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THREE YEARS OF FISCAL DECENTRALIZATION IN INDONESIA : ITS IMPACTS ON REGIONAL ECONOMIC DEVELOPMENT ... - page 10 / 21

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devoted to handle the jurisdictional spill-over effects, ensure minimum service standard, and to pursue the national interest, is the best instrument to gradually devolve the line ministries power. With the scheme of DAK that still involves the central government ministries and agencies, the local government will own the projects or programs but they will be under the monitoring and evaluation from respective central ministries and central ministries will still have the decision on the types of programs or projects to be financed. The shift from DIP (central government programs and projects) to DAK could be designed in medium term perspective to make smooth adjustment both at central and local level. With greater DAK, the local governments will have higher opportunity to develop the regions based on their plans and assessment. As many agree, the local governments know better the local needs than the central ministries.

From fiscal sustainability point of view, this kind of shift will not affect the APBN much since the transaction is basically transfer from development expenditure account to intergovernmental transfer account, in this case DAK. Such a move will also ensure the

fiscal sustainability at national level.

Currently, there are requests from local

governments to central government in allocating more than 25% net domestic revenue for the DAU. For first three years, the government always imposed the minimum amount of 25% net domestic revenue and because of that request, the central government will allocate 25.5% for 2004 DAU. This slight increase might not affect the national fiscal sustainability but the idea from one of influential ministry to increase the DAU to be 30% of net domestic revenue might threaten the sustainability. That threat becomes more significant if there is no shift from DIP to DAK since the central government is forced to find additional revenue or to cut other types of expenditure. The move to increase the DAU up to 30% of net domestic revenue will not affect the sustainability if accompanied by the shift from DIP to DAK and by defining the better the devolution of authorities. Without proper management of this matter, there could be a condition where the central government runs out of money while they are still responsible for many government authorities.

Another potential disruption of fiscal sustainability that relates to fiscal decentralization

process is

the

government

has

the

large

surplus

disbursement of natural committed to avoid the late

resources revenue sharing. The disbursement program in the past that

at

natural

resources

rich

regions

due

to

inability

of

absorbing

the

central caused budget

closed to the local

the end of budget government cash

year. flow

This late disbursement also caused the uncertainty in management with few regions have to borrow from

external sources to anticipate the “incoming” revenue. government will allocate the budgeted amount rather than the

Beginning in

2004, the

actual amount

that caused

the delay. With the budgeted amount that was based on the central government has a risk of transferring money to the supposed to be. The fluctuation of both natural resources

last year actual transfer, the regions more than they are commodity production and

price

could

increase

the

risk

that

may

eventually

affect

the

fiscal

sustainability

at

central

level. The sustainability obligation to pay the debt

becomes that was

a more significant about 17.5% of the

issue since total budget

the APBN has the in 2003 (table 8 of

appendix). This proportion debt payment proportion

was

lower

in

2003

than was

in 2001 lower

and 2002. than the

Quite DAU

interestingly, the proportion and

10

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