/2004;Law34/2000 MINISTRY MINISTRY of of HOME HOME AFFAIRS AFFAIRS

Suggestion estion // Commen Commentt Sugg

Governmental Governmental Affairs, Affairs, organizational organizational and and Regional Regional Financial Financial Adm UU UU 32/2004 32/2004

Supreme Supreme Auditing Auditing Board Board (BPK) (BPK)

Audit Audit Affairs Affairs

PRESIDENT/ PRESIDENT/ VICE VICE PRES PRES

Finding Finding Law Law 15/2004 15/2004

Policy Policy Maker Maker Auditit Aud

Policy icy Pol

Developing, Developing, Monitoring Monitoring and and Evaluating Evaluating on on Policy Policy Implementation Implementation in in each each field field

3

Local Government

SCOPE OF NATIONAL FISCAL POLICY

CENTRAL CENTRAL GOVT GOVT

Division Division of of Functions Functions Law No. 32/2004 (MINISTRY OF HOME AFFAIRS) Source of Funding Law No. 33/2004 (MOF)

Local Local Government Government Local Budget/ APBD Local Own Source/ PAD

Executing Affairs

Revenue Sharing Fund General Purpose Grant

Law No.34/2000

Decentralization Line Ministry delegating authority to Governor

Deconcentration

Coadministration task

Line Ministry (L/M) assigning assigning authority authority to to Governor/ Mayor

Intergovernmental Transfer

Specific Purpose Grant Special Autonomy Fund Adjusment Fund

Other Legitimate Regional Revenue

Emergency Fund

Expenditure

Usage of SILPA

Surplus/Deficit

Grant Fund

Reserve Fund

Financing National Budget/ APBN APBN

Asset Sales Borrowing 4 (incl. Municipal Bond)

2

NATIONAL NATIONAL BUDGET BUDGET ALLOCATION ALLOCATION TO TO LOCAL LOCAL GOVT GOVT (MONEY ((MONEY MONEY FOLLOWS FOLLOWS FUNCTION) FUNCTION) CENTRAL CENTRAL Central CentralGovt Govt Expenditure Expenditure

N A T I O N A L B U D G E T

LOCAL LOCAL LOCAL

Central Central expenditure expenditure in inCenral Cenral

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

L/M L/M

Personil Expenditure Supplies Expenditure Capital Expenditure Interest Payment Loan Subsidy Grant expenditure Social Expenditure Miscellaneous Expd

Central Central expenditure expenditurein in Regions Regions

6 Obligatory Afffairs Regional Office

Excluding 6 Obligatory Affairs Self-worked by UPT Delegated to Governor assigned to Gov/Mayor

Expenditure Expenditure for forRegions Regions

Sectoral Fund in Region Deconcentration

Fund CoAdministrative Task

LOCAL BUDGET

1. 1. Balancing Balancing Fund Fund 2. Special 2. Special Autonomy Autonomy Fund Fund

Decentralization Fund

3. 3. Adjusment AdjusmentFund Fund

Grant Emergency 5 Fund

continued….

NATIONAL NATIONAL BUDGET BUDGET ALLOCATED ALLOCATED TO TO LOCAL LOCAL GOVT GOVT (MONEY ((MONEY MONEY FOLLOWS FOLLOWS FUNCTION) FUNCTION) LOCAL LOCAL LOCAL Draft for Govt Regulation on Division of Functions among Central, Province and District/City (Revised PP No. 25/2000)  assigned by UU 32/2004 (Ministry of Home Affairs)

L/M Budget (Sectoral) in Region

LOCAL BUDGET

Funding Central Affairs in Region Funding Central Affairs which become Local Affairs (up to now interpreted as Deconcentration/Co-administrative Task)

Transfered gradually (Article 108 Law 33/2004)

Specific Specific Purpose Purpose Grant Grant (DAK) (DAK)

Decentralization

Fund Grant Emergency Fund

6

3

1. TO INCREASE EFFICIENCY IN PUBLIC SERVICE PROVISION 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 INVESTMENT 7 GROWTH

Share of National Budget to Local Governments from 2001 – 2007

% Ratio to GDP

% Ratio to National Expenditure

% Ratio to National Revenue

81,1

5,6

23,7

26,9

2002

98,2

5,2

30,5

32,9

3

2003

120,3

5,8

32,0

35,2

4

2004

130,0

5,6

30,2

32,2

5

2005

149,6

5,7

27,6

29,0

6

2006

220,8

7,1

31,6

33,5

7

2007

258,8

7,3

33,9

35,8

National Budget

Share of National budget to LGs

1

2001

2

NO

(trillion rupiah)

8

4

Share of National Budget to Local Governments From 2001 - 2007

300.0

250.0

dalam triliun rupiah

200.0

150.0 258.8 220.8 100.0 149.6 130.0

120.3 98.2 81.1

50.0

2001

2002

2003

2004

2005

2006

2007

9

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

dalam t riliun rupiah

35,8%

33 ,9%

3 3,5%

3 1,6%

29,0%

27,6%

30,2%

32,2%

35,2%

26,9% 23,7%

30,0%

32,0%

30,5%

35,0%

32,9%

40,0%

25,0%

20,0%

15,0%

7,3%

7,1%

5,7%

5,6%

5,8%

5,2%

5,6%

10,0%

5,0%

0,0% 2001

% ratio to GDP

2002

2003

2004

% ratio to national expenditure

2005

2006

% ratio to National Income

2007

10

5

REVENUE-SIDE APPROACH

11

Intergovernmental Fiscal Transfers •

•

•

Intergovernmental Fiscal Transfers (the so-called ‘Balancing Fund Policy’/Kebijakan Dana Perimbangan) is allocated from National Budget (APBN) to finance region needs Objective :  to reduce fiscal gap between Central and Local Government (vertical fiscal imbalance) and among regions (horizontal fiscal imbalance) Consist of : – Shared Revenues from taxes and natural resources (SDA) – General Purpose Fund (DAU) – Specific Purpose Grant (DAK) 12

6

Revenue Sharing Fund  is allocated to local governments based on certain percentage which considers potential originating regions in order to minimize vertical fiscal imbalance between central and 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 13 - Geothermal Mining

Allocation of Revenue Sharing, 2001-2007 (trillion rupiahs) 80 68,46 59,56

60

49,83 36,7

40

31,37 24

24,88

20

0 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. 14

7

PRINCIPLES OF GENERAL PURPOSE GRANT (DAU) • • •

•

To equalize regional fiscal capacity (Equalization grant) To reduce horizontal fiscal imbalance among regions Considers regional needs and regional fiscal capacity potency (using fiscal gap formula) Block Grant 15

DAU AMOUNT DOMESTIC REVENUE

MINUS REVENUE SHARING FUND

NET DOMESTIC REVENUE

DAU AMOUNT

ALLOCATED TO MUNICIPAL/CITY (KOTA & KABUPATEN)

ALLOCATED TO PROVINCE 16

8

DAU for FY 2001-2007 (trillion rupiah) 200,00 164,79 145,66

160,00 120,00 76,98

69,15

80,00

82,08

88,74

60,34

40,00 0,00 2001

2002

2003

2004

2005

2006

2007

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

17

SPECIFIC PURPOSE GRANT (DAK) is allocated to certain sectors in accordance with national priorities. In 2007, sectors for DAK allocation are directed to: 1. Education 2. Health 3. Infrastructure * Road * Irrigation * Water Supply 4. Fishery 5. Agriculture 6. Local Government Infrastructure 7. Environment

18

9

DAK for FY 2003-2007 (million rupiah) 17,094.1

18,000.0 15,000.0 11,569.8 12,000.0 9,000.0 6,000.0 2,723.0

4,088.6

4,729.7

3,000.0 2003

2004

2005

2006

2007

Notes: DAK is allocated based on general, special, and technical criteria. 19

DAK for FY 2003-2007 Per Sector (million rupiah) 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0 2003

- Education - Infrastucture - Fishery - Environment

2004

2005

2006

2007

- Health - Government Infrastructure - Agriculture

20

10

For Regional Tax and Charge  Law No. 34/2000 on Amandment of Law No. 18/1997 on Regional Taxation and Charge  Government regulation No. 65/2001 on Regional Taxation  Government regulation No. 66/2001 on Regional Charge

21

TYPES OF REGIONAL TAXES AND CHARGES  11 types of taxes and 28 charges levied at local government levels, but as defined in Law 34/2000 on Regional Taxation and Charge.  Local governments have discretion to set up rates with a determined range mandated in the Law. 22

11

Additional Authority to Establish New Tax and Charge  Apart from the designated types of taxes and charges based on Law 34/2000, Province has discretion to create new charges, while Kabupaten/Kota are allowed to create new taxes and charges according to criteria in Law 34/2000.  This practice encounters problems due to most of taxes and charges : do not meet the criteria in Law 34/2000 already include in central tax 23

(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

24

12

THE UPCOMING POLICY FOR BALANCING FUND • Improving payment methods, acceleration of calculation process, advancing mechanism, determining allocation to local governments, and improving coordination with line ministries • Dissemination of the phasing-out of Hold Harmless Provision in DAU • Setting up a clear and an accountable criteria for DAK, improving coordination among line ministries of the shifting of fund from deconcentration and co-administrative task fund into DAK 25

THE UPCOMING POLICY ON REGIONAL TAX AND CHARGE • Increase revenue from local own-source with : - extending tax base and charge base (based on general criteria for imposing tax and charge, 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 and charge levied at local governments • Syncronize regulations between central and regioanl govt, particularly regarding unfavourable Perda, as mandated at Presidential Instruction Number 6/2007

26

13

EXPENDITURE-SIDE APPROACH

27

MAIN PRINCIPLES OF BUDGET EXPENDITURE POLICY TO LG’S FOR YEAR 2008 • To reduce vertical and horizontal fiscal imbalances • 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 and co-administrative task that become part of local affairs to DAK gradually

28

14

Direction for public expenditures for FY 2008

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

Job creation

Investment climate

29

LG’s LG’s

Submit financial report on time

MECHANISM OF PUNISHMENT FOR DELAYS IN SUBMITTING APBD Yes

Disbursement of Balancing Fund

No More than 1 month from the time -frame

No

No Yes Warning Warning letter letter from from Ministry Ministry of of Finance Finance Cq Cq.. DG DG Fiscal Fiscal Balance Balance

yes More than 2 months From warning letter

Sanction Postpone DAU disbursement at 25% 30

15

FINANCING FOR LG’S

31

MAXIMUM BORDER FOR CUMMULATIVE BUDGET DEFICIT AND BORROWING Law 33/2004 Article 83 (2)

Law 33/2004 Article 83 (3)

Law 33/2004 Article 49 (2)

Total cummulative budget deficit for national and local budget should not exceed 3% of the current GDP Minister of Finance determines the criteria for local budget deficit and maximum border of local budget deficit for each region The maximum border for governments borrowing (national and local governments) should not exceed 60% of 32 the current GDP

16

LOCAL BORROWING • Short-term  to cover deficit of cash flow for the current year • Middle-term  to finance borrowing to finance public service provision with no cost-recovery • Long-term  to finance cost-recovery investment projects

33

MUNICIPAL BONDS Local Borrowing



Regional Enterprise Borrowing

Local Bond



Regional Enterprise Bond

Municipal Bonds

Corporate Bonds 34

17

PRINCIPLES OF MUNICIPAL BONDS • Issued by local governments and do not obtain guarantee from central government • Used to fund cost-recovery project investments and give benefit to local people • Project planning should be in line with regional middle-term planning • Issued in domestic market with local currency (rupiah) • Revenues retained from municipal bond are prioritized to pay loan, interest, and charge • Follow the stock exchange regulation 35

36

18

Law NO. 33/2004 on Fiscal Balance LG’s

(SIPKD)

Govt Regulation NO. 56/2005 on SIKD

Central Government

MoF Decree No. 46/2006 on Submission Regional Information

(National SIKD)

Regional Finance Information Planning and Budgeting

a) 1. APBD Provinsi, Kabupaten, and Kota 2. Reallization APBD Provinsi, Kabupaten, and Kota

Administrating

Accounting and Reporting

Collection and Verification regional financial report

- Data entry - verification - Upload to website

b) Financial statement c) Cashflow d) Notes on Regional Financial Report e) Deconcentration and Co-administrative fund f) Report on Regional Enterprise g) Other data related with fiscal needs and fiscal capacity

download

send

37

For Further Information, Please visit the MOF’s website on Regional Financial Information System

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

38

19

39

Thank You

Ministry of Finance of Republic of Indonesia Directorate General of Fiscal Balance Jl. DR Wahidin No. 1, Building D, 16 th Floor Jakarta Pusat, Indonesia, 10710 Telp. +6221-3509442 Fax. +6221-3509443 40

20

Decentralized Service Delivery Performance in Indonesia Reconciling Conflicting Evidence

Blane Lewis Decentralization Support Facility World Bank

1

4 July 2007

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

1

Optimistic Evidence (Based on GDS Survey of Household Perceptions)

3

Level of Client Satisfaction toward Public Services Nearly 90 percent of respondents are either satisfied or somewhat satisfied with health services. Satisfaction levels with education (80 percent) and administrative (78 percent) services are also high.

58.4

Health

50.4

Education

Admin

20%

Somewhat satisfied

8.1

30.0

10.5

34.0

44.2

0% Satisfied

31.4

40%

13.5

60%

80%

100%

Somewhat unsatisfied

Unsatisfied

Don't know

4

2

Level of Satisfaction in Urban and Rural Areas Health

60.6

Urban

32.1

57.6

Rural

0%

20%

6.0

31.1

40%

60%

8.8

80%

Some differences in satisfaction between urban and rural residents exist but both are generally satisfied.

100%

Education

51.9

30.5

8.2

Urban

49.9

Rural

0%

20%

29.8

40%

60%

11.3

80%

100%

5

Level of Satisfaction by Income 100% 95% 90% 85% 80% 75% 70% Q1

Q2 Health

Q3 Education

Q4

Q5

Administrative

Residents in the richest quintile are slightly more satisfied with public services than those from the poorest quintile but in general all income groups appear to be quite satisfied. 6

3

Perceived Changes in Public Service Delivery over the Last 2 Years Over 70 percent of users saw improvements in health and education services during the last 2 years and 56 percent saw improvements in administrative services.

70.4

Health

21.4

72.6

Education

13.8

55.8

Administrative

0%

20%

23.9

40% Improved

No change

60% Worsened

3.1

5.8

8.0

80%

7100%

Don't Know

Perceived Changes in Public Services in Urban and Rural Areas Health

76.8

Urban

68.2

Rural

0%

20%

40%

60%

80%

100%

60%

80%

100%

Education

77.3

Urban

71.1

Rural

0%

Residents in urban areas are slightly more likely to cite improvements in public service quality than those in rural areas but both are quite positive about recent changes in quality of services.

20%

40%

8

4

Perceived Changes in Public Service by Income 80% 75% 70% 65% 60% 55% 50% Q1

Q2 Health

Q3 Education

Q4

Q5

Administrative

Residents from the highest income quintile are more apt to believe that service quality is increasing than those from the lowest quintile. But belief that service quality is improving is widespread. 9

Optimistic Summary • Widespread citizen satisfaction with current state of local health, education, and administrative services. • Pervasive view that local health, education, and administrative service quality is increasing.

10

5

Indonesian Health Outcomes in Regional Perspective (avg. rank: CDR, IMR, USMR, MMR, DPT, measles) GDP Rank

Health Rank

8 7

Indonesia ranks 6 th out of 8 countries shown and lower than it’s level of income would imply.

5 4 3 2

Cambodia

India

Indonesia

Philippines

Vietnam

China

0

T hailand

1 Malaysia

Ran k: Best to Worst

6

Indonesia’s infant mortality rate is improving; maternal mortality rates have stagnated; and malnutrition has recently increased. 11

Indonesian Education Outcomes in Global Perspective Brazil 600

Hong Kong-China

Indonesia

550 500 450

Japan

Mexico

400 350 300

Korea

Thailand

250

Poland

Greece

Spain

Although Indonesia has made some improvements in reading and math scores, it still ranks the worst of countries shown.

Portugal Russian Federation

Reading 2000

Reading 2003

Math 2000

Math 2003

Indonesian enrollment rates are increasing but education infrastructure is deteriorating; trends in the general quality of education are ambiguous.

12

6

Pessimistic Evidence (Based on Objective Indicators from WB PER)

13

Local Infastructure Service Delivery in Indonesia in Regional Context Regional Infrastructure Type Indonesia Rank Electrification Ratio (percent) 53 11 of 12 Access to Sanitation (percent) 55 7 of 11 Access to Clean Water (percent) 14 7 of 11 Road Network (km per 1,000 inhabitants) 1.7 8 of 12 The Indonesian electrification ratio has recently stagnated, access to clean water has declined, and roads have become more congested.

14

7

Pessimistic Summary • Health, education, and infrastructure service outcomes in Indonesia are substandard relative to those of many other comparable countries. • Health, education, and infrastructure service outcome trends within Indonesia are mixed: a few are improving but many are stagnant or declining. 15

Reconciling Conflicting Evidence Three (Interesting) Options:

1. Pessimistic evidence is correct but Indonesians are satisfied because they have low expectations; 2. Pessimistic evidence is correct and Indonesians agree but they say they are satisfied because they are polite in answering survey questions; 3. Pessimistic evidence is wrong (or irrelevant), service quality is generally good, and Indonesians are legitimately satisfied. Opinion: Options 1 and 2 seem most plausible. 16

8

Sub-National Government Fiscal Behavior

17

Sub-National Government Bank Deposits Since Decentralization 100,000 90,000 80,000

Subnational bank deposits are Rp 98 trillion, over 3 % of GDP

60,000 50,000 40,000 30,000 20,000

Apr-07

Jan -07

Jul -06

O ct-06

Apr-06

Jan -06

Jul -05 O ct-05

Apr-05

Jan -05

Jul -04

O ct-04

Jan -04 Apr-04

Jul -03

O ct-03

Apr-03

Jul -02

O ct-02 Jan -03

Apr-02

Jan -02

Jul -01

O ct-01

0

Apr-01

10,000

Jan -01

Rupiah (Blns)

70,000

Sub-national governments are under-spending. 18

9

Sub-national Budget Shares, by Sector, 2004 Province

Kab/Kota

Total

40.0 35.0

B u d g e t S h ar e

30.0

Indonesian subnational governments spend about 32% of their budgets on administration.

25.0 20.0 15.0 10.0 5.0 0.0 Admin

Ed

Infr

Hlth

Ag

Env

Trade

Labor Mining

Sub-national government spending is inefficient. 19

Conclusions • Public service performance since decentralization has been mixed but mostly mediocre; central and local governments must share the blame in that outcome. • Evidence from GDS should best be thought of as indicative of relative (not absolute) levels of service user satisfaction. • Sub-national government saving and spending behavior has been uninspiring, given poor state of service quality. • Decentralization should proceed—in fact, there is little choice in the matter. • Decentralization policy going forward should focus on providing sub-national governments with incentives for spending more of their resources and spending them more efficiently and on sanctions if they fail to comply. 20

10

THE GRAND STRATEGY OF PROMOTING DECENTRALISATION IN INDONESIA (WITHIN THE CORRIDOR OF LAW 32/2004) BY: : DR.MADE SUWANDI DIRECTOR OF LOCAL GOVERNMENT FUNCTION DIRECTORATE GENERAL OF REGIONAL AUTONOMY MINISTRY OF HOME AFFAIRS

THE OBJECTIVES OF DECENTRALISATION 1.

LOCAL GOVERNMENT CAN PROMOTE WELFARE AT THE LOCAL LEVEL THROUGH THE PROVISION OF PUBLIC SERVICES

2.

LOCAL GOVERNMENT BECOMES THE INSTRUMENT FOR POLITICAL EDUCATION AT THE LOCAL LEVEL TO PROMOTE DEMOCRATISATION

1

FURTHER REGULATIONS NEEDED TO IMPLEMENT LAW 32/2004 1. 2. 3.

PP SEBANYAK 33 BUAH PERPRES SEBANYAK 2 BUAH PERMENDAGRI 1 BUAH

PERPRES 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)

2

33 PERATURAN PEMERINTAH (PP) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

PP TENTNG PILKADA (PP 6/2005) PP TENTANG POL PP (PP 32/2004) PP TENTANG STANDARD AKUNTANSI PEMERINTAHAN (PP 24/2005) PP TENTANG KEDUDUKAN PROTOKOLER DPRD (PP 37/2005) PP TENTANG PEDOMAN TATIB DPRD (PP 53/2005) PP TENTANG PENGELOLAAN KAWASAN PERKOTAAN (DALAM PROSES) PP TENTANG DESA (PP 72/2005) PP TENTANG KELURAHAN (PP 73/2005) PP TENTANG BINWAS (PP 67/2005) PP TENTANG SPM (PP 65/2005) PP TENTANG PENGELOLAAN KEUANGAN DAERAH (PP 58/2005) PP TENTANG EVALUASI PEMDA (DALAM PROSES) PP TENTANG PEMBENTUKAN PEMDA (DALAM PROSES)

33 PERATURAN PEMERINTAH (PP) 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

PP TENTANG KEWENANGAN (DALAM PROSES) PP TENTANG BELANJA KEPALA DAERAH (PROSES) PP TENTANG LAPORAN PEMDA (PP 3/2006) PP TENTANG LKPJ DAN IPPD (PP 3/2006) PP HUBUNGAN PELAYANAN UMUM (PROSENG) PP TENTANG PERUBAHAN BATAS WILAYAH, PERUBAHAN NAMA, DAN PEMINDAHAN IBUKOTA (PROSES) PP TENTANG FUNGSI PEMERINTAHAN TERTENTU (PROSES) PP TENTANG TATA CARA PENETAPAN KAWASAN KHUSUS (PROSES) PP TENTANG KERJASAMA ANTAR DAERAH (PROSES) PP TENTANG PENEGASAN BATAS WILAYAH (PROSES) PP TENTANG PERANGKAT DAERAH (PROSES) PP TENTANG PERENCANAAN PEMBANGUNAN DAERAH (PROSES) PP TENTANG PENGELOLAAN BARANG DAERAH (PROSES)

3

33 PERATURAN PEMERINTAH (PP) 27. PP TENTANG KEWENANGAN GUBERNUR SEBAGAI WAKIL PEMERINTAH 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 LOCAL GOVERNMENT 1. 2. 3. 4. 5. 6. 7.

LOCAL GOVERNMENT FUNCTION ORGANISATION STRUCTURE OF LG LOCAL GOVERNMENT PERSONNEL LOCAL GOVERNMENT FINANCE PEOPLE REPRESENTATION PUBLIC SERVICES SUPERVISION

THOSE ELEMENTS BUILD UP THE LOCAL GOVERNMENT AS A SYSTEM. THE APPROACH SHOULD BE HOLISTIC NOT PARTIAL

4

BASIC QUESTION WHAT STRATEGY SHOULD BE ADOPTED TO SUPPORT THE CAPACITY OF LOCAL GOVERNMENT TO PROMOTE ; WELFARE AND DEMOCRATISATION AT THE LOCAL LEVEL

STRATEGY 1.

STRENGTHEN THE 7 BASIC ELEMENTS OF LOCAL GOVERNMENT

2.

IDENTIFY THE IDEAL ARRANGEMENT OF EACH ELEMENT WITHIN THE CORRIDOR OF LAW 32/2004 IDENTIFY THE EXISTING CONDITION OF EACH ELEMENT IDENTIFY THE GAP BETWEEN THE IDEAL AND THE EXISTING; PROBLEMS, CONSTRAINTS ETC

3. 4. 5. 6.

ARRANGE THE ACTION PLAN OF EACH ELEMENT TO FILL THE GAP ALL ACTION PLANS WILL BE BOUND IN A GRAND STRATEGY OF AUTONOMY

5

THE GRAND STRATEGY OF REGIONAL 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 THE ARRANGEMENT OF LAW 32/2004

STRATEGY ON LOCAL GOVERNMENT FUNCTION THE OBJECTIVE: THERE IS A PROPORTIONAL DISTRIBUTION OF FUNCTIONS AMONG TIERS OF GOVERNMENT (CENTRE, PROVINCE AND DISTRICT/CITY) EXISTING CONDITION: 1. OVERLAP BETWEEN THE AUTONOMY LAW WITH THE SECTORAL LAWS 2. OVERLAP FUNCTIONS AMONG TIERS OF GOVERNMENT ACTION PLANS: 1. HARMONIZE AUTONOMY LAW WITH SECTORAL LAWS 2. CLEAR DISTRIBUTION OF FUNCTIONS AMONG TIERS OF GOVERNMENT

6

STRATEGY ON LG STRUCTURE GOAL: : LG HAS THE RIGHT SIZING OF ORGANISATION TO ACCOMMODATE LG FUNCTIONS EXISTING CONDITION: THERE IS A GREAT TENDENCY TO FLORIFERATE THE ORG. STRUCTURE ACTION PLANS: 1. IDENTIFY FUNCTIONS OF LG 2. SET UP LG. ORG. TO FIT IN LG FUNCTIONS

STRATEGY ON LG PERSONNEL GOAL: LG HAS THE APPROPRIATE NUMBER AND QUALIFICATION OF PERSONNEL TO IMPLEMENT LG FUNCTIONS EXISTING CONDITION: 1. RECRUITMENT IS NOT BASED ON COMPETENCE 2. POLITICATION OF PERSONNEL ACTION PLANS: 1. PROMOTING PERSONNEL COMPETENCE 2. FREEING PERSONNEL FROM BEING POLITICISED 3. SETTING THE APPROPRIATE RATIO OF PERSONNEL TOWARD POPULATION

7

STRATEGY ON LG FINANCE GOAL: LG HAS REVENUE SOURCES TO MEET LG FUNCTIONS EXISTING CONDITION: 1. EXCESSIVE TAXES AND CHARGES BY LG DISTURBING THE ECONOMY 2. HIGH OVERHEAD COST (AROUND 70%) 3. LOW FINANCE MANAGEMENT ACTION PLANS: 1. CONTROL OF LOCAL TAXES AND CHARGES 2. PROMOTING PERFORMANCE BUDGET 3. IMPROVING THE GRANT SYSTEM INCL DECON FUND 4. PROMOTING INVESTMENT CLIMATE BY LG

STRATEGY ON LG REPRESENTATION GOAL: THE GOOD RELATIONSHIP BETWEEN LG EXECUTIVE AND LEGISLATIVE AND PEOPLE EXISTING CONDITION: 1. DIAMETRIC RELATION BETWEEN EX vv LEG 2. LACK OF ACCOUNTABILITY TO PEOPLE 3. COLLABORATION BETWEEN EX + LEG ACTION PLANS: 1. IMPROVING THE CAPACITY OF DPRD 2. PROMOTING CHECKS AND BALANCES

8

STRATEGY ON PUBLIC SERVICES GOAL: LG CAN PROVIDE BASIC SERVICES AND PROMOTING LOCAL ECONOMIC POTENTIALS (CORE COMPETENCE) EXISTING CONDITION: 1. LACK OF CAPACITY OF LG TO PROVIDE BASIC SERVICES 2. IMPROPER ALLOCATION OF RESOURCES 3. HIGH OVERHEAD COST ACTION PLANS: 1. PROMOTING MINIMUM SERVICE STANDARD 2. PRESSING DOWN THE OVERHEAD COST 3. SETTING UP MONEV OF SERVICES 4. STCK AND CARROT APPROACH 5. PROMOTING INNOVATION,

STRATEGY ON LG SUPERVISION AND FACILITATION GOAL: THE EXISTENCE OF CLEAR CONTROL AND SUPERVISION OF LG EXISTING CONDITION: 1. OVERLAP CONTROLS TO LG 2. NO CLEAR SUPERVISION MECHANISM FROM SECTORAL MINISTRIES TO LG ACTION PLANS: 1. INTEGRATING VARIOUS INTERNAL CONTROL INTO AN INTEGRATED CONTROL AGENCY 2. MAKE A CLEAR MECHANISM OF SUPERVISION BY TECHNICAL MINISTRIES TO LG THROUGH CLEAR COORDINATION WITH MOHA 3. ADOPTING A STICK AND CARROT APPROACH

9

THANK YOU

10

PROLIFERATION OF LOCAL GOVERNMENT (WITHIN THE CORRIDOR OF LAW 32/2004)

DR.MADE SUWANDI Msoc.sc DIRECTOR OF LOCAL GOVERNMENT FUNCTION DITJEN OTDA – DEPDAGRI

1

Crucial Issues in Pemekaran 1. THE RATIONALE OF PROLIFERATION; ENHANCING PUBLIC SERVICES AND MAKE LOCAL GOVERNMENT CLOSER TO PEOPLE 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 SECTORAL OFFICES; POLICE, ARMED FORCES, AND OTHERS

2

1

What really happens 1. THE UNEQUAL DEVELOPMENT WITHIN THE REGION 2. PROVOKING LOCAL ELITES TO RAISE THE ISSUE OF BEING DEPRIVED AND DEMANDING FOR MAKING NEW LOCAL GOVERNMENT SEPARATED FROM THE MOTHER REGION 3. THE UNEQUAL DEVELOPMENT IS ANSWERED BY PROLIFERATION OF REGION WITHOUT SOLVING THE ORIGINAL PROBLEM 4. IT WILL REDUCE THE CAPACITY OF DEVELOPMENT OF THE REGION AS A WHOLE; DEVIDING THE RESOURCES 5. THE HEADACHE IS CURED BY THE STOMACHACHE MEDICINE

3

Who loses Who gains WHO GAINS:

•

LOCAL PEOPLE ARE HAPPY SINCE THEIR AREA ARE DEVELOPED; BETTER ROAD, ELECTRICITY, NEW OFFICES FROM QUIET TO BE BUSY AREA

•

CIVIL SERVANTS ARE HAPPY SINCE THEY HAVE PROMOTION IN NEWLY ESTABLISHED LOCAL GOVERNMENT

•

LOCAL POLITICAL PARTY ELITES ARE HAPPY AS THEIR CADRES MAY HAVE OPPORTUNITY TO BE COUNCILLORS OR EVEN HEAD OF REGION

•

THE RESOURCES ARE DEVIDED INTO AT LEAST TWO REGIONS; MOTHER REGION AND PROLIFERATED REGION

4

2

Who loses Who gains WHO LOSES: •

FINANCIAL SOURCES HIGHLY DEPENDENT ON CENTRAL GRANT (94%) ARE DEVIDED INTO AT LEAST TWO REGIONS. REDUCING THE FINANCIAL CAPACITY OF LOCAL GOVERNMENT.

•

THE REDUCED FINANCIAL SOURCES WILL REDUCE THE CAPACITY TO FINANCE PUBLIC SERVICES AS A WHOLE THOUGH IT WILL BENEFIT THE NEW LOCAL GOVERNMENT

•

IN THE LONG TERM, NEW ECONOMICALLY WEAK LOCAL GOVERNMENTS DO NOT HAVE CAPACITY TO DEVELOP

•

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

5

Why Proliferation of New Local Governments keep Growing WHY IT KEEPS GROWING: •

THE NEW LOCAL GOVERNMENT IS ESTABLISHED BY LAW

•

THE LAW CAN BE INITIATED OR PROPOSED EITHER BY THE PRESIDENT OR BY THE DPR

•

MOST LAWS OF NEW LOCAL GOVERNMENT WERE INITIATED BY THE DPR

•

THERE ARE THREE REQUIREMENTS TO ESTABLISH NEW LOCAL GOVERNMENT; ADMINISTRATIVE, TECHNICAL AND AREA

•

MORE EMPHASIS ON FULFILLMENT ADMINISTRATIVE REQUIREMENTS NEGLECTING TECHNICAL REQUIREMENTS

•

POLITICAL PREFERENCE IS MORE EMPHASIZED 6

3

How many new Local Governments have been Establisheh and being Proposed NUMBER NEWLY ESTABLISHED LOCAL GOVERNMENT: SINCE 1999 UP TO NOW : 165 LOCAL GOVERNMENTS WERE ESTABLISHED 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

7

MPR DPD

DPR

PRESIDEN

BPK

MA

DESENTRALISASI (Ps 18,18A,18B UUD 1945) PENYERAHAN URUSAN PEMERINTAHAN

Pasal 4 UUD 1945:

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

Presiden pemegang kekuasaan pemerintahan berdasarkan UUD. Pasal 17 UUD 1945: Presiden dibantu menteri negara;masing2 menteri bertanggungjawab pd urs pem tertentu.

DAERAH OTONOM

OTONOMI DAERAH

8

4

CENTRALISATION VV DECENTRALISATION DEKONSENTRASI (PEMERINTAH WILAYAH/FIELD ADMINISTRATION) FUNCTIONAL FIELD ADMINISTRATION; KANDEP/KANWIL

PEMERINTAH PUSAT

INTEGRATED FIELD ADMINISTRATION; KEPALA WILAYAH

POWER SHARING 1. OTONOMI TERBATAS (ULTRA VIRES) 2. OTONOMI LUAS (GENERAL COMPETENCE)

DESENTRALISASI (PEMERINTAH DAERAH) 9

BAGAIMANA PENYELENGGARAAN PEMERINTAHAN DAERAH ?

10

5

UUD NKRI TAHUN 1945 Pasal 18: (1) NKRI dibagi atas daerah-daerah prov dan daerah prov itu dibagi atas kab dan kota, yang tiap-tiap prov,kab,dan kota itu mempunyai pemerintahan daerah, yang diatur dg UU (2) Pemerintahan daerah prov,daerah kabupaten,dan kota mengatur dan mengurus sendiri urusan pemerintahan menurut asas otonomi dan tugas pembantuan 11

Lanjutan….: (3) Pemerintahan daerah prov, daerah kabupaten,dan kota memiliki DPRD yang anggota-anggotanya dipilih melalui pemilihan umum (4) Gubernur,Bupati,dan Walikota masing-masing sebagai kepala pemerintah daerah prov,kab,dan kota dipilih secara demokratis (5) Pemerintahan daerah menjalankan otonomi seluas-luasnya ,kecuali urusan pemerintahan yang oleh UU ditentukan sebagai urusan Pemerintah Pusat (6) Pemerintahan daerah berhak menetapkan Perda dan pearturan-peraturan lain untuk melaksanakan otonomi dan tugas pembantuan (7) Susunan dan tatacara penyelenggaraan pemerintahan daerah diatur dalam UU 12

6

Pasal 18A: (1) Hub wewenang antara pemerintah pusat dan pemerintahan daerah provinsi,kab,dan kota ,atau antara provinsi dan kab dan kota,diatur dengan dengan UU dengan memperhatikan kekhususan dan keragaman daerah (2) Hubungan keuangan,pelayanan umum,pemanfaatan sumber daya alam dan sumber daya lainnya antara pemerintah pusat dan pemerintah daerah diatur dan dilaksanakan secara adil dan selaras berdasarkan UU 13

Pasal 18B: (1) Negara mengakui dan menghormati satuansatuan pemerintahan daerah yang bersifat khusus atau bersifat istimewa yang diatur dengan UU. (2) Negara mengakui dan menghormati kesatuankesatuan masy hukum adat beserta hak-hak tradisionalnya sepanjang masih hidup dan sesuai dengan perkembangan masyarakat dan prinsip NKRI, yang diatur dalam UU.

14

7

BAGAIMANA PEMBENTUKAN DAERAH OTONOM ?

15

NEGARA KESATUAN REPUBLIK INDONESIA DIBAGI ATAS DAERAH-DAERAH:

PROVINSI DAERAH PROVINSI DIBAGI ATAS:

MASING-MASING MEMPUNYAI PEMERINTAHAN DAERAH. PASAL 2 AYAT (1)

KABUPATEN DAN KOTA 16

8

PEMBENTUKAN DAERAH: DITETAPKAN DGN UU {Pasal 4 (1)} SUBSTANSI UNDANGUNDANG DIMAKSUD MENCAKUP Psl {4 (2)} :

PEMBENTUKAN DAERAH DAPAT BERUPA {Psl 4 (3)}:

PEMEKARAN SETELAH MENCAPAI BATAS MINIMAL USIA PENYELENGGARAAN PEMERINTAHAN {Psl 4 (4)}

Nama Cakupan wilayah Batas Ibukota Kewenangan Penjabat Kepala Daerah Pengisian DPRD Pengalihan kepegawaian Pendanaan Peralatan dan dokumen Perangkat daerah  PENGGABUNGAN BEBERAPA DAERAH  PENGGABUNGAN SEBAGIAN DAERAH YANG BERSANDINGAN  PEMEKARAN DARI SATU DAERAH MENJADI DUA DAERAH ATAU LEBIH PROVINSI: 10 TAHUN KABUPATEN/KOTA: 7 TAHUN KECAMATAN: 5 TAHUN

17

ADMINISTRATIF

 . SYARAT-SYARAT PEMBENTUKAN DAERAH Pasal 5 Ayat (1)

TEKNIS FISIK KEWILAYAHAN

18

9

SYARAT ADMINISTRATIF A. PEMBENTUKAN PROVINSI Pasal 5 Ayat (2) 1. ASPIRASI MASYARAKAT. 2. KEP. DPRD KABUPATEN/KOTA & PERSETUJUAN BUPATI/WALIKOTA MASING-MASING YG AKAN MJD CAKUPAN PROV 3. KEP. DPRD PROV/INDUK. 4. REKOMENDASI GUBERNUR/INDUK. 5. REKOMENDASI MENTERI DALAM NEGERI

B. PEMBENTUKAN KABUPATEN/KOTA Pasal 5 Ayat (3) 1. 2. 3. 4. 5. 6.

ASPIRASI MASYARAKAT. KEPUTUSAN DPRD KABUPATEN/KOTA. PERSETUJUAN BUPATI/WALIKOTA. KEPUTUSAN DPRD PROVINSI/INDUK. REKOMENDASI GUBERNUR/INDUK. REKOMENDASI MENTERI DALAM NEGERI

19

SYARAT TEKNIS Pasal 5 Ayat (4)

FAKTOR DASAR PEMBENTUKAN DAERAH

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

KEMAMPUAN EKONOMI. POTENSI DAERAH. SOSIAL BUDAYA. SOSIAL POLITIK. KEPENDUDUKAN. LUAS DAERAH. PERTAHANAN. KEAMANAN. dan FAKTOR LAIN YANG MEMUNGKINKAN TERSELENGGARANYA OTDA (KEMAMPUAN KEUANGAN,TINGKAT KESEJAHTERAAN MASYARAKAT, RENTANG KENDALI PENYELENGGARAAN PEMERINTAHAN DAERAH)

20

10

SYARAT FISIK Pasal 5 Ayat Ayat (5)

PROVINSI

PALING SEDIKIT 5 KABUPATEN/KOTA LOKASI CALON IBUKOTA SARANA DAN PRASARANA PEMERINTAHAN

KABUPATEN

PALING SEDIKIT 5 KECAMATAN LOKASI CALON IBUKOTA SARANA DAN PRASARANA PEMERINTAHAN

KOTA

PALING SEDIKIT 4 KECAMATAN SARANA DAN PRASARANA PEMERINTAHAN

21

PENGHAPUSAN 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 dengan UU {7 Ayat (1)}  Perubahan batas daerah, perubahan nama daerah, pemberian nama bagian rupa bumi, serta perubahan nama , atau pemindahan ibu kota yang tidak mengakibatkan penghapusan suatu daerah ditetapkan dengan PP {7 Ayat (2)}  Perubahan dimaksud dilakukan atas usul dan persetujuan daerah ybs. {Pasal 7 Ayat(3)}  Tata cara Pembentukan, Penghapusan dan Penggabungan Daerah diatur dengan Peraturan Pemerintah {Pasal 8}

22

11

KAWASAN KHUSUS  Untuk menyelenggarakan fungsi pemerintahan tertentu yang bersifat khusus bagi kepentingan nasional, pemerintah dapat menetapkan kawasan khusus. (pasal 9 ayat 1)  Kawasan khusus untuk perdagangan bebas dan/atau pelabuhan bebas ditetapkan dengan Undang-undang (pasal 9 ayat 2). Selainnya diatur dengan PP (pasal 9 ayat 3)  Penetapan kawasan khusus, Pemerintah mengikutsertakan daerah yang bersangkutan (pasal 9 ayat 4)  Daerah dapat mengusulkan kawasan khusus (pasal 9 ayat 5)  Tatacara penetapan kawasan khusus diatur dengan PP23 (pasal 9 ayat 6)

BAGAIMANA PENGATURAN URUSAN PEMERINTAHAN

24

12

ANATOMI URUSAN PEMERINTAHAN URUSAN PEMERINTAHAN

ABSOLUT

(Mutlak urusan Pusat)

-

Politik Luar Negeri Pertahanan Keamanan Moneter dan Fiskal Nasional Yustisi Agama

CONCURRENT (Urusan bersama Pusat, Provinsi, dan Kab/Kota)

PILIHAN/OPTIONAL (Sektor Unggulan) Contoh: pertanian, industri, perdagangan, pariwisata, kelautan dsb

WAJIB/OBLIGATORY (Pelayanan Dasar) Contoh: kesehatan, pendidikan, lingkungan hidup, pekerjaan umum, sosial,dsb

SPM

(Standar Pelayanan Minimal) 25

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 yang paling dekat dengan dampak tersebut (sesuai prinsip demokrasi) 3. Efisiensi  Otonomi Daerah harus mampu menciptakan pelayanan publik yang efisien 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 26

13

BAGIAN URUSAN PEMERINTAHAN YANG DILAKSANAKAN OLEH MASING- MASING TINGKATAN PEMERINTAHAN BERDASARKAN 3 KRITERIA

1. Pusat: berwenang menetapkan norma, standar, prosedur, Monev, supervisi, fasilitasi dan mengatur dan mengurusurusan-urusan pemerintahan dengan eksternalitas nasional. 2. Provinsi: berwenang mengatur dan mengurus urusan-urusan pemerintahan dengan eksternalitas regional (lintas Kab/Kota) 3. Kab/Kota: berwenang mengatur dan mengurus urusan-urusan pemerintahan dengan eksternalitas lokal (dalam satu Kab/Kota) 27

URUSAN WAJIB KEWENANGAN DAERAH 1. Perencanaan dan Pengendalian Pembangunan 2. Perencanaan, pemanfaatan dan pengawasan tata ruang 3. Penyelenggaraan Ketertiban Umum dan ketentraman 4. Penyediaan sarana dan prasarana umum 5. Penanganan Bidang Kesehatan 6. Penyelenggaraan Pendidikan dan Alokasi SDM Potensial 28

14

URUSAN WAJIB KEWENANGAN DAERAH……….Lanjutan 7.Penanggulangan masalah sosial 8.Pelayanan bidang ketenagakerjaan 9. Fasilitasi pengembangan UKM 10.Pengendalian Lingkungan Hidup 11.Pelayanan Pertanahan 12.Pelayanan Kependudukan dan Capil 13.Pelayanan administrasi umum pemerintahan 14.Pelayanan administrasi penanaman modal 29

URUSAN DAERAH YANG BERSIFAT PILIHAN

• Urusan Pemerintahan yang secara nyata ada dan berpotensi untuk meningkatkan kesejahteraan masyarakat sesuai dengan kondisi, kekhasan dan potensi unggulan daerah. Contohnya: bidang Pertambangan, Perikanan, Pariwisata, Pertanian, Perkebunan, Kehutanan 30

15

31

16

Spending for Development: Making the Most of Indonesia's New Opportunities Washington DC, July 10 2007

Wolfgang Fengler

Key Messages  Indonesia has more fiscal space; the

macroeconomic paradigm has changed  Indonesia experienced a second “big bang” (of transfers) in 2006; poor regions have now [sufficient] funding  New composition of expenditures across sectors; substantially different than that on 2001

Public Expenditure Review 2007

1

Indonesia has fiscal space: the macroeconomic paradigm has changed


Fiscal Space: Indonesia has an expanding amount of fiscal resources: Fiscal space is above 10% of GDP since 2005 12%

10%

Fiscal Space as % of GDP

Kabupaten/Kota Province Central

APBN

8%

6%

4%

2%

0% 1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


2

Fiscal Space: Debt

 Debt chart international

comparison


Fiscal Space: Indonesia has an expanding amount of fiscal resources: Non oil and gas revenues are up 450

trillion Rp. in constant 2000 pr ices

400 350

Total Central Gov. Exp.& Transfers to Regions Total Central Gov. Revenues Non-oil and gas Central Gov. Revenues Oil and gas Central Gov. Revenues Expenditures excluding interest payments

300 250 200 150 100 50 0

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

3

Limited autonomy 2% 15%

32%

68%

Province Central Government

83%

District

4%

96% Salaries


Indonesia has experienced a second “big bang” in 2006; transfers increased by [50] percent. The poor regions have now [sufficient] funding.


4

Second ‘big bang’ of transfers: Decentralization: The fiscal fundamentals of Indonesia have changed since 2001 use table in real terms 160

Crisis

Extra US$ 15 billion to spend

Decentralization

Constant 2000 prices, Rp. trillion

140 120 100 80 60 40 20 1994

1995

1996

1997 1998

1999

2000

2001

2002 2003

2004

2005 2006* 2007**

Interest Payments Subsidies Transfers to Region Public Expenditure Review 2007 Central Development Expenditures

The impact of the 2006 transfer increase (65% on average)


5

Indonesia is one of the most diverse and unequal countries in the World Living standards range from developed country standards to entrenched poverty. Strongest district

Indicator

GRDP Per Capita (USD)

Weakest district

Average

Standard Deviation

Mexico

Zambia

33,759

208

1055

2104

6500

491

Poverty rate (%)

3

51

18

10

20

73

Adult literacy rate (%)

99

21

91

9

90

68

Secondary Gross Enrollment Rate (%)

125

9

82

15

109

26

Life expectancy (years)

73.7

57.5

66.3

3.1

75

38


Second fiscal ‘big bang’: Decentralization: Poor regions are the main beneficiary of Indonesia’s transfer system 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 6000

4000 3000 2000

Papua

Papua Barat

Kalimantan Timur

KalimantanTengah

Maluku

MalukuUtara

Riau

NanggroeAcehDarussalam

KepulauanBangkaBelitung

Sulawesi Tengah

Sulawesi Tenggara

Bengkulu

KepulauanRiau

Gorontalo

Jambi

Sulawesi Utara

Sumatra Barat

Kalimantan Barat

KalimantanSelatan

NusaTenggaraTimur

Bali

Sulawesi Selatan

SumateraSelatan

Sumatra Utara

NusaTenggaraBarat

Lampung

DIYogyakarta

JawaTimur

Banten

0

JawaTengah

1000

JawaBarat

inthousand Rp

5000


6

Finding 2 – Decentralization: …. but to ensure that (poor) regions spend their resources effectively … April – May Bastian? 120 100 80 60 40

District/City

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

0

2003

2004

2005

2006

2007


Since 2001, the national/sectoral composition of expenditures changes substantially … Education now number 1


7

Finding 3 – Cross-sectors: Education is now the largest spending item … 30%

% of Total Expenditures

25%

20%

15%

10%

5%

0% 2001 Agriculture Nat. Defense Subsidies

2002

2003 2004 Education Infrastructure Interest Payments

2005

2006* 2007** Health Gov. Apparatus & Superv.


Finding 3 – Cross-sectors: … while infrastructure health and agriculture remain low 40%

Gov. Apparatus, & Superv.

% of T otal Na t. E xped ni tu res

35%

Subsidies 30%

Education 25%

Infrastructure

20%

Trade, Busi ness Dev. & Finance

15%

Nat. Defens e & Security Health

10%

Agri cul ture

5%

0% 200 1

200 2

2003

200 4

200 5

2006 *

2007* *


8

Finding 4 – Subsidies: GENERAL

Domestic (Regulated) Prices and International of fuel products Regulated Domestic Sales Price (Rp/liter)

International Prices As of January 2007

Break even

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

(Rp/liter)

(Rp/liter)

(USD/Barrel)

MOPS +14.1% MOPS+14.1% +Taxes +Taxes

After Tax

After tax

MOPS

MOPS+1 4.1% +Taxes

MOPS

4,500

77.3

63 .61

83.5

3,615

4,744

4,505

60.40

2,000 34.4 Kerosene (household) Automotive Diesel 4,300 73.9 (Transportation) Source: Computed by World Bank staff

72.09

90.5

4,098

5,143

1,999

27.80

66.09

86.7

3,756

4,929

4,300

57.2

Gasoline

MOPS


Finding 5 – Education: Spending is on the rise and enrollment has increased 100

90.0

4.5%

80.0

4.0%

70.0

3.5%

60.0

3.0%

50.0

2.5%

40.0

2.0%

40

30.0

1.5%

30

20.0

1.0%

20

10.0

0.5%

90 80 70 60 50

10 0

0.0

0.0% 2001

2002

2003

2004

Real National Education Expenditures

2005

2006*

2007**

National Education Expenditures (% of GDP)

1995

1996

1997

1998

NetPrimarylevel NetSeniorsecondarylevel GrossSeniorsecondarylevel

2000

2002

2004

2005

NetJuniorsecondarylevel GrossJuniorsecondarylevel

Source: Susenas (1995-2005).


9

Finding 5 – Education: With about 17 percent of the budget, Indonesia is close to other developing nations 30 25 20 15 10 5

U

ru gu a y In di a Pa ra gu L a ay o P DR Ru C ol ss o ia m n bi Fe a d er L ati eb o n In an do on ne si a A 20 r g 04 en B an tin a g la K de o re s h In a d ,R on e es p, i P a2 hi 0 0 lip 6 pi n C am es er oo Bo n liv ia B el S i ou ze th A C o fri st ca a R ic a C hi A le ze rb ai ja H n on Ke g ny K a on g, C T hi h a na ila n M d a la ys ia

0

Education expenditure % of Govt spending

Education expenditure as % of GDP

Source: Edstats and World Bank staff estimates Public Expenditure Review 2007

Finding 5 – Education: The current definition of the 20% rule is unrealistic and problematic (1) Central Government

Sub-National Below 20%

Below 20% 10.0% % o f to tal C e n tr al G o v. S p e n di n g

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0%

35%

Pers onnel s pen din g

30% Support s ervices & others 25% Education f or Civil Service 20% Education: pre Non Formal & 15% I nformal school,p rimary, Education s econdary,h igher ed., 10% & religion education 5%

2.0% 1.0%

2,001

2006CentralGov.Budget

2, 002

2,003

2,004

Total subnational routine personn el expe nditures Total subnationaldevelopment expenditures Total subnational routine non-personn el spending Public Expenditure Review 2007

10

Finding 6 – Indonesia’s health expenditures have increased substantially … 1.2%

0.8% 15 0.6%

% of G DP

1.0%

20

10 0.4% 5

0.2% -

1995

1996

1997

1998

1999

Real National Health Exp.

2000

2001

2002

2003

2004

2005

2006

2007

0.0%

National Health Expenditures as % of GDP


Finding 6 – .. But remains low in international comparison and the challenges are huge 16 14

40 34.6

Infant Mortality Rate (per 1000 live births)

13.6

35

28.7

12

30

10 8

25

Total health expenditure as % GDP

18.2

6.9

20

5.9 6

15

4 2

4.3

3.8

0.73

3.2

3.3

3.8

10.2

10

Inf ant Mortality Rate

% Health Spending/GDP

Tr. Rp. constant 2001 prices

25

5

0.94

0

0

Indonesia 2004 Indonesia 2006

Philippines

Thailand

Malaysia

National government health expenditure as % total government expenditure Source: WDI 2006 and WB staff estimates


11

Finding 7 – Many infrastructure sectors are in crisis

R o a d N e tw o r k ( 1 2 c o u n t r ie s )

A c c e s s to c le a n w a te r (1 1 c o u n tr ie s)

A c c e s s t o s a n i t a t io n ( 1 1 c o u n t r ie s )

E le c t r i f ic a t io n r a t i o ( 1 2 c o u n t r ie s )

0

1

2

3

4

5

6

C o u n tr ie s w ith lo w e r r a n k

7

8

I n d o n e s ia

9

10

11

12

13

C o u n tr ie s w ith h ig h e r r a n k


Finding 7 – Public infrastructure investments remains just above 3 percent of GDP 4.5 4.0 3.5

% of GDP

3.0 2.5 2.0 1.5 1.0 0.5 0.0 1994

1995

1996

1997

Private

1998

1999

2000

2001

Govt.

2002

2003

SOEs

2004

2005

2006

2007

Total


12

Finding 8 – Central government expenditures are typically 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 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan

Feb

Mar

Apr

Monthly 06 Cumulative 06

May

Jun

Jul

Aug

Monthly 05 Cumulative 05

Sep

Oct

Nov

Dec

Monthly 01-04 Cumulative 01-04


13

Eight potentially high-impact reforms Impact on service delivery and personnel management 1. Remove coverage of civil service salaries from the DAU 2. Adjust the definition of the”20 percent mandate” to include teacher salaries and combine central and regional government spending 3. Allocate teachers based on the number of students with a weighting for smaller schools 3. Increase spending on infrastructure, particularly central government spending on large scale infrastructure Fiscal impact 4. Reduce fuel subsidies and redirect to pro-poor spending/subsidies. 5. Reallocate electricity subsidies (all but 450VA) towards connections to expand the electricity network. Impact on budget processes 6. Establish a Medium-Term Expenditure Framework and allow the authorization of multi-year budget appropriations. 7. Further strengthen the capacity and regional presence of BPK, and Public Expenditure Review 2007 consolidate the functions of the internal audit agencies.

Finding 4 – Subsidies: The rich benefit from the electricity subsidy most R p .trillion 1.4 1.2 1.0 0.8 0.6 6600V A 2200V A 1300V A 900V A 450V A

0.4 0.2 1 P oorest

2

3

4

5

6

7

8

9

10 R ich est


14

POLITIK LOKAL DI INDONESIA Maswadi Rauf Guru Besar Ilmu Politik FISIP UI Bahan Ceramah Ceramah dalam Seminar Internasional Internasional tentang “Six Years Indonesia ’ss Decentralization Decentralization” yang yang diadakan oleh FE UI di Hotel Hotel Nikko,, Jakarta, 4Nikko 4-55 Juli 2007

DEMOKRATISASI DAN OTONOMI DAERAH  Demokratisasi

di Indonesia setelah tumbangnya Orde Baru juga mencakup demokratisasi pemerintah daerah.  Pembentukan UU Politik yang lebih demokratis pada Januari 1999 disusul oleh keluarnya UU tentang pemerintah daerah (UU No. 22/1999) pada bulan Mei 1999 yang memberikan otonomi daerah.

1

OTONOMI DAERAH DAN POLITIK LOKAL  Demokratisasi

dan otonomi daerah memberi warna baru bagi politik lokal di Indonesia.  Kepala daerah tidak lagi merupakan penguasa tunggal dan DPRD menjadi lembaga legislatif daerah yang sejajar dengan kepala daerah.  Partai-partai politik bermunculan sesuai dengan perkembangan di tingkat nasional nasional..

PILKADA  Demokratisasi

pada tingkat pemerintah daerah mencapai puncaknya dengan diperkenalkannya pemilihan umum bagi kepala daerah (pilkada) pilkada) di seluruh Indonesia melalui amandemen UUD 1945.  Dengan adanya pemilihan umum untuk memilih presiden dan wakil presiden (pilpres pilpres), ), pilkada menjadi tidak terelakkan terelakkan..  Tidak ada suara yang menentang pilkada. pilkada.

2

PENERIMAAN PILKADA  Semangat

demokratisasi menyebabkan kurang diperhatikannya dampak negatif yang dapat dihasilkan oleh pilkada. pilkada.  Pilkada dapat menimbulkan konflik sosial yang hebat di dalam masyarakat karena dukungan terhadap para calon dapat bersifat fanatik dan individual.  Pilkada dilaksanakan secara serentak di Indonesia.

MASALAH OTONOMI DAERAH (1)  Meskipun

otonomi daerah sudah berjalan selama 6 tahun, manfaatnya masih belum dirasakan oleh hampir semua propinsi dan kabupaten/kota.. kabupaten/kota  Padahal Padahal,, seperti hal demokratisasi demokratisasi,, otonomi daerah dianggap sebagai jalan keluar bagi berbagai kesulitan yang dihadapi rakyat.

3

MASALAH OTONOMI DAERAH (2)  Kekecewaan

rakyat dapat mengganggu kestabilan politik pada tingkat daerah dan nasional.  Lambatnya otonomi daerah mencapai hasil nyata bagi rakyat banyak bisa menimbulkan rasa antipati terhadap demokrasi dan otonomi daerah dan kerinduan pada masa Orde Baru yang memberikan kehidupan ekonomi yang lebih baik.. baik

FAKTOR PENGHAMBAT OTONOMI DAERAH (1)  Orde

Baru yang sentralistis menghasilkan birokrat daerah yang tergantung pada Pusat, padahal otonomi daerah memerlukan birokrat yang mandiri dan mampu membuat keputusan yang tepat dan cepat cepat..  Orde Baru menghasilkan birokrat yang lebih banyak mengerjakan rutinitas, rutinitas, padahal otonomi daerah memerlukan birokrat yang kreatif dan inovatif.

4

FAKTOR PENGHAMBAT OTONOMI DAERAH (2)  Birokrasi

pemerintah daerah yang tidak menunjang pelaksanaan otonomi daerah karena gemuk, gemuk, korup, korup, tidak efisien, efisien, dan tidak berorientasi pada prestasi.  Adanya tarik menarik kewenangan dengan Pemerintah Pusat sehingga beberapa kewenangan penting tetap di tangan Pusat yang dianggap merugikan daerah daerah..

MASALAH PILKADA (1)  Pilkada

ternyata menghasilkan ketergantungan mereka yang ingin menjadi calon kepada partai politik (parpol parpol)) karena pencalonan hanya bisa melalui parpol.  Ketergantungan itu kemudian menghasilkan “ sewa perahu” yakni sejumlah uang yang harus dibayar oleh calon kepada parpol supaya dicalonkan.

5

MASALAH PILKADA (2)  Meluasnya

politik uang untuk memenangkan pilkada yang sulit dibasmi dibasmi..  Politik uang membuat dana yang dikeluarkan untuk ikut pilkada dianggap sebagai investasi yang harus didapatkan kembali selama menjadi kepala daerah yang menyebabkan meluasnya korupsi di daerah.. daerah

MASALAH PILKADA (3)  Kelemahan

parpol dalam rekrutmen menghasilkan calon-calon dalam pilkada yang dekat dengan rakyat, namun kurang berpengalaman dalam pemerintahan dengan kemampuan manajerial yang lemah. lemah.  Calon-calon yang dekat dengan rakyat mempunyai kemungkinan yang lebih besar untuk menang sehingga kualitas kepala daerah menjadi masalah baru.

6

SOLUSI OTONOMI DAERAH  Pemerintah

Pusat perlu mendorong pertumbuhan otonomi daerah dengan menunjukkan keinginan untuk mengurangi kewenangan sehingga kewenangan daerah lebih besar.  Perlu dikembangkan kemampuan kepala daerah dan birokrasi daerah dalam manajemen pemerintahan yang sesuai dengan semangat otonomi daerah. daerah.

SOLUSI BAGI PILKADA  Parpol

harus mampu melakukan proses rekrutmen sehingga dihasilkan kader kader-kader partai yang berkualitas yang akan dicalonkan dalam pilkada.  Parpol harus mencalonkan kadernya sendiri dalam pilkada sehingga politik uang dapat dikurangi.

7

SEKIAN

TERIMA KASIH

8

Good Governance and Law in Indonesia Safri Nugraha Center for Law and Good Governance Studies

Development of Good Governance • Algemeene Beginselen van Behoorlijk Bestuur (Asas-Asas Umum Pemerintahan yang Baik) • Principles of Proper Administration • Principles of Good Administration (Code of Good Administrative Behaviour ) • Principles of Good Governance

1

Good Governance • In relation to Administration, Legislation, Judiciary • In relation to National, Regional, International • In relation to specific field of administrative law • Others

Principles of Good Governance • • • •

Proper Administration Democratic Administration Transparent Administration Human Rights Administration

2

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

3

The rule of law • • • • •

Rechtsstaat Constitutional Rule Ideology Ideal Norm Idiom

Good Governance and Law • Law as Tool • Law as Goal • Law as Ideal

4

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 ?

5

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

6

MASALAH-MASALAH DALAM PELAKSANAAN DESENTRALISASI DAN OTONOMI DAERAH DALAM KONTEKS PEMBANGUNAN DAERAH Oleh: Max H. Pohan Deputi Bidang Pengembangan Regional dan Otonomi Daerah Kementerian Negara PPN/Bappenas Disampaikan pada : International Seminar on Decentralization LPEM FE UI : “Six Year of Indonesia’s Decentralization” Hotel Nikko, Jakarta, 4 Juli 2007

Pembangunan Daerah: Bagian integral dan merupakan penjabaran dari pembangunan nasional dalam rangka pencapaian sasaran pembangunan nasional yang disesuaikan dengan potensi, aspirasi, dan permasalahan daerah.

1

Hubungan & Kinerja Pembangunan Daerah Nasional

Kinerja KinerjaPembangunan Pembangunan Kabupaten/Kota Kabupaten/Kota

Agregasi Kinerja Kinerja Pembangunan Pembangunan Provinsi Provinsi



Kinerja Kinerja Pembangunan Pembangunan Nasional Nasional Agregasi Agregasi Kinerja Kinerja Pembangunan Pembangunan Provinsi Provinsi


Pelaku Pembangunan Daerah

Pemerintah

Masyarakat

Dunia Usaha

2

PEMERINTAH SEBAGAI PELAKU PEMBANGUNAN DAERAH PEMERINTAH PUSAT

PEMERINTAH DAERAH PROVINSI

PEMERINTAH DAERAH KOTA PEMERINTAH DAERAH KOTA

PEMERINTAH DAERAH KABUPATEN PEMERINTAH DAERAH KABUPATEN

Dimensi Pembangunan Daerah 1.

2.

3.

Pembangunan daerah dapat dilihat dari berbagai segi, yaitu : Dari segi Pembangunan Sektoral. Pencapaian sasaran pembangunan nasional dilakukan melalui berbagai kegiatan pembangunan sektoral yang dilaksanakan di daerah. Dari segi Pembangunan Spatial yang meliputi pembangunan wilayah, pembangunan kawasan khusus, perkotaan dan perdesaan sebagai pusat dan lokasi kegiatan sosial ekonomi dari wilayah tersebut. Dari segi Pemerintahan. Pembangunan daerah merupakan usaha mengembangkan dan memperkuat pemerintahan daerah dalam rangka makin mantapnya otonomi daerah.

3

KUNCI KEBERHASILAN PEMBANGUNAN DAERAH 

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



Sinkronisasi kebijakan, program dan kegiatan pembangunan dalam mengoptimalkan pengelolaan dan pemanfaatan sumberdaya yang terbatas



Perencanaan pembangunan daerah yang tidak terpisahkan dari sistem perencanaan pembangunan nasional.

Desentralisasi dan Otonomi Daerah Desentralisasi Penyerahan wewenang pemerintahan oleh Pemerintah kepada daerah otonom untuk mengatur dan mengurus urusan pemerintahan dalam sistem Negara Kesatuan Republik Indonesia. Otonomi Daerah Hak, wewenang, dan kewajiban daerah otonom untuk mengatur dan mengurus sendiri urusan pemerintahan dan kepentingan masyarakat setempat sesuai dengan peraturan perundangundangan

4

Tujuan Desentralisasi Dan Otonomi Daerah 



Meningkatkan kesejahteraan masyarakat melalui pendekatan pelayanan kepada publik dan pemberdayaan masyarakat Mendukung demokratisasi di tingkat lokal untuk mendukung demokratisasi di tingkat nasional;

Peraturan Perundang-undangan Terkait     



Undang-Undang No. 32 tahun 2004 tentang Pemerintahan Daerah; Undang-Undang No. 33 tahun 2004 tentang Perimbangan Keuangan Pusat dan Daerah; Undang-Undang No. 25 tahun 2004 tentang Sistem Perencanaan Pembangunan Nasional (SPPN); Undang-Undang No. 17 tahun 2007 tentang Rencana Pembangunan Jangka Panjang Nasional (RPJPN), Peraturan Presiden No 7 Tahun 2005 tentang Rencana Pembangunan Jangka Menengah Nasional (RPJMN), Bab 13 mengenai Revitalisasi Proses Desentralisasi dan Otonomi Daerah; serta Berbagai Peraturan Pemerintah (PP) sebagai peraturan pelaksana seluruh UU tersebut.

5

Permasalahan & Tantangan Dalam Implementasi Desentralisasi dan Otda 1. 2.

3.

4. 5.

Masih adanya perbedaan persepsi tentang desentralisasi dan otonomi daerah. Masih adanya sejumlah peraturan pelaksanaan yang belum selesai disusun, khususnya PP tentang pembagian kewenangan. UU sektoral belum semuanya disesuaikan dengan UU 32/2004 tentang Pemerintahan Daerah; perlu pembagian kewenangan ditetapkan dalam konstitusi, bukan PP. Belum terbentuknya kelembagaan daerah yang efektif dan efisien; Masih rendahnya dan terbatasnya kapasitas aparatur pemerintah daerah;

Permasalahan & Tantangan Dalam Implementasi Desentralisasi dan Otda 6. 7.

8. 9. 10.

11.

Masih terbatasnya kapasitas keuangan daerah; Kapasitas fiskal tidak merata antardaerah, DAU belum berfungsi sebagai penyeimbang (ekualisasi); kuatnya intervensi politik dalam penetapan alokasi DAU, DBH, DAK. Belum mantapnya hubungan provinsi dengan kabupaten/kota. Praktek kepemerintahan lokal yang buruk; Rendahnya kapasitas pengaturan dan manajemen pelayanan publik di pemerintah daerah; Visi politisi rata-rata berjangka pendek.

6

Anatomi Urusan Pemerintahan URUSAN PEMERINTAHAN

CONCURRENT

ABSOLUT

(Urusan bersama Pusat, Provinsi, dan Kab/Kota)

(Mutlak urusan Pusat)

-

Hankam

PILIHAN/OPTIONAL

WAJIB/OBLIGATORY (Pelayanan Dasar)

(Sektor Unggulan)

-

Moneter

-

Yustisi

-

Politik Luar Negeri

-

Agama

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

Contoh: kesehatan, pendidikan, lingkungan hidup, pekerjaan umum, dan perhubungan

SPM (Standar Pelayanan Minimal)

Hubungan Antar Tingkatan Pemerintah Adanya interkoneksi dan interdependensi antar tingkatan Pemerintahan dalam mengatur dan mengurus urusannya. Contoh 1: Urusan Pendidikan Dasar & SLTP  Kab/Kota Urusan Pendidikan Menengah oleh Provinsi Urusan PT oleh Pemerintah Pusat Contoh 2: Jalan Kab/Kota oleh Pemkab/Kota Jalan Prov oleh Pemprov Jalan negara oleh Pem. Pusat

Ada hubungan interelasi dan interdependensi

Ada hubungan interelasi dan interdependensi

TINDAK LANJUT: PP PEMBAGIAN URUSAN PEMERINTAHAN

7

Visi Dan Misi Pembangunan Daerah

Visi pembangunan daerah adalah berupaya mewujudnya kapasitas daerah 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; serta 6. Mempercepat penyelesaian masalah sosial, ekonomi, politik serta hukum di beberapa daerah.

Perencanaan Perencanaan dan dan Anggaran Anggaran

Pedoman

RPJP Nasional Diacu

RPJM

RKA-KL

Rincian APBN

RAPBN

APBN

Diacu Dijabar kan

Nasional

RKP

Diperhatikan Pedoman

Pedoman

Diserasikan melalui Musrenbang

RPJM Dijabar Daerah kan

Pedoman

RKP Daerah

Pedoman

RAPBD

APBD

RKA SKPD

Rincian APBD

Diacu

Renstra Pedoman SKPD

UU SPPN

Pedoman

Renja SKPD

Pedoman

Pemerintah Daerah

RPJP Daerah

Pedoman

Renja KL

Pemerintah Pusat

Renstra Pedoman KL

UU KN

8

Langkah Kebijakan Desentralisasi Dan Otonomi Daerah Dalam RKP 2007  Menyelesaikan

dan memantapkan peraturan perundangan mengenai penyelenggaraan pemerintahan daerah, termasuk peraturan perundang-undangan yang mengatur otonomi khusus  Penyelarasan dan harmonisasi peraturan perundang-undangan sektoral yang bertentangan dengan UU No. 32 Tahun 2004 dan UU No. 33 Tahun 2004.  Mendorong terbentuknya kelembagaan pemerintah daerah yang efektif, efisien dan akuntabel  Meningkatkan kapasitas aparatur pemerintah daerah yang profesional dan kompeten dalam pelayanan publik, peningkatan iklim berusaha dan investasi, serta mitigasi bencana dan penanganan pasca-bencana  Meningkatkan kerjasama antar daerah dalam penyediaan pelayanan publik dasar, peningkatan iklim usaha dan investasi, penanganan disparitas antarwilayah, dan penanganan kawasan perbatasan.  Meningkatkan kapasitas pengelolaan keuangan pemerintah daerah, serta pemantapan pelaksanaan perimbangan keuangan Pusat dan Daerah.

Terima Kasih

9

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 plagueeither a cure for all the ills of such countries or an addition to their already heavy burdens” (Bird and 1

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 (M ilions) 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)Gross nationalincom es ($billions) 2004 1,938.00 673.2 248 4,734.30 673.1 95.1 158.4 (6)Percapita gross incom e ($) 2004 1,500 620 1,140 37,050 14000 1170 2,490 (7)Gross dom estic 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)Centralgovernm entexpenditure (% ofGDP) 2004 10.4 15.9 16.8 n.a 18.6 15.9(d) 17.1 (Note)

(a)China does notinclude HonKong (b)Inflation rate is consum erprice index averate annualgrowth rate (c )Yeardata taken is in parenthesis (d)Data is in 1995 (Source) W orld Developm entIndicators (W orld 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 2

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 3

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. 4

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

revenue China (2003) (1)

India

(2)

VAT (Local share)

21.5

Business tax

32.9

Corporate income tax

14.0

Personal income tax

6.7

Tax on land and agricultural income

2.8

5

total

local

tax

(2003-2004)

Stamp duties and registration fees

9.6

Sales tax

60.4

Sate exercise tax

12.5

Japan (3)

Personal income tax

23.58

(2003)

Sure tax on central corporate income tax

6.89

Local enterprise tax

11.11

Local consumption tax

7.33

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 6

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 7

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.

8

Table 3: Vertical Fiscal imbalance

China (2002) India (2002-03)

Local own revenue share in

Local expenditure share in total

total revenue (%)

expenditure (%)

45.1

69.3

41.4

57.5

Indonesia (2003)

6.08

26.51

Japan (2002)

42.1

61.9

8.1

20.48

Philippines (2004)

(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, 9

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. 10

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 11

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 12

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 13

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. 14

[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

15

Fiscal Decentralization in Indonesia Revisited Motohiro Sato Hitotsubashi University

Plan of the Presentation 

Part I: Overview of Fiscal Decentralization in Indonesia



Part II: Decentralization in Developing Countries.



Part III: Design of Decentralization



PART IV Concluding Remarks

1

Part I: Overview of Fiscal Decentralization in Indonesia

Decentralization in Indonesia 

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



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 (Bird and Smart(2002))

2

Fiscal Decentralization in Indonesia Expenditure Side:  (a) Decentralization is radical but local government responsibilities have been only rather vaguely defined via a negative list.  (b) Scope of local expenditure responsibilities as well as national minimums of local public services have not yet been agreed among governments.  (c) Decentralization aims at the second tier, or the municipality level governments.

Revenue Side:  (d) Local shares of natural resource taxes and personal income tax are increased, which serves to mitigate the vertical fiscal gap, but exacerbate horizontal one.  (e) DAU, Indonesia’s general purpose grants can be used to fulfill vertical and horizontal fiscal imbalances, but its use for these purposes is limited due to the political constraints given as the holdharmless provision.  (f) There are specific or conditional transfers, DAK, but so far they play only a minor role (Brodjonegoro (2002)).

3

Fiscal Decentralization in Indonesia Intergovernmental Relation:  (g) The province as an autonomous region has only a minor role, mainly in coordinating municipalities/districts within own jurisdictions; there is no hierarchical relationship between province and the districts (Hoffman and Kaiser(2002))  (h) The central skills as well as incentives of monitoring and regulating local governments in the decentralized expenditures and regulations may be weak(Ahmad and Mansor (2002)).

FiscalDecentralization in Indonesia 40

35

30

25

34.21

%

27.31 20 26.51 15

10 7.04

6.08

5.04

5

0 2001

2002 Localexpenditure/Totalexpenditure

2003

Localtax revenue/NetDom estic Revenue

Source: Bambang Brodjonegoro (2005)

4

Intergovernmental Transfers in Indonesia FY2001

Expenditure

Tax revenue

FY2002

Billion Rp.

% of GDP

Billion Rp.

% of GDP

Central

258,849

17.63

246,040

14.60

Local

93,116

6.34

119,354

7.08

Central

185,257

12.62

219,628

13.03

Local

10,727

0.73

10,949

0.65

Intergovernmental

DAU

60,929

4.15

68,472

4.06

transfers

DAK

1,009

0.07

2,008

0.12

Tax Rev. Sharing

10,072

0.69

9,661

0.57

Challenge of Fiscal Decentralization in Indonesia 







Fiscal decentralization was spontaneous and revenueled without clear expenditure assignment. Many local governments remain dependent on transfers. Tax revenue sharing exacerbates horizontal fiscal imbalance. General purpose transfers (DAU) have been constrained by the hold harmless provision and fail to equalize fiscal capacities across regions.

5

Revenue Sharing in Indonesia Revenue Sharing (Indonesia) 90 84.5 80 69.5

70

64 60

%

50

40 32

32

30 20

20

20 16

16

12.2 12.2 10

6.2

6.2

6.1

3.1 0

0 Central

Province O il

LNG

Resource producing localgov. M ining:Land rent

O therlocalgov.in the sam e prov.

M ining:Royality


HorizontalFiscalIm balance(Indonesia) 4 3.62 3.5

3

CV

2.5

2.46

1.99

2

1.5 1.17

1.17 0.96

1

0.85

0.77 0.44

0.5

0 2001

2002

2003

Year Localtax and charge percapita

Localrev.percapita

Localexp.percapita


6

Dependent variable

Regression Analysis of DAU (Municipality FY2002)

DAU allocation by Formula per capita (1)

Const

Population(Thousands)

Population*Population

Land Area

Poverty Index

Construction Price Index

GDP per capita

DAU2002+Balancng Fund per capita

(2)

(3)

(4)

-466.54**

-376.97**

- 468.17**

-392.39**

(-4.18)

(- 3.65)

( -4.08)

(-3.72)

-0.25**

-0.22**

- 0.3**

-0.27**

(-4.86)

(- 4.5)

( -5.6)

(-5.24)

0.7E- 04**

0.59E-04**

0.81E-04**

0.67E-04**

(4.17)

(3.61)

(4.65)

(4.07)

-0.55E-03

0.78E-03

- 0.11E-02

0.32E-03

(-0.48)

(0.71)

( -0.91)

(0.28)

10.52**

16.7**

8.32**

14.46**

(3.59)

(5.9)

(2.75)

(5.0)

4.14**

2.82**

4.79**

3.52**

(4.83)

(3.49)

(5.43)

(4.29)

-0.42E-02**

- 0.37E-02**

(-3.9)

( -3.32)

Estimated Own Rev. per capita

4.81**

5.01**

(7.0) Natural

Resource

Revenue.

0.016

0.29**

0.22**

Sharing per capita

(3.4)

(0.66)

(10.7)

(8.55)

Civil Servant Salary per capita

1.7**

1.4**

1.48**

1.19**

(17.82)

(15.1)

(15.09)

(12.54)

0.77

0.79

0.77

0.8

Adjusted R2

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

(7.14)

0.09**

(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.

Hold-Harmless Provision Table: DAU in FY2002 Billion Rupiahs Province DAU Budget + Balancing Fund Hold Harmless Provision % of the hold-harmless provision

Municipality

Total

6,911

62,203

8,111

63,057

71,169

69,114

7,465

55,883

63,349

92%

88.6%

89 %


7

Hold-Harmless Provision DAU2002 +Balanging Fund (Thousand Rupiahs)

DAU2002 and Hold- Harmless Provision Per Capita Transfer Provincial Governments (FY2002) 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 Goront alo

B angk a Belitung

B ant en

M aluk u Ut ara

I rj a

M aluk u

NTT

NTB

B al i

S ul tra

S ul sel

S ul teng

S ul ut

Hold- Harmless Provision

K al tim

K al sel

K al teng

K al bar

J atim

DI Yogy a

J ateng

J abar

DKI Jak art a

Lampung

B engk ulu

S um sel

J ambi

Riau

S um bar

S um ut

DI Aceh

0.0

Net Increase


Part II: Decentralization in Developing Countries

8

Fiscal Decentralization Movement 

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



“Decentralization in developing countries sometimes seems to be viewed as either a panacea or a plagueeither a cure for all the ills of such countries or an addition to their already heavy burdens” (Bird and Vaillancourt(1998))



The meaning of decentralization is being interpreted in many different ways.

Fiscal Decentralization in Asia Year China (a) India Indonesia Japan Korea PhilippinesThailand 1,296 1,080 218 128 64 (1)Population (Milions) 2004 48 82 9,598 3,287 1,905 378 513 (2)Surface area (Thousand sq.km) 2004 99 300 139 363 120 351 125 (3)Population density(People persq.km) 2004 487 274 0.9 1.7 1.4 0.2 1.1 (4)Average annualpopulation growth rate 1994-2004 0.8 2.1 (5)Gross nationalincomes ($billions) 2004 1,938.00 673.2 248 4,734.30 673.1 95.1 158.4 1,500 620 1,140 37,050 2,490 (6)Percapita gross income ($) 2004 14000 1170 (7)Gross dom estic 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 44.7(2001) (9)Giniindex(%)(c ) 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 does notinclude HonKong (b)Inflation rate is consumerprice index averate annualgrowth rate (c )Yeardata taken is in parenthesis (d)Data is in 1995 (Source) W orld DevelopmentIndicators (W orld Bank(2005))

9

Fiscal Decentralization in Asia Vertical Fiscal imbalance

Ch in a (2002) In dia (2002-03)

Loca l own r even u e sh a r e

Loca l expen dit ur e sh a r e in

in t ot a l r even u e (%)

t ot a l expen dit ur e (%)

45.1

69.3

41.4

57.5

In don esia (2003)

6.08

26.51

J a pa n (2002)

42.1

61.9

8.1

20.48

Ph ilippin es (2004)

(Sour ces) Da ta a r e t a ken fr om t h e coun t r y pa per s a n d t h ey a r e n ot compa r a ble.

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 (Political decentralization) - to enhance administrative capacity of local governments as agency of the center (policy implementation) - be from the bottom or from the top.

10

Design of Decentralization 

Fiscal decentralization is not good or bad in nature but its benefit relies on design and implementation of decentralization.



Normative criteria versus political motives - Function assignment - Decentralization theorem => Decentralization in practice does not necessarily follow economic rationale, but politically favored but economically ill-designed decentralization is harmful to economy.

Design of Decentralization: Developing and Transition economies 

Functions need to be allocated not only properly but also clearly: In practice, however, expenditure assignment may not clearly defined which blurs responsibility



Real versus formal authority: formally local governments may be prohibited from borrowing or collecting fees/ taxes, but they may exercise these authorities in informal manner.

11

Design of Decentralization 



Local government in charge of expenditure obligation (ex. education) needs to possess (i) authority over own 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 be concerned. => Management capacities must be enhanced for decentralization to work.

Politics versus Economics 

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



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



Decentralization may be perceived to be an effective means of diffusing power from the center that would effectively prevent an authoritarian regime from reemerging in the future(Guevara(2004)).

12

Decentralization in Practice 

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

=> Local governments do not have adequate revenue to discharge expenditure functions. 

The central government may impose “unfunded mandate” on local governments.

=> The center simply offloads expenditure responsibility.

Macroeconomic Impact 

Macroeconomic consequences of fiscal decentralization are major concern in developing countries.



Is fiscal decentralization growth- promoting?

Decentralization theorem versus decentralization failure. => Mixed views, theories and empirical evidences. 

13

Table 5 Summary of Relevant Studies Davoodi- Zou [3]

Zhang- Zou [16]

(five-year average)

(base case)

Meloche et al. [8]

Independent Variables Average tax rate

- 0.01

CT:

(0.14)

- 0.058

(1.364) PT: - 0.329 (1.818)

Fiscal decentralization

Population growth

Human capital

Initial income

Investment share

- 0.08

- 0.054

0.112

(2.00)

(3.617)

( P-value = 0.084)2

- 2.91

0.341

- 1.783

(3.73)

(1.501) 1

(0.297)

- 0.06

0.001

(1.68)

(0.996)

- 6.17

- 0.037

(3.58)

(0.217)

0.23

0.274

(2.95)

(0.030)

Gini Index Constant

51.95 (3.98)

R- square Obs No. of countries

0.62

0.17

145

196

0.97 30

43 developed and

28 provinces in China

10 European transition countries

developing 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 Indonesia Developm entExpenditure

14 12.62 11.86

12

10 8.8

%

8

6

4 2.61 2

2.21

1.98

0 2001

2002 LocalDevelopm entExp./GDP

2003

LocalDevelopm entExp./TotalExp.


14

Macroeconomic Impact 

Market preserving versus market disturbing decentralization.

=> Depend on design and implementation of decentralization. 

“Market preserving federalism” view presents conditions for fiscal decentralization to promote economic development.

Market preserving federalism [1] Authority and responsibility must be clearly defined and separated between different level governments. [2] A common (internal) market must be preserved so that economic activities can be freely mobile across regions. [3] Local governments must face “hard budget” so that no external fund is provided ex post when they are in fiscal difficulty. [4] A decentralized fiscal system must be sustainable or should not be altered ex post.

15

Corruption and Decentralization 

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



Closeness to people is often cited as a virtue of devolving responsibility to lower level governments => But it can be a source of corruption as local officials/politicians are also closer to special/vested interest 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 100 90

93 90

80 70

60

60

53

50

42 42

40

40

32

27

30

47

18

20 8

10 0 Singapore

Thailand

Philippines

Public SectorEthics Index

India

China

Indonesia

Judical/LegalEffectiveness

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

16

Remarks on World Bank Index 

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



JLEI (Judicial/Legal Effectiveness Index): Percentage firms in the country giving satisfactory ratings (answers 5, 6 or 7) to questions on judicial independence, judicial bribery, quality of legal framework, property protection, parliament and police effectiveness.

TICorruption Index 10 9 8 7 6 5 4 3 2 1 0 1995

96

Singapore China

97

98

99

Thailand Indonesia

2000

01

02

Philippines W orstCountry

03

04

05

India

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

17

Remarks on IT Index: 

TI index reflects perceptions of corruption.



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



Different years cover different number of countries and different surveys, so comparison between years is at the best rough.

Macro and Micro Efficiency: 

Decentralization can enhance micro efficiency tailoring local public services to local needs (Decentralization theorem).



Macro efficiency, i.e., fiscal sustainability and macro stability, must be concerned as well.



Aggregate local expenditure, taxes and debts need to be compatible with economic growth.



Especially local borrowing needs to be regulated.

18

Public service Y Regional welfare

Total Spending

F

Improving micro efficiency

E

Sustaining macro efficiency

0

Relative price of X to Y

Public service X

19

LPFP in FY2006 in Japan LocalRevenue LocalTax LocalTransferTax LocalSpecialGrants LAT of Statutory am ounts NationalDisbursem ent LocalBond of Deficitfinance bond Fee and charges M iscellaneous revenue Total

LocalExpenditure \Billion 34,898 3,732 816 15,907 12,527 10,202 10,817 2,907 1,645 5,133 83,151

\Billion Payrollrelated expense 22,577 ofW ages 20,483 (i)Elem entary and secondary schoolteachers 6,157 ofArticle 10(1) 5,029 (ii)Policem en 2,414 (iii)Fire fighters 1,184 (iv)O thers 10,727 Generaladm inistation expenses 25,186 ofArtile 10 expense (otherthan 10(1)) 9,563 Debtrepaym ents 13,298 M aintenance costs 977 CapitalExpenditure 16,889 of CentralInitiative 1,127 Public projectworks(Article 10-2) 3,033 NaturalDisaster(Article10-3) 39 Contribution to public enterprises 2,735 Extra paym ents to non-LAT recipients 1,490 Total 83,151

Part III: Design of Decentralization

20

How to design decentralization? 

Consider “necessary” conditions for good decentralization.



Decentralization does not mean different governments can act independently. -What authority should be granted to which level government? -How to combine cooperation and competition among between different level governments?

How to design decentralization? 

Decentralization does not mean that local expenditure must be financed solely by local own revenue.

=> Intergovernmental transfers play a key role in decentralization era. 

Local government should be financially responsible for own expenditure in margin (marginal fiscal accountability)

21

Good Local Tax 

Revenue should follow expenditure assignment (≠Revenue led decentralization)



Tax assignment should be according to function assignment.

Local governments should be assured (i) stable, (ii) equitable, (iii) immobile taxes. (iv) Benefit principle should be fulfilled as well. => Land and Property tax should be candidate of “Good local tax”.



Tax Assignment in Practice Cou n t r y

Ma jor loca l t a xes

%

in

t ot a l

loca l

tax

r even u e Ch in a (2003) (1)

VAT (Loca l sh a r e)

21.5

Bu sin ess t a x

32.9

Cor por a t e in com e t a x

14.0

P er son a l incom e t a x

6.7

Ta x on la n d a n d a gr icu lt u r a l in com e

2.8

S t a m p du t ies a n d r egist r a t ion fees

9.6

S a les t a x

60.4

S a t e exer cise t a x

12.5

J a pa n (3)

P er son a l incom e t a x

23.58

(2003)

S u r e t a x on cen t r a l cor por a t e in co me

6.89

In dia

(2)

(2003 -2004)

tax Loca l en t er pr ise t a x

11.11

Loca l con su m pt ion t a x

7.33

P r oper t y t a x

26.84

(Sour ces) (1) F in a n ce Yea r Book of Ch in a (2004) (2) Ra o (Ch .8) (3) Loca l Gover nm en t St a t ist ics Yea r Book of J a pa n (2005)

22

Bottom line of decentralization 







Fiscal decentralization must be designed, not spontaneous. Money must follow function, so expenditure assignment must be clearly defined before revenue assignment is considered. Local governments should be granted right and adequate authority over own policy domain and be adequately and stably financed. Human capital/ management capacity at the local level must be concerned as well.

Vertical versus horizontal interactions 

Horizontal competition (among local governments) may serve as a disciplinary device improving political accountability. - Voting with feet - Performance comparison (Yard stick competition)

Vertical competition/ interaction (between the central and local governments) could lead to “tragedy of commons” when both governments share the same tax base (ex. Business) and levy taxes independently. => Serving two kings instead of one. 

23

Central Government’ Initiative 

Decentralization does not mean that the central government be weaken.



Central government failure does not give rationale for decentralization, but political reform is called for.



There are “Normative” roles of the central government, but different from the centralized regime.



The center can give “Stick and carrot” to local governments to align their interest with social/ national one, with regulations and monitoring.

National Minimum Standard 



National minimum standards for key public services such as education and health should be preserved. => Not only how to determine the minimums, but also how to evaluate whether or not they are achieved does matter. => Status quo of public services must be assessed. Fiscal affordability must be concerned as well. => Priority must be placed for public services.

24

Education

25

Healthcare East 2005

&

Asi a Pac ifi c

Singapo re

Chin a

Philippi nes

Thaila nd

Indonesi a

62

943

71

36

88

33

4.4

3.7

4.7

3.4

3.5

2.8

2

..

2

..

..

..

Immunization, DPT (% of children ages 12 -23 months)

83.7

96.0

87.0

79.0

98.0

70.0

Immunization, measles (% of children ages 12-23 months)

83.4

96.0

86.0

80.0

96.0

72.0

Malnutrition prevalence, weight for age (% of children under 5)

14.9

..

7.8

27.6

..

28.2

33

3

27

33

21

36

2

..

2

1

..

0

Health expenditure per capita (current US$) Health expenditure, total (% of GDP) Hospital beds (per 1,000 people)

Mortality rate, under-5 (per 1,000) Physicians (per 1,000 people)

Performance of Local Governments 

How to measure performance of local level governments?



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

26

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 to be achieved (i.e., outcome basis) rather than what to be done (i.e., input basis).

Intergovernmental Transfers 

Fiscal decentralization does not mean that grants from the center should be abolished.



On contrary, intergovernmental transfers/ grants serve as a device to coordinate public policies and assure equity.



Transfers should be designed to minimize “decentralization failure” preserving benefit of decentralization.

27

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. 

28

Table（ International Comparison

Ratio

Unitary Nation

Japan

U.K

Federal Nation

France

Swede n

U.S.

German y

Canad a

Tax Revenue （ Central （ Local （

59: 41

95: 05

84:16

57: 43

59:41

50:50

47: 53

Expenditure （ Central （ Local （

38 :6 2

68: 32

69 :31

56: 44

44:56

36:64

39:61

(Note ) Dat a take n fro m MOF (2002) . Fig ures in the tabl e are from 1996- 98.

Verticalfiscalgap(China) 90 80 70 60

%

50 40 30 20 10 0 1990

91

92

93

94

95

96

97

98

99

2000

01

02

Year Subnationalexp./Totalexp.

Subnationalrev./Totalfiscalrev.

29

Fu n d flow fr om th e cen tra l to loca l gover n men t (FY2001) Central General Account (trillion yen)

Special Account for LAT (trillion yen)

Revenue (82.7)

Expenditure (82.7)

Revenue

Local Allocat ion Tax (16.8)

Additions (16.8)

NationalTaxes (50.7) (Contributions to LAT: (13.9))

National Debt Service Payments (17.2)

Expenditure

Local Allocation Tax (21.3)

Local Public Finance Program (trillion yen) Revenue (89.3)

Local Taxes (35.6)

General Expenditure (48.7)

Others

Interest payment

Special Account

Local Bond Program

Others(3.6)

Labor Cost (23.7)

Borrowing (4.3) Local Transfer Tax (0.6)

Local Allocation Tax (21.3)

National Bond (28.3)

Expenditure (89.3)

Capital Expenditure (27.2)

Local Debt ServicePayment (12.8)

National Subsides (13.1) Local Bond (11.9)

Others (25.7)

Others(6.8)

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 involve equalization component.

30

Intergovernmental transfers: Practice 

In practice, intergovernmental transfers often lead to excessive central interventions in local policy-making and/or soften local budgets.

=> Hinder local governments’ discretion and incentives for efficient fiscal management/fiscal independence. 

Hard budget is a key to enhance efficiency in a decentralized fiscal system.

Confidence and Assurance Centrally mandated expense( like wage and pension for public employees) should be financed by grants. => Unfunded mandate must be minimized.





Transfers should be not only adequate but be assured and disbursed on timely basis.



Transfer policies- conditional and unconditional-must be coordinated.

31

PART IV Concluding Remarks

Hope and Concern 

Fiscal decentralization may (i) promote democracy and participation in policy making at the local level, improving political accountability, (ii) make local services more suitable to local needs and preferences, and (iii) enhance regional economic development.

32


Fiscal decentralization may however (i) lead to coordination failure of policy making (such as infrastructures), (ii) to wasteful competition among regions, (iii) to fiscal inequity with horizontal fiscal gap being exacerbated and (iv) to more corruption and rent seeking.


Local level governments may be more accountable and can be better controlled by people due to their closeness to own residents, but they may be close to special interests and be easily captured by them as well.

=> Local governments may be more or less corruptible than the central counterpart.

33


Local governments may be more innovative in supplying public services to meet regional needs, but such decentralized delivery of services may lead to inter-regional disparity with some regions failing to meet national minimums. => Regional initiative or inter regional equalization?

Bottom Line of Decentralization 

Local budget must be hard: local borrowing especially be regulated before local bond market is developed.



Intergovernmental transfers must be not only sufficient but also stable and reliable so that local governments have sense of assurance.



Local governments should be granted authority to mobilize own revenue, say land tax to decide own expenditure in margin.

34

Challenge of Fiscal Decentralization 

[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.

35


[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.

36

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. 

37

Incentives for Economic Performance at the District level

5 July 2007

What determines growth at the district level? 

Location •



Natural and Human Resources • •



Kota/Kabupaten near major economic centres attract more investment Kabupaten/Kota with substantial natural resources have a clear advantage Some districts can create a comparative advantage through high quality education

Local Economic Policy • • •

Charges/retributions Market entry and monopoly Business licensing

1

What can Central (and Provincial) governments do to provide incentives for good economic policy in the districts?

Where in the policy “pipeline” should incentives be applied? Target ?

INPUT

Target ?

Target ?

PROCESS

OUTPUT

Target ?

LOCAL ECONOMY

OUTCOME OUTCOME

OTHER FACTORS

2

Where in the policy “pipeline” should incentives be applied? Target ?

Target ?

OSS OSS PERDA

OSS

Target ?

Target ?

Faster Cheaper Licensing

LOCAL ECONOMY

Growth Poverty Reduction Reduction

Infrastructure Macro economy

Pros and Cons of different types of incentive Outcome Pro: is what we want to achieve Con: may be affected by many other factors

Output Pro: More concrete and closely related to what we want to achieve Con: Not the only factor determining the outcome

Process Pro:Specific mechanism known to produce the output Con: Rules out other ways of achieving the output

Input: Pro: Easy to monitor and measure Con: Only vaguely related to output and outcome

3

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

Winner Winner

Low

Medium Low Target 1

Medium High

Target 2

High High

Target 3

4

Incentives for Good Economic Governance

Source: KPPOD Survey, 2005

5

Ten Highest and Ten Lowest Rated Regencies, based on Overall Scores

Ten Highest and Ten Lowest Rated Cities, based on Overall Scores

Source: KPPOD Survey, 2005

6

Incentives for better business licensing   

 

MoHA decree requires all districts to set up a One Stop Shop 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 to streamline business licensing through establishing OSS TAF has helped to establish or strengthen OSS in 52 Kabupaten/Kota Through local partners TAF has also introduced monitoring 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

7

Example: Pasuruan STRUCTURE 10 0 %

90%

80%

70%

60%

50%

40%

LICENSING PROCESS

30%

OPERATION

20%

pre-TA 10 %

post-TA 0%

CUSTOMER PERCEPTIONS

VOLUME OF ACTIVITY

District of Pasuruan, August 2006

Steps to improve the quality of OSS 1. 2. 3. 4. 5.

Assess the existence and quality of OSS throughout the country Define (say) 3 levels of OSS (standard, enhanced, premium) Decide on level of incentive for achieving each level Districts decide on the appropriate level of OSS that they need/wish to aim for Second round survey assesses districts after 1 or 2 years and rewards those that achieved the standard

8

Summary  

Providing incentives for better local economic governance is a good 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 allow districts 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

9

DESENTRALISASI KEBIJAKAN FISKAL DALAM RANGKA PEMBANGUNAN EKONOMI DI PROVINSI DKI JAKARTA

Fauzi Fauzi Bowo Bowo Kamis, Kamis, 55 Juli Juli 2007 2007

11

PEMBERLAKUAN PERATURAN PERUNDANG-UNDANGAN 











Undang-undang Nomor 17 Tahun 2003 tentang Keuangan Negara, Undang--undang Nomor 1 Tahun 2004 tentang Perbendaharaan Undang Negara; Undang--undang Nomor 15 Tahun 2004 tentang Pemeriksaan Undang Pengelolaan dan Tanggungjawab Keuangan Negara; Peraturan Pemerintah Nomor 24 Tahun 2005 tentang Standar Akuntansi Pemerintahan; dan Peraturan Pemerintah Nomor 58 Tahun 2005 tentang Pengelolaan Keuangan Daerah; Permendagri Nomor 13 Tahun 2006 tentang Pedoman Pengelolaan Keuangan Daerah, 22

1

Sejak Kebijakan Desentralisasi Tahun 1999, Kinerja Perekonomian Provinsi DKI Jakarta Pada Tahun 2005 :    

 

 

Pertumbuhan ekonomi mencapai 6,01 % Produk Domestik Regional Bruto (PDRB) Rp 436,25 triliun Kontribusi sektor tersier (perdagangan dan jasa) 72,00 % Kontribusi sektor sekunder (industri pengolahan dan bangunan) 26,30 % 33

SISI PERMINTAAN 

ekspor barang dan Jasa = 17,01 %



Investasi = 10,62 %



Konsumsi Masyarakat = 8,92 %

Pengeluaran Pemerintah = 6,67 % SISI PRODUKSI 



Sektor perdagangan, hotel dan restoran = 7,89 %



Sektor jasa pengangkutan dan komunikasi = 13,26 %



Sektor keuangan = 4,10 %



Sektor jasa perusahaan = 5,06 % Sektor industri pengolahan = 5,07 % Sektor bangunan = 5,89 %

 

44

2

Besaran PDRB Rp 512,80 triliun dan besaran riilnya mencapai 312,91 triliun (harga konstan tahun 2000).   Laju inflasi sebesar 16,06 %, (lebih rendah dibandingkan angka nasional sebesar 17,11 %).  

55

FAKTOR EKSTERNAL mempengaruhi perekonomian Jakarta tahun 2007-2009 

Menguatnya globalisasi ekonomi dunia dan pembentukan zona ekonomi regional di beberapa negara Asia : China, India, Vietnam, Thailand, dan di banyak negara lainnya; fenomena ini akan mengakibatkan kompetisi yang semakin ketat dalam hal menarik investasi, perdagangan dan pariwisata antar negara.



Kurang ekspansifnya kebijakan fiskal dan moneter nasional, yang akan mempengaruhi aktifitas sektor riil. 66

3



Masih adanya distorsi perdagangan antar daerah dan trans -nasional; kegiatan ini sedikit banyak mempengaruhi kelancaran distribusi barang ke Jakarta dan pada gilirannya berdampak pada tingkat inflasi.



Keterbatasan keuangan negara; kondisi ini akan mempengaruhi kemampuan pembiayaan pembangunan daerah.



Gejala megapolitan dalam kesatuan tata ruang; kondisi ini akan mempengaruhi keberlanjutan pembangunan ekonomi, sosial dan lingkungan. 77

FAKTOR INTERNAL mempengaruhi perekonomian Jakarta tahun 2007-2009  

Jumlah penduduk

 

Migrasi yang masuk ke Jakarta

 

Iklim perekonomian daerah

 

Stabilitas keamanan dan ketertiban

 

Sarana dan prasarana perkotaan

88

4

Dalam pelaksanaan kebijakan fiskal di DKI Jakarta perlu dilakukan : mempertajam skala prioritas belanja meningkatkan disiplin pengelolaan anggaran menekan pemborosan realisasi anggaran

dan

kebocoran

memanfaatkan sisa anggaran yang tidak terserap melakukan intensifikasi dan ekstensifikasi penerimaan pajak meningkatkan kemampuan ekonomi makro di DKI Jakarta. 99

Terima Kasih 10

5

Wrapped Session Six Year of Indonesia’s Decentralization By: 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 approached holistically not partially, and inline with the arrangement of Law 32/2004 (Made)  Kunci keberhasilan pembangunan daerah: a) Koordinasi dan keterpaduan antara pemerintah pusat dan daerah, antarsektor, antar daerah dan antara sektor dan daerah, b) Sinkronisasi kebijakan, program dan kegiatan pembangunan dalam mengoptimalkan pengelolaan dan pemanfaatan sumberdaya yang terbatas, dan c) Perencanaan pembangunan daerah yang tidak terpisahkan dari sistem perencanaan pembangunan nasional (Max)  Public service performance since decentralization has been mixed but mostly mediocre; central and local governments must share the blame in that outcome. Sub-national government saving and spending behavior has been uninspiring, given poor state of service quality. Decentralization policy going forward should focus on providing sub-national governments with incentives for spending more of their resources and spending them more efficiently and on sanctions if they fail to comply. (Blane)  Central government should : a) Promote decentralization and reduce deconcentration, b) Find new strategies in controlling the creation of new local governments, and c) Apply the intergovernmental transfer concept more appropriately. While Local Government should : a) Promote efficiency in local bureaucracy, b) Invest more in basic public services, c) Focus more on local economic growth, local job creation and local personal income improvement, and d) Accept the whole integrated concept of intergovernmental transfer. (BPS) Administrative, Case: Pemekaran, Expenditure:

 Perlu survei langsung untuk melihat persepsi masyarakat mengenai dampak pemekaran. Perluasan fokus evaluasi maupun indikator yang menggambarkan “kinerja” serta kerjasama langsung dengan BPS dan Pemda setempat untuk data yang lebih detail. (Anton)  Regional associations, Universities, NGOs must play analytical, informational and advocacy roles more intensively on MSS (Minimum Service Standards). Donors need to integrate MSS within all their relevant efforts; in sectoral support, financing schemes, and civil society support. (Gabe)  So far Indonesia only reformed the macro level of local government system and the central- local relationships. The micro level 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 been neglected or not at the heart or the focus of local government reform. (Roy)  Good news: a) Local governments have more revenues due high levels of transfers (increase in level more than equalization), b) Education spending has increased considerably, and c) Services in some districts have improved (survey GDS). The challenges: a) Health spending is still low, b) Infrastructure spending in sectors such as water and sanitation and energy sectors are now in crisis, c) Spending in government apparatus is high and DAU allocation provides incentives to keep it that way, and d) Districts need to improve their capacity to spend. Local Politics:  Pemerintah Pusat perlu mendorong pertumbuhan otonomi daerah dengan mengurangi kewenangan sehingga kewenangan daerah lebih besar. Perlu dikembangkan kemampuan kepala daerah dan birokrasi daerah dalam manajemen pemerintahan yang sesuai dengan semangat otonomi daerah. Dalam kaitannya dengan Politik, maka: a) Parpol harus mampu melakukan proses rekrutmen sehingga dihasilkan kader-kader partai yang berkualitas yang akan dicalonkan dalam pilkada, dan b) Parpol harus mencalonkan kadernya sendiri dalam pilkada sehingga politik uang dapat dikurangi. (maswadi)

 Dalam era desentralisasi, dalam prakteknya politik uang dan korupsi 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 for Aceh (LeRoy) 2nd Day Governance and Law  Good governance must include: Participation of Government and Civil Society, Political Will, and Reformation of public administration (Central and Local). (Safri)  Political leadership and credibility are crucial in combating corruption and increasing accountability, Predictability and consistency in application is important, Civic engagement and support of stakeholders are crucial in sustaining anti-corruption strategies. (Simeon)  Local Governments may prevent corruption by implementing good governance, i.e. efficient, effective, accountable, and transparent basis. KPK functions as trigger and impetus to existing agencies in combating 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 a good idea. But it is important to ensure that the thing you measure is: a) Measurable with sufficient accuracy, b) Achievable given the capacity of the local government, and c) Reasonably closely linked to the desired outcome. One way to do this is to define a set of

standards and allow districts to select their target given an incentive framework. (Neil)  Dalam pelaksanaan kebijakan fiskal di DKI, perlu dilakukan: o mempertajam skala prioritas belanja o meningkatkan disiplin pengelolaan anggaran o menekan pemborosan dan kebocoran realisasi anggaran o memanfaatkan sisa anggaran yang tidak terserap o melakukan intensifikasi dan ekstensifikasi penerimaan pajak o 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 serious institutional reform is needed to motivate local officials to maximize the net benefits of decentralization given a certain level of local capture. (Iwan)

Six Years of Indonesia s Decentralization

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