Indonesia-CashMgt Reform-EN

Cash Management
Reform
in Indonesia:
Making the State Money Work Harder
Kementerian Keuangan
Republik Indonesia
Cash Management
Reform
in Indonesia:
Making the State Money Work Harder
Foreign Affairs, Trade and Affaires étrangères, Commerce

Development Canada et Développement Canada
The Ministry of Finance The World Bank Office Jakarta
Directorate General of Treasury Indonesia Stock Exchange Building
Directorate of Cash Management Tower 2, 12th Floor
Jl. Lapangan Banteng Timur No. 2-4 Jl. Jenderal Sudirman Kav. 52-53
Jakarta 10710 Jakarta 12190
Indonesia Indonesia
Tel: +62 21 384 1067 Tel: +62 21 5299 3000
www.depkeu.go.id www.worldbank.org/id
This book was prepared by the Directorate of Cash Management of the Directorate General of
Treasury at the Ministry of Finance of the Government of Indonesia, and the Governance Global
Practice (formerly Poverty Reduction and Economic Management) unit of the World Bank in
Indonesia. The Ministry of Finance team was led by Rudy Widodo (Director of Cash Management)
with team members Wibawa Pram Sihombing and Akhmad Budhisusetyo, with overall guidance
from Marwanto Harjowiryono (Director General of Treasury). The World Bank team was led by
Bernard Myers (Public Sector Management Cluster Coordinator/Senior Public Sector Specialist),
with team members Vijay Ramachandran, Hari Purnomo, Mark Ahern, Lina Lo, Prasiwi Ibrahim,
Dinni Prihandayani, Lieke Riyanti, and Sandra Sari, with overall guidance from Jim Brumby (Practice
Manager, Governance Global Practice, East Asia Pacific). Key writers were Wibawa Pram Sihombing,
Akhmad Budhisusetyo, Vijay Ramachandran, and Hari Purnomo.
The teams would like to acknowledge the valuable inputs received from the various units within
the Ministry of Finance (Secretariat General, Directorate General of Treasury, Directorate General
of Debt Management, Directorate General of Budget, Fiscal Policy Office, Directorate General of
Tax, Directorate General of Customs and Excise, and Directorate General of Fiscal Balance), Bank
Indonesia, as well as the World Bank. Special thanks to peer reviewers John Gardner, Arturo Herrera,
Lars Jesson, Duncan Last, and Theo Thomas.
This work is funded under the Multi Donor Trust Fund for Public Financial Management, with
contributions from the governments of Canada, the European Union, the Netherlands, Switzerland,
and USAID.
The findings, interpretations, and conclusions expressed in this work do not necessarily reflect
the views of the Ministry of Finance of the Government of Indonesia, the World Bank, its Board of
Executive Directors, or the governments they represent.
All photos and data are from the Ministry of Finance, Government of Indonesia, with all rights
reserved.
Printed in October 2014

i
Contents
Foreword ............................................................................................ix
Voices of the Key Implementers .......................................................xi
Abbreviations and Acronyms ...........................................................xv
Executive Summary ...........................................................................xix
CHAPTER 1:
OBJECTIVES OF CASH MANAGEMENT AND THE
INSTITUTIONAL ARRANGEMENTS TO UNDERPIN
THE OBJECTIVES
1.1. Introduction ...............................................................................3
1.2. Cash Management in International Practices..........................3

1.2.1. Objectives and Features of Cash Management ......................................3
1.2.2. Regulatory Framework for Cash Management ......................................5
1.2.3. Coverage of Cash Management .................................................................7
1.2.4. Institutional Framework for Cash Management ....................................8
1.2.5. Procedural Framework for Cash Management .......................................9
1.2.6. Information Technology ..............................................................................11
1.2.7. Capacity Building for Cash Management ................................................14
1.2.8. Incentives and Sanctions ..............................................................................14
1.2.9. Sequencing and Implementation...............................................................16
1.3. Cash Management in Indonesia ...............................................17

1.3.1. Background......................................................................................................17
1.3.2. Objectives of Cash Management in Indonesia........................................21
1.3.3. Regulatory Framework for Cash Management in Indonesia...............22
ii Cash Management Reform in Indonesia: Making the State Money Work Harder
1.3.4. Coverage of State Cash Management in Indonesia...............................23

1.3.5. Institutional Framework for Cash Management ....................................24
1.3.6. Procedural Framework for Cash Management in Indonesia ...............32
1.3.7. IT Systems Supporting Cash Management in Indonesia .....................35
1.3.8. Capacity Building to underpin Cash Management in Indonesia........37
1.3.9. Incentives and Sanctions ..............................................................................38
1.3.10. Sequencing and Implementation...............................................................39
1.3.11. PEFA Findings on the Cash Management Practices in Indonesia ......41
1.4. Conclusions ................................................................................42
Notes...................................................................................................44
CHAPTER 2:
SETTING UP AND MANAGING THE TSA
2.1. Introduction ...............................................................................49
2.2. TSA-Concepts and International Practices ...............................49

2.2.1. TSA Definition ..................................................................................................49
2.2.2. TSA Objectives and Characteristics ............................................................49
2.2.3. TSA Banking Arrangements .........................................................................55
2.2.4. Sequencing the Implementation of TSA ..................................................56
2.2.5. Contemporary International Practices in TSA Implementation –
some Illustrative Examples ...........................................................................57
2.3. Implementation of the TSA in Indonesia .................................59

2.3.1. Background......................................................................................................59
2.3.2. Objectives and Characteristics of the TSA in Indonesia ........................61
2.3.3. TSA Banking Arrangements in Indonesia .................................................62
2.3.4. Sequencing and Steps Taken to Implement the TSA in Indonesia ......68
2.3.5. Remuneration of Cash Balances in Bank Indonesia ..............................77
2.3.6. Quantifying the Benefits from TSA Implementation..............................80
2.4. CONCLUSIONS ...........................................................................84
Notes ..................................................................................................87
Contents iii
CHAPTER 3:
CASH PLANNING AND BUDGET EXECUTION
3.1. Introduction ................................................................................91
3.2. Cash Planning and Budget Execution –

The Generic Issues .....................................................................92
3.2.1. Cash Planning and the Annual Budget .....................................................92
3.2.2. Cash Flow Plans ..............................................................................................96
3.2.3. Cash Management and Commitments ....................................................102
3.2.4. Cash Management and Invoicing ..............................................................105
3.2.5. Arrangements for Revenue Collection and Payment.............................106
3.3. Cash Planning and Budget Execution in Indonesia .................112

3.3.1. Cash Planning and the Annual Budget in Indonesia: ............................112
3.3.2. Planning for Revenue Flows in Indonesia .................................................114
3.3.3. Planning for Expenditure Flows in Indonesia ..........................................118
3.3.4. Commitments in Indonesia..........................................................................128
3.3.5. Invoicing in Indonesia ...................................................................................130
3.3.6. Revenue Collection in Indonesia .................................................................132
3.3.7. Payments in Indonesia ..................................................................................140
3.4. Conclusions ................................................................................142
Notes...................................................................................................144
CHAPTER 4:
FINANCING THE BUDGET
4.1. Introduction ...............................................................................149
4.2. Financing the Budget - International Experiences..................149

4.2.1. Objectives of Cash and Debt Management .............................................149
4.2.2. Coordination between Cash Management, Debt Management,
and the Central Bank .....................................................................................151
4.2.3. Planning Cash Flows for Financing the Budget ......................................152
4.2.4. Short-Term Investment of Surplus Government Cash Balances..........156
iv Cash Management Reform in Indonesia: Making the State Money Work Harder
4.3. Active Cash Management and Budget Financing

in Indonesia ................................................................................158
4.3.1. Background......................................................................................................158
4.3.2. Coordination between Debt and Cash Management in Indonesia ...162
4.3.3. Planning and Managing Cash Flows for Financing the Budget .........168
4.3.4. Short-Term Placement of Surplus Government Cash Balances...........170
4.4. Conclusion ..................................................................................173
Notes...................................................................................................176
APPENDICES
Appendix 1 Comparison with IMF Generic Milestones for

Implementing Cash Management ..................................................179
Appendix 2 The Structure of Government Bank Accounts held in BI and
its balance at end of 2012 ...................................................................183
Appendix 3 MOU between the Minister of Finance and the Governor
of Bank Indonesia on Coordination of Government Cash
Management ...........................................................................................185
Appendix 4 Illustrative Example of Agreement with Commercial Banks
for Provision of Banking Services for Expenditure ....................187
Appendix 5 Mechanism of State Receipts and Expenditures Before
and After the Implementation of the TSA (Treasury Single
Account) ...................................................................................................189
Appendix 6 Types of Intergovernmental Fiscal Transfers in Indonesia ......191
ATTACHMENT
Attachment The World Bank Treasury Single Account Rapid Assessment

Toolkit ........................................................................................................192
Contents v
BOXES
Box 1.1 Salient Features of the IFMIS (SPAN) Feeder Application

SAKTI ..........................................................................................................37
Box 2.1 Local Government Bank Accounts .................................................67
Box 2.2 Summary of Steps to Implement the TSA ....................................68
Box 2.3 The Characteristics of the TNP ..........................................................74
Box 3.1 Good Practices in Revenue Forecasting ........................................98
Box 3.2 UK NAO report on cash management............................................102
Box 3.3 Commitment and Cash Requirements for Payments ...............103
Box 3.4 Annual Budgeting Process in Indonesia ........................................112
Box 3.5 Planning of Revenues in Indonesia .................................................116
Box 3.6 Types of cash flow projections in Indonesia ................................126
Box 4.1 Functionality of DRMS 2000+ and DMFAS 6 ................................154
Box 4.2 General Strategies for the Management of Debt and
Contingent Liabilities for 2013 - 2016 ............................................162
Box 4.3 The Treasury Dealing Room (TDR) ...................................................172
vi Cash Management Reform in Indonesia: Making the State Money Work Harder
FIGURES
Figure 1.1 Coverage of the Public Sector GFSM 2001 ..................................7

Figure 1.2 Government’s Cash Balance Held in Central Bank .....................20
Figure 1.3 Organizational Structure of MOF .....................................................25
Figure 1.4 Organizational Structure of DG Treasury, MOF ...........................26
Figure 1.5 Organizational Structure of Directorate for Cash
Management, DG Treasury .................................................................28
Figure 1.6 Institutional Responsibilities for Cash Management. ...............34
Figure 1.7 Standard Features of SPAN Cash Management Module..........36
Figure 2.1 Linkages Between Cash Management and TSA .........................61
Figure 2.2 Government Accounts in Indonesia ...............................................62
Figure 2.3 Average Daily Balance of all Spending Unit (Petty Cash)
Accounts in 2013....................................................................................72
Figure 2.4 Remuneration for TSA Held in Bank Indonesia ...........................79
Figure 3.1 Budget Execution Cycle .......................................................................91
Figure 3.2 Banking Arrangements for Payments ............................................109
Figure 3.3 Revenue Flows in January - December 2013 ...............................115
Figure 3.4 Profile of Government Expenditure in Indonesia.......................118
Figure 3.5 Disbursement of Capital Expenditure Budget by Quarter......120
Figure 3.6 Commitment Management Process in Indonesia .....................129
Figure 3.7 Disbursement of Total Expenditure Budget by Quarter ..........130
Figure 3.8 Critical Issues within Each Step of Budget Execution in
Indonesia ..................................................................................................131
Figure 3.9 TSA for Revenue Processes ................................................................134
Figure 3.10 Flow of Revenue Payment through the MPN G-2 ......................139
Figure 3.11 Payment Made through the TSA ......................................................140
Figure 4.1 Budget Financing...................................................................................160
Figure 4.2 Indonesia Budget Deficit (Percentage of GDP) in
1998-2013 .................................................................................................161
Figure 4.3 Debt Management Cycle ....................................................................164
Figure 4.4 Formulation of Annual Borrowing Program ................................165
Figure 4.5 Information Flow....................................................................................167
Figure 4.6 Debt Instrument Characteristics ......................................................169
Contents vii
TABLES
Table 1.1 Cost of Carrying Excess Funds 2010-2013 ....................................19

Table 1.2 Nominal Amount of Cash Managed by the Government ......19
Table 1.3 Deviation on Revenue and Expenditure Forecast......................40
Table 1.4 PEFA Ratings for Recording and Management of Cash ...........41
Table 2.1 Government Account in Bank Indonesia ......................................64
Table 2.2 Local Treasury (LTB) Accounts Held in the Selected
Commercial Banks .................................................................................66
Table 2.3 Total Number of Bank Accounts Approved by MOF ................69
Table 2.4 Banking Services Fee for Revenue Collections............................71
Table 2.5 Treasury Notional Pooling for Spending Units –
Alternative Options ...............................................................................73
Table 2.6 Government Revenue from Implementing TNP 2009 –
2013 ............................................................................................................75
Table 2.7 Other Non TSA Accounts.....................................................................77
Table 2.8 Rates of TSA Remuneration ................................................................78
Table 2.9 Total Remuneration Paid by BI in 2011 - 2013 .............................79
Table 2.10 Direct Benefit to the Treasury of TSA and BI
Remuneration .........................................................................................81
Table 2.11 Fiscal Benefit of Implementing TSA ................................................83
Table 3.1 Difference between RTGS and EFT ..................................................108
Table 3.2 The Deviation between the Target and Actual Outturns for
the Tax Managed by DG Tax ...............................................................117
Table 3.3 Central Government Expenditure Budget and Subsidy
Realization (in Billion IDR) ...................................................................121
Table 3.4 Distributions of Budget Allotment in 2013 ..................................127
Table 3.5 State Revenue Handled through the MPN
(Modul Penerimaan Negara) ...............................................................135
Table 3.6 PEFA Scores for Indicator on Effectiveness in Tax
Collections ................................................................................................137
Table 4.1 Budget Deficit and Financing in Indonesia ..................................159
Table 4.2 Debt Financing .......................................................................................160
Table 4.3 Cost and Risk Targets for Government Financing in
2014 – 2016 ..............................................................................................163
Table 4.4 Debt Issuance in Indonesia by Quarter in 2012-2014 ..............170
ix
Foreword
A decade-long cash management reform by the Government of Indonesia has

resulted in reduced costs for taxpayers and better control of cash and public
money. This reform is necessary for improving the delivery of public services,
increasing infrastructure, lowering financing costs, and curbing corruption. This
book, co-authored by the Indonesian Ministry of Finance and the World Bank,
and financed by a multi donor trust fund established at the World Bank (PFM
MDTF)¹, aims to take stock of the Indonesian experience in the implementation
of cash management reform, consider some of the impacts of these reforms, and
identify the ongoing challenges for further improvement, using international
practices as a backdrop.
The key impetus for the reforms was the 1997 Asian financial crisis. The crisis
revealed entrenched institutional and structural weaknesses in the public
management of most East Asian countries. It also highlighted imbalances in
the structure and financing of these economies. The Government of Indonesia
embarked on a range of reforms to increase the flexibility of the economy and
improve its ability to withstand shocks. These included reforms to public financial
management, still ongoing, that drew lessons from international experience.
Cash management reforms were a pillar of these reforms in Indonesia. They

have allowed the Government to consolidate its cash balances in a treasury
single account, streamline the receipt and payment processes, and improve
accountability. The result has been lower financing costs and improved control of
both revenue and expenditures. The reforms have captured opportunities created
by new information communication technologies, especially within the banking
system, building on experience from other countries. The PFM MDTF has been
supporting the reforms during the past decade and will continue to do so.
1 At the time of this work, the PFM MDTF received contributions from five donors: Canada, the
European Union, the Netherlands, Switzerland, and USAID.
x Cash Management Reform in Indonesia: Making the State Money Work Harder
The Indonesian cash management story is one of success. This book provides
lessons to guide the next generation of reforms in Indonesia, its neighboring
countries and beyond.
Marwanto Harjowiryono Rodrigo A. C

Chaves
haves
Director General of Treasury Country Director,
Director Indonesia
Ministry of Finance The World Bank
The Republic of Indonesia
xi
Voices of the Key Implementers
Challenges During the Early Implementation of Cash Management Reform

in Indonesia
Mr. Tata Suntara (The Secretary of Directorate General of Treasury, Ministry of

Finance 2011-January 2014; and former Director of Cash Management, DG
Treasury, Ministry of Finance in 2008-2011)
I recall that in my previous position as the Director for Cash Management in

DG Treasury and the person in charge of the early implementation of cash
management reform, we faced resistance from the line ministry’s officials who lost
their authority to handle large amounts of state cash under their control. It was
difficult for the Finance Ministry to make them understand the need for them to
register their bank accounts and consolidate the balances in the TSA since they
stood to lose not only the “monetary” benefit in the form of interest but also
the “in- kind benefits “ commonly provided as part of the commercial bank’s
marketing strategy.
In my view, the Finance Ministry followed the best possible approach for cash
management reform in the Indonesian context. We received full political and
technical support from the President, Finance Minister, Minister of Justice,
and Bank Indonesia. We implemented the reform through the most acceptable
and workable approach considering the number and wide geographical spread
of spending units, the capability of banking technology and system, and the
challenges in changing the mindset of people.
Some criticized us for the slow pace of reform, but I believe such a reform should
be implemented gradually not through a “big-bang” approach and I am thankful
that through a step by step approach which allocated sufficient time for learning
by doing, now we are reaching a stage where we are poised to enjoy the full benefits
of the Treasury Single Account (TSA).
xii Cash Management Reform in Indonesia: Making the State Money Work Harder
Before cash management reform took place, DG Treasury only acted as the cash
(inflow and outflow) administrator without the ability to function as a real cash
manager. Before the reform started, the Supreme Audit Agency (BPK) had also
notified the government about the weakness in the accountability for managing
state cash. In this context and appreciating the need to efficiently manage state
cash the Ministry of Finance embarked on implementing the cash management
reform in Indonesia.
Looking to the future, I believe some improvements can still be made, particularly
of the Treasury Notional Pooling (TNP) mechanism, better cash forecasting by
the spending units, and implementation of the reward and sanction mechanism
to improve cash plan updates by the spending units. Moreover, the plan to
implement the Treasury Dealing Room (TDR) shall soon be realized through
close coordination with Bank Indonesia. Current ALMC membership can also
be broadened by inviting Bank Indonesia as a member. Finally, there should be a
way to consolidate large cash balances currently held outside TSA, including the
local governments, and public service agencies. These cash accounts can continue
to be managed by the owner of the account but placed in the Bank of Indonesia.
Cash Management Reform is a Continued and Never Ending Process in

Indonesia
Mr. Rudy Widodo (Director of Cash Management, DG Treasury Ministry of

Finance from 2011-Present)
First of all, I would like to record my gratitude for the hard work of the World
Bank team and my staff who were jointly writing this book. I believe this book
should be broadly disseminated both domestically and internationally to let
the general public understand the significant cash management reforms of the
Indonesian Ministry of Finance. I trust this book will be useful as a reference for
all who take an interest in the implementation of public financial management
reform in Indonesia.
Voices of the Key Implementers xiii
As the Director for Cash Management of the Finance Ministry, I would like
to thank all MOF’s former officials who have contributed to cash management
reform since 2004. They have laid a strong foundation to enable the continued
implementation of this reform. Now, it is my responsibility, under the guidance
of the Director General of Treasury, to continue the reform.
With improvements in our IT system, a close coordination with Bank Indonesia,

and the development of the commercial banking IT system, it is now possible for
the Ministry of Finance to have real time and online information about its cash
balance, which was not possible before the reform. This allows DG Treasury to focus
its time on analyzing the cash position and cash flows to support budget financing
decisions, rather than on routine tasks such as manual bank reconciliations and
consolidation of reports. I am also grateful for the close cooperation with Bank
Indonesia regarding the TSA arrangements and the banking services they provide
to the Ministry of Finance.
Although many improvements have been made, we should not be satisfied by

these since I believe that further improvements are always possible. Some of the
planned improvements include: the implementation of a better TNP mechanism,
the improvement of cash projection from spending units, and the operation of
a Treasury Dealing Room (TDR) in coordination with DG Debt Management.
xv
Abbreviations and Acronyms
ABP Annual Borrowing Plan

ABS Annual Borrowing Strategy
AFP Annual Financing Plan
AFS Spending Unit Forecasting Application (Aplikasi Forecasting Satker)
ALMC Asset and Liability Management Committee
APBN State Budget
BI Bank Indonesia (Central Bank)
BIG-eB BI Government Electronic Banking
BI SOSA BI Centralized Automated Accounting System
BLU Badan Layanan Umum (Public Service Agency)
BO Bank Operasional (Commercial Bank for Expenditure Payment)
BP Bank Persepsi (Commercial Bank/Post Office for Revenue Collection)
BPDs Regional Development Banks
BPK Supreme Audit Agency
BUD Regional Government’s General Treasurer
BUN State’s General Treasurer
CFO Chief Financial Officer
COO Chief Operational Officer
CORE Centralized Online Real-time Exchange
COTS Commercial off the Shelf
CPIN Cash Planning Information Network
CSA Central Statistics Agency or BPS (Badan Pusat Statistik)
CS-DRMS Commonwealth Secretariat’s Debt Recording and Management
System
DAK Special Allocation Fund
DAU General Allocation Fund
DBH Revenue Sharing Fund
DCM Directorate of Cash Management
DGB Directorate General of Budget
DGDM Directorate General of Debt Management
DGFB Directorate General of Fiscal Balance
DIPA Daftar Isian Pelaksanaan Anggaran (Budget Execution Document)
DMFAS Debt Management and Financial Analysis System
xvi Cash Management Reform in Indonesia: Making the State Money Work Harder
DMO Debt Management Office

DMS Debt Management Strategy
ECA Europe and Central Asia
ERP Enterprise Resource Planning
FPO Fiscal Policy Office
FY Fiscal Year
GDP Gross Domestic Product
GEAA Government Employee Administration Agency (BKN – Badan
Kepegawaian Negara)
GFSM Government Finance Statistics Manual
IDR Indonesian Rupiah
IFMIS Integrated Financial Management Information System
IMF International Monetary Fund
KPI Key Performance Indicator
KPS Contract Oil Production Sharing
LKPP Financial Statements of the Central Government
LTBs Local Treasury Branches or KPPN
MEFMI Macro-Economic and Financial Management Institute
MOF Ministry of Finance
MOU Memorandum of Understanding
MPN State Revenue Module (Modul Penerimaan Negara)
NAO National Audit Office
NDPA National Development Planning Agency or Bappenas
NTR Non-Tax Revenue (PNBP)
OECD Organization for Economic Cooperation and Development
PBB Performance Based Budgeting
PEFA Public Expenditure and Financial Accountability
PFB Planning and Finance Bureau
PFM Public Financial Management
PLA Performance Level Agreement
PMO Project Management Office
PPKD Pejabat Pengelola Keuangan Daerah or Regional Finance Manager
PPP Public Private Partnership
PSA Public Service Agency or Badan Layanan Umum - BLU
RKP Rencana Kerja Pemerintah (Government Annual Work Plan)
RTBs Regional Treasury Branches or KANWIL
RTGS Real Time Gross Settlement System
SAKTI Institution-Level Financial Application System
Abbreviations and Acronyms xvii
SAL Accumulated Budget Surplus or Excess Cash from Unrealized Annual

Budget
SBN Government Securities
SGCA State General Cash Account or RKUN
SILPA Annual Budget Surplus
SLA Service Level Agreement
SLR Statutory Liquidity Requirements
SNG Sub-National Government
SOEs State-Owned Enterprises
SPAN State Budget and Treasury System
SPM Payment Order
SPP Payment Request
SP2D Fund Disbursement Order
SSSS BI Scrip-less Securities Settlement System
SUs Spending Units or SATKERs
TDR Treasury Dealing Room
TEPPA Evaluation and Supervisory Team for Budget Absorption
TNP Treasury Notional Pooling
TPRP Government Accounts Orderliness Team (Tim Penertiban Rekening
Pemerintah)
TSA Treasury Single Account
UNCTAD United Nations Conference on Trade and Development
USD United States dollar
VAT Value Added Tax
WB World Bank
ZBAs Zero-Balance Accounts
Currency Equivalent
US$ 1= IDR 10,000 (for simplification reason only)
Fiscal Year (FY): January 1 to December 31

xix
Executive Summary
Following the Asian financial crisis of 1997, the Government of Indonesia

embarked upon a long-term plan for reform of its public financial management
systems. The crisis had sharply increased the government debt level and eroded
government revenues, bringing to an end Indonesia’s comfortable pre-crisis
fiscal position. After 1997, steps were taken to more tightly control the use of
public resources and improve the public finances. At the same time Indonesia
started a difficult transition from an autocratic, centralized state to a democratic,
decentralized system of government when the 2001 “Big Bang” decentralization
transferred considerable authority over public expenditures and public service
delivery from the central government to over 400 local governments. During
this transition Indonesia’s achievements continued to be clouded by widespread
concerns about the weaknesses of public institutions, a lack of transparency and
accountability, and corruption.
The experiences of the 1997 crisis and the public demand for good governance
brought a growing recognition in Indonesia of the need for comprehensive public
financial management (PFM) reform. A PFM reform strategy was developed in
2003— of which the first milestone was the enactment of a modern Treasury legal
and regulatory framework by 2004. A key focus was on cash management. The
new regulation led to the creation of the Directorate General for State Treasury
(DG Treasury), which was made responsible for disbursing funds to ministries
and government institutions, as well as for finding resources to finance the State
budget. The regulation stated that the cash management objectives were to ensure
(i) availability of cash to cover the state liabilities, (ii) effective and efficient action
to optimize returns from a cash surplus or to deal with a cash shortage, (iii)
provision of cash to Line Ministries/ Institutions in accordance with their cash
flow projections to fund their activities, and (iv) timely payment to suppliers of
the Line Ministries/ Institutions in accordance with their schedule of activities.
xx Cash Management Reform in Indonesia: Making the State Money Work Harder
OVERVIEW OF INDONESIA’S EXPERIENCES IN REFORMING CASH MANAGEMENT
The progress on cash management since 2003 has been impressive. Cash balances
previously idle in commercial bank accounts have been consolidated in the
government accounts at Bank Indonesia (BI), and coupled with a conservative
financing policy have provided a considerable degree of cash liquidity. Efficient
systems have been established to support the inflow of revenues and outflow of
expenditures, which will be further enhanced with two major system developments
now being rolled out. Arrangements have been made with BI to provide
remuneration on cash balances beyond those required for daily operations, while
the regulations are now in place to support the investment of surplus cash with
commercial banks. Steps have been taken to improve the coordination of cash and
debt management, while a renewed effort to prepare accurate cash plans is now
underway. These set the scene for a more active approach to cash management,
which will be a key focus in the coming period.
The achievements are the outcomes of a challenging journey, which entailed

establishing the Treasury Single Account, identifying and managing expenditures
and volatile revenue flows, and developing complementary debt financing
strategies. In a demanding environment, the commitment and leadership of
DG Treasury was essential to the success. The stories behind these reforms are
presented briefly below, followed by a short description of the objectives and
structure of the book.
THE IMPACT OF THE TREASURY SINGLE ACCOUNT
An early foundation of Indonesia’s cash management reforms was the

implementation of the Treasury Single Account (TSA). International experience
has shown that the TSA helps governments to realize cost savings by reducing
borrowing costs—i.e., interest is saved by using cash surpluses from one area
of government activity to cover cash shortages in another. Benefits of a TSA
include minimizing transaction costs during budget execution by expediting the
remittance of government revenues by collecting agencies, and efficient scheduling
of the payment of government dues; providing a mechanism for controlling
cash outflows in accordance with aggregated cash plans and commitments; and
facilitating reconciliation between banking and accounting data. The consolidation
Executive Summary xxi
of government cash in a TSA also provides the opportunity to reduce transaction

costs by enabling electronic payments to be made directly to beneficiaries and
automating bank reconciliation.
The sequencing of the implementation of the TSA in Indonesia has been very
much in line with international practices. The preparatory phase involved
regulatory and institutional reforms, and setting up the TSA architecture.
Government bank accounts were surveyed and expenditure accounts held by
line ministries in commercial banks were gradually brought into the TSA held
in BI. Thereafter, zero balance clearing accounts were established in commercial
banks to expeditiously collect and remit government revenues into the TSA. In
January 2009, the Ministry of Finance (MoF) and BI agreed on and implemented
a moderate remuneration on government deposits at BI, which though less than
the market rate, resulted in a “win-win” situation for both institutions. From the
MoF’s viewpoint, BI provides full security at zero risk and any remuneration paid
by BI adds to state revenues, although it may imply a lower dividend amount
to be paid by BI to the government. While from BI’s perspective, the retention
of government money in BI reduces the cost of monetary policy operations to
sterilize the liquidity resulting from government cash balances being held in
commercial banks.
The overall benefits of the TSA have been positive for the Government of Indonesia;
however, it is difficult to accurately measure the full financial and economic returns.
In order to make an assessment of the quantifiable benefits of implementing the
TSA two approaches have been used in this book. The first approach is to calculate
the direct financial benefit to the Treasury of the consolidation of government
cash balances and the introduction of a remuneration paid at 65% of the BI
rate. The assessment identified gains of IDR 2-4 trillion (USD 200-400 million)
per annum in 2012 and 2013, although some of this benefit is accompanied
by additional costs to Bank Indonesia. A second approach involves a broader
fiscal assessment of the consolidation of idle balances. It identified gains for the
Government of approximately IDR 3 trillion (USD 300 million) had the reforms
been in place in 2007 – the last year before the substantive TSA reforms. This is
approximately 4 percent of the central government financing costs that year. These
benefits are in addition to the “non-quantifiable and indirect” benefits associated
with the introduction of the TSA (i.e. reduced opportunities for corruption,
better security for government cash balances, better coordination between cash
and debt management, etc.).
xxii Cash Management Reform in Indonesia: Making the State Money Work Harder
The coverage of the TSA in Indonesia does not include local governments as the
law on decentralization gives autonomy to the local governments in managing
finances. Presently, the coverage of the TSA in Indonesia is limited to the cash
held by the MOF, other line ministries and agencies of the central government,
except the cash resources of Public Service Agencies (PSAs) and Special Funds.
With the proven success of the TSA at the line ministry level, the MOF could
consider further consolidation of the TSA to cover PSAs and Special Funds on a
case-by-case basis without affecting the autonomy of their operations.
PLANNING OF IN-YEAR EXPENDITURE AND REVENUE CASH FLOWS
The starting point for the cash plans are the budget projections. In Indonesia,
the budget process provides for parliamentary approval of the budget by the
end of October for the financial year starting in January. Under this scenario
line ministries have sufficient time to finalize their annual cash flow plans for
submission to the Treasury well before the start of the fiscal year in January.
However, as parliament’s review sometimes goes beyond the end of October
deadline, (with the appropriations approved but on hold) ministries must take
this into account in preparing annual cash plans.
Procedures for cash plans provide for the preparation of quarterly, monthly
and daily cash flow forecasts and involve both “bottom up” and “top down”
projections. However, despite measures taken to develop the capacity of spending
units to update their cash flow projections, a review of the implementation by
DG Treasury concluded that the quality of the cash plans was poor. This could be
attributed, in part, to the onerous requirements of the new reporting procedures
for in-year updates to the cash plans. Based on these findings, the Directorate of
Cash Management is planning to apply a simpler procedure by using an “80/20”
rule, in which only spending units with large expenditure budget allocations will
be required to submit their regular updated cash flow projections.
The accuracy of projections of expenditure flows could be further enhanced by

expanding the role of top down projections based on historical patterns. This
should be supplemented by more active follow-up on major variances against
the plan by Treasury to reinforce to spending units the importance of accurate
projections. The MOF’s Fiscal Policy Office (FPO) plays an important role in
Executive Summary xxiii
in-year cash management by setting and updating the economic assumptions

and revenue forecasts. These in-year updates prepared by the FPO assist the DG
Treasury in integrating their top-down aggregate cash plans and the bottom-up
cash flow plans.
Projection of revenue flows presents challenges in Indonesia due to the revenue

composition. Revenue flows are heavily dependent on volatile oil and gas prices.
Roughly one quarter of state revenue is derived from the oil and gas sector through
tax (VAT and income) and non-tax sources (production sharing and royalties). A
World Bank study indicates that in the absence of a comprehensive license registry
and lack of data on non-compliance of royalty payments, Directorate General of
Budget does not have accurate data to evaluate non-tax revenue forecasts, and to
provide oversight of non-tax revenue realization.
Cash management has kept pace with the evolution of banking systems. A
majority of payments are made directly to beneficiaries through electronic
fund transfers from the TSA. Commercial bank accounts held by local treasury
branches for making payments at the regional level are zero balanced to the TSA
daily. Information on cash balances held by spending units in imprest accounts
is available to the Treasury on a daily basis. The State Finance Law and the State
Treasury Law provide for the daily sweeping of government revenues into the
TSA. The agreement between the DG Treasury and revenue collecting banks
provides for the payment of fees for banking services received; obligates the banks
to transfer revenue collections to the TSA within one day; and requires banks to
provide appropriate information technology to support the smooth collection of
state receipts.
STRATEGIES FOR FINANCING OF CASH NEEDS
The Government of Indonesia uses debt and non-debt sources to finance the
budget deficit. Non-debt financing sources are the accumulated surplus of cash
from unrealized expenditure budgets, amortization of on-lending, dividends from
equity participation, and privatization proceeds. Cash inflows to the budget from
non-debt financing in nominal terms has shown a steady increase from IDR 4.7
trillion (USD 470 million) in 2007 to IDR 23.0 trillion (USD 2.3 billion) in
2012. However, the major source of budget deficit financing continues to be
xxiv Cash Management Reform in Indonesia: Making the State Money Work Harder
foreign and domestic debt. The Government Debt Management Strategy 2013-
2016 sets as an objective the optimization of debt funding from domestic sources,
while using foreign sources as complementary financing.
Traditionally, the Government’s borrowing strategy has been to ensure the

availability of cash by mobilizing funds to cover a large part of the projected
budget deficit at the beginning of the fiscal year as soon as the Appropriation Act
is passed. The expenditure pattern, however, is usually back loaded, with as much
as 40% of the budget appropriations being expended in the last quarter of the year.
This conservative policy for debt mobilization resulted in a high carrying cost of
money for the government because excess funds remained unutilized until the last
quarter and were not invested at a market rate of interest. In 2013, the government
decided to refine the strategy so as to borrow during the year in line with market
development strategies but also as the budget execution requirements emerged
whenever possible. Since the requirements tended to be highly uncertain and cash
flow forecasts were of limited accuracy, however, in 2014 the conservative front-
loading strategy was reapplied. It is envisaged that forthcoming enhanced cash
and debt management coordination should ensure that debt market dynamics
used in determining the domestic borrowing strategy integrate better with cash
management objectives during the year.
There are restrictions on the use of surplus cash to finance the budget which inhibit
effective debt management. Between 2007 and 2012 the actual budget deficit was
lower than that projected in the budget, largely due to the low absorption of
expenditures. This meant that the budget was over-financed - building up cash
surpluses which could not be used for future financing without further approval
from the Parliament. In the future, the debt financing strategy could be refined
by eliminating the rigidities in the use of the cash surplus from the prior year.
This could be a topic for future discussions with the budget committee of the
Parliament.
In addition to aligning the Annual Borrowing Strategy (ABS) with the annual
budget, consistency between the in-year cash financing operations and the debt
policy framework is pursued through the regular functioning of an Asset and
Liability Management Committee (ALMC). The risk management parameters
pertaining to interest rate, currency and roll-over risks are considered by the
ALMC when arriving at borrowing or investment decisions. A Cash Planning
Executive Summary xxv
Information Network (CPIN) is also used for communication at a working

level across the relevant parts of MOF. Much of the focus is on monitoring the
adherence to debt portfolio benchmark parameters, such as the share of domestic
debt to external debt, and the share of different currencies in order to obtain
assurance that the issuance of debts will be in accordance with the predefined
borrowing strategies. It would be of great value for this group to discuss cash
management and short term cash planning more actively thereby providing focus
and leadership to the cash management function.
As part of its preparation for more active daily cash management, DG Treasury has
taken steps toward implementation of a dealing room. Once the dealing room is
adequately staffed, the Treasury would be able to participate in the money markets
to secure financing at market rates. The operation of two dealing rooms by MOF
(i.e. DG Debt Management and DG Treasury) raises some risks and it would be
important to ensure that financial markets see the operations of the two dealing
rooms as complementary and not in conflict. More should also be done to clarify
with Bank Indonesia the individual roles and responsibilities.
Indonesia debt management will undoubtedly grow stronger as it completes

the configuration of its debt management system (DMFAS) to interface with
its integrated financial management information system (SPAN), which will
provide real-time access on the status of government cash requirements and the
debt portfolio. The electronic interface between these two systems and giving BI
on-line access to the integrated database will greatly facilitate the coordination
between cash management, debt management and monetary policy.
OBJECTIVES AND STRUCTURE OF THE BOOK
The purpose of this book is to document how PFM reforms in the decade following
the implementation of the State Finance Law, have contributed to improved cash
management in Indonesia. It takes stock of the sequencing of reforms, successes
achieved, and challenges encountered in reforming cash management.
The context of the reform is set against a backdrop of international practices

in various aspects of cash management, and wherever relevant, benchmarking
the Indonesian experience against such practices. The book is not intended as
xxvi Cash Management Reform in Indonesia: Making the State Money Work Harder
a manual for cash managers. Instead, it is likely to be used as reference material

by university students, public finance specialists who wish to understand the
fundamentals of cash management in Indonesia, and international practitioners
who are interested in the technical details and may want to draw lessons to apply
in their own countries.
The four chapters of this book describe the legal and institutional framework for
cash management; discuss the banking arrangements for handling government
cash balances; look at the issues and challenges in planning and managing
government cash flows; and explore ways of optimizing budget financing through
better coordination between cash management, debt management and monetary
policy. Each of the chapters starts with a description of international practices and
goes on to examine the related practices followed in Indonesia. The opportunities
created in Indonesia through the previous and on-going reforms, as well as the
remaining challenges, are highlighted below in this executive summary and
further described in detail in this book.
Chapter 1 examines international practices with regard to setting the objectives,

and the legislative and institutional arrangements for cash management. It
details the objectives and principles of cash management, its links with policy
issues, informational technology needs, incentives and sanctions to promote
implementation, and the sequencing of the reform. Indonesia’s experience in all
these aspects of cash management is explained and compared with international
practices. The concluding part of the chapter highlights the achievements of
the Indonesian cash management reform and describes some of the on-going
challenges and future improvements.
Chapter 2 examines the pivotal role of the TSA in cash management. It introduces
the concept of the TSA, describes the international experience with TSA banking
arrangements and the sequencing of its implementation. The Indonesian reform
in implementing a TSA is discussed in the context of a few illustrative examples
of international experiences in TSA implementation. This comparison serves to
highlight the very practical approach followed in sequencing the reform. It also
serves as a backdrop for understanding the rationale behind the choices Indonesia
has made in structuring the TSA. The concluding section summarizes some of
these choices and describes some reforms planned for the future.
Executive Summary xxvii
Chapter 3 reviews the impact of each stage of the budget execution cycle on cash
management. It brings out the dependency of cash management on the credibility
of budget appropriations, and the robustness of the in-year cash monitoring and
updating procedures. The concluding section summarizes the strengths of the
Indonesian cash planning systems, discusses some of the remaining challenges and
looks at the way forward. Deployment of the cash management functionalities of
IFMIS can support better the quality and timeliness of bottom up forecasts and
disbursement schedules. However the quality of the plans will depend on the
way these are integrated into top down plans and the effectiveness with which
variances from the plan are followed up.
Chapter 4 looks at the way cash management needs to be coordinated with

budget deficit financing and the investment of surplus cash balances. It brings
out the importance of coordination of cash management with the management
of debt and monetary policy and describes international practices in establishing
coordination arrangements. Options for investment of surplus cash balances are
described and some international practices discussed. The chapter concludes with
a summary of the strengths and challenges of the Indonesian practices related to
deficit financing and suggest some improvements.
Chapter 1
Objectives of Cash Management
and the Institutional Arrangements
to Underpin the Objectives
Chapter 1 3
1.1. INTRODUCTION
During the last decade, a body of common practices has emerged among
developing countries on the legal, institutional and procedural foundations to
support efficient cash management. These common practices have been reviewed
and documented in guidance notes and publications on international practices
issued by multilateral institutions like the International Monetary Fund (IMF),
the World Bank (WB), and the Organization for Economic Co-operation
and Development (OECD). Additionally, frequent peer-to-peer exchanges of
experiences between countries have resulted in the continued evolution of cash
management practices to leverage improvements in data management, ICT and
banking systems.
The first part of this chapter examines international practices with regard to
setting the objectives, as well as the legislative and institutional arrangements for
cash management. It details the objectives and principles of cash management, its
links with policy issues, information technology needs, incentives and sanctions
to promote implementation, and the sequencing of the reform. The second part
of the chapter describes Indonesia’s experience with setting the objectives and
institutional arrangements related to cash management, and with sequencing
of the cash management reform. The concluding part describes the remaining
challenges and suggests the way forward.
1.2. CASH MANAGEMENT IN INTERNATIONAL PRACTICES
1.2.1. Objectives and Features of Cash Management
With the role of governments across the globe evolving towards promoting and
delivering efficient services, the management of cash is becoming the dominant
function of treasury departments in ministries of finance. In addition to ensuring
adequate cash to cover government liabilities, a Treasury seeks to minimize idle
cash balances while minimizing the government’s financing costs. Cash balances
help in payments, but excessive cash remaining unused reduces returns on
government resources.
4 Cash Management Reform in Indonesia: Making the State Money Work Harder
The often stated objective of cash management is to have the right amount of
money in the right place and at the right time to meet obligations in the most
effective way. Cash management includes procedures and systems for collection,
concentration, and disbursement of cash. Measures to ensure availability of
cash and choices exercised to invest or hold surplus cash have both risk and cost
implications. Poor practices and fragmented institutional arrangements for cash
management increase costs, degrade performance, and hinder the implementation
of government policies. Inefficient allocation of in-year cash resources results in an
increase in debt amortization costs because the debt will be higher than necessary,
a wastage of government resources due to an end-of-year rush of expenditure, and
time and cost overruns in investment projects.
The main objective of cash flow planning, which is the basis for cash management,
is to determine how much cash is available, when it will become available and
for how long it will be available. Efficient cash flow plans facilitate the smooth
financing of in-year liabilities, underpin orderly execution of the budget, integrate
government borrowing with anticipated cash shortages and promote liquidity
management.
The practical aspects of cash flow planning were highlighted in a study conducted
by the UK’s National Audit Office1 which identified the following three key
factors in managing government cash efficiently and effectively:
• Keeping as much money centrally at the Exchequer as possible. This

minimizes government borrowing, reducing interest costs and improving
the fiscal balance. By keeping cash centrally, the government also knows
how much cash it is holding, and where it is. This allows it to better
manage the associated risks of holding cash, and take better decisions
about the public finances as a whole, particularly regarding cash shortfalls
and surpluses.
• Accurately predicting cash flows in and out of the Exchequer. Improved
precision allows the Debt Management Office to minimize the number of
last minute transactions on a given day, as it is generally more expensive to
carry out or to reverse a lending or borrowing transaction late in the day.
• Minimizing the costs of tendering for and using banking services.
A Treasury Single Account (TSA), which consolidates government cash balances,

is a central feature of efficient cash management. The TSA incorporates cash
Chapter 1 5
inflows and outflows generated by revenue collections, expenditures, debt and

other financial transactions. A TSA arrangement allows government to better
manage the associated risks of holding cash, and take better decisions about the
public finances as a whole, particularly regarding cash shortfalls and surpluses.
A timely and accurate forecast of in-year cash flows is a second feature of the
effective management of government cash. The accuracy of cash flow forecasts is
dependent on the credibility of budget appropriations, robustness of the in-year
budget revision procedures, and the transparency of the linkages of cash flows with
procurement plans. The US Treasury guidelines2 on cash management reiterate
that proper timing of disbursements to meet government commitments enhances
efficiency in the usage of cash. Timeliness of forecasts and disbursement schedules
is enhanced through improvements in the functionalities of government financial
management systems. The guidelines stress the fact that “central government
departments and their sponsored bodies play a critical role in minimizing the
risks and costs associated with cash management.”
Optimization of returns from idle cash balances is the third main feature of efficient
cash management. Having consolidated government cash balances through the
TSA, and instituted processes for planning and managing cash flows, the next step
is to ensure the optimal use of available cash balances. Government cash balances
lying idle in the central or commercial banks are usually not remunerated, or are
remunerated at a lower rate than the government borrowing that may have resulted
in the accumulation of the excess balances. The information made available to the
MOF through in-year cash planning enables it to choose between investing the
surplus, or, using it to retire outstanding obligations. Investment or borrowing
decisions require timely and coordinated policy decisions from stakeholders such
as the central bank, the treasury, debt management, revenue authorities and major
line ministries.
1.2.2. Regulatory Framework for Cash Management
At the highest level of the regulatory framework, the financial provisions in the
constitution of a country set out the governance and funding arrangements.
The next level of legislation is usually a public finance act, which establishes an
account from which expenditures can be made and into which revenues can be
deposited; the legislative and institutional framework, and on occasions targets for
fiscal responsibilities; high level processes and timeliness for budget management,
accounting, and reporting; and principles for providing incentives and instituting
sanctions.
Detailed roles, responsibilities and procedures for cash management are usually
prescribed in lower levels of regulations such as decrees and financial instructions.
In some countries, there is a hierarchy of lower levels of regulations with decrees
issued by the president or the cabinet being considered the highest level followed
by instructions issued by the Minister of Finance. The lower levels of regulations
establish the coverage of cash management in terms of levels of general government,
extra-budgetary funds, semi-autonomous government organizations, state owned
enterprises, and special funds. They set out the detailed roles and responsibilities
for developing cash flow plans and prescribe the basic formats and time schedules
for submitting the cash flow plans to the MOF. Banking arrangements for
revenue concentration, payments and bank reconciliation are prescribed through
instructions. Procedures for the classification and recording of budget allocations,
in-year virement (annual budget reallocation), commitment management, and
payments, are further detailed in the MOF instructions. Where investment of
surplus funds is permitted, the MOF instructions detail the approach to risk
versus return and monthly liquidity requirements.
The operational basis for government cash management is usually formally

approved cash management manuals or guidelines. The cash management
guidelines are supported by system user manuals for the cash management
functionality of an Integrated Financial Management Information System (IFMIS)
wherever this is implemented. Cash management manuals serve as training and
reference materials for cash managers in the MOF as well as for financial managers
in budget executing agencies.
Banking services provided by the central bank and commercial banks are formalized
through memoranda of understanding (MOUs) or service level agreements (SLAs).
The MOUs and SLAs set out the services to be provided and the remuneration
for different types of services. Electronic data exchange protocols and standards
should also be formalized through mutual agreements. This will ensure the quality
and consistency of data exchange between the Treasury, its accredited banks, and
the banks of the beneficiaries paid through the Treasury.
Chapter 1 7
1.2.3. Coverage of Cash Management
The GFSM 20013 is commonly used to present statistical information on the

public sector, and provides a useful framework for discussing the coverage of cash
management. The structure of the public sector as defined in GFSM 2001 is
shown in the figure below:
Figure 1.1 Coverage of the Public Sector GFSM 2001
Public Sector
General Public
Government Corporations
Central State Local

Financial Non-Financial
Government Government Government
Budgetary Public Public

Extrabudgetary Social Security
Central Nonmonetary Monetary
Funds Funds
Government Corps Corps
The coverage of the funds available for cash management by the Treasury needs
to be clearly defined. There are countries where the coverage is comprehensive
and includes the cash balances of local government, and extra-budgetary
funds.4 However the most common practice, especially in countries with federal
governments, is for the Treasury’s cash management activities to be limited to the
cash flows associated with the central government’s budget.5
In some countries, even though the cash balances of some government entities
are held in the central bank outside the TSA, they are considered to be a part of
the overall government cash balance by the central bank for purposes of arriving
at the daily cash balance of the central government. In others, the MOF has
agreements in place with the local governments and extra-budgetary funds for the
use of their cash reserves for central government cash management on payment
of remuneration. In low-income countries, expenditures financed by donor grants

or multilateral loans may not be included in the annual budget adopted by the
parliament. To ensure stability in cash planning, the coverage should be stable and
well defined.
1.2.4. Institutional Framework for Cash Management
It is common practice to set up a cash management unit within the MOF to

review and consolidate periodic cash flow plans provided by spending units. The
location of the unit varies from country to country. In some countries the cash
management unit is a part of the Budget Department. In others it is located in the
Treasury or the Accountant General’s office and is a part of the bank reconciliation
section. It could also be located in the Debt Management Department and
combined with dealing room operations in the money market. The team of
officials assigned to the cash management unit is usually quite small (perhaps
3–5 people full-time). Regardless of the location and size of the facility, its main
functions usually include:
• Developing and administering a cash management handbook that includes

uniform templates for cash projections and time lines for the submission
of projections.
• Establishing a schedule of regular cash review meetings with the main
stakeholders and lines of communication with other government agencies.
• Arranging for capacity building initiatives in the area of cash management
including the organization of regular training sessions and seminars.
• Coordinating submission of prescribed cash flow projections by the cash
management committees in line ministries.
• Reviewing, validating, consolidating, and analyzing the projections
received from line ministries.
• Reviewing, validating and analyzing cash balances in the bank accounts of
government agencies.
• Monitoring and reviewing the alignment of cash flow forecasts with the
procurement plans submitted by the line entities and seeking necessary
clarifications.
• Submitting cash flow analysis and recommendations on future cash
requirements to the liquidity committee.
• Collaborating with those responsible for debt management to ensure that
the very short-term focus of in-year cash management is consistent with
the more long-term outlook of debt management.
Chapter 1 9
• Collaborating with the Central Bank to ensure that the short-term in-
year cash management recommendations are consistent with the monetary
policy requirements.
• Interacting with the revenue authorities, major line ministries and the
central bank to exchange information on major receipts and payments and
the daily cash position.
• Monitoring transfers and subventions to lower levels of the government
to ensure that these subventions and transfers are made according to cash
plans submitted by these entities and are need based.
• Establishing networks with cash managers in government organizations
for continuing evaluation and mitigation of risks to cash management.
One of the goals of cash planning is to provide a plan and target for an investment
strategy when cash-on-hand exceeds demand. In a number of countries,
the central bank traditionally manages short-term liquidity on behalf of the
MOF. Governments often set up high-powered liquidity committees (or debt
management committees) within the MOF to take decisions on optimizing
government short-term liquidity.6 The cash management unit functions as the
secretariat of the liquidity committee, whose functions include (i) monitoring the
macro-fiscal, macro-economic and monetary situation and activating corrective
actions in a timely manner; (ii) ensuring coordination and sharing of information
among the key stakeholders, (iii) facilitating policy decisions on government debt
and short-term investments; and (iv) overseeing the timely and orderly financing
of the budget.
The liquidity committee plays a crucial role in coordinating cash management

with the budget, debt management and monetary policy. At the operational level,
the decisions taken by the liquidity committee on debt and short-term investments
are implemented through the Debt Management Office or the Treasury. This role
is discussed in Chapter 4 on “Financing the Budget”.
1.2.5. Procedural Framework for Cash Management
The procedural framework for cash management usually provides a mechanism for
the integration of bottom-up quarterly, monthly and daily cash flow projections
with top-down estimates based on macro-economic variables and historical
trends. In many developing countries, compensation to employees, transfers
and subsidies form a large proportion of the executable budget. Given such
rigidities in budget execution, the bottom-up process of submitting quarterly cash
projections may not add value to the aggregate cash projections derived from top-
down estimates. Procedures requiring the frequent submission of cash projections
broken down by detailed expenditure items substantially increase the work load
in smaller spending units with limited and under-qualified staff. On the other
hand, the requirement for submission of periodic in-year cash plans by spending
units instills a degree of discipline in the financial management of those agencies.
It ensures close and periodic coordination between financial management,
accounting, and planning units within the agencies. The additional work load
imposed on the spending units could be mitigated by requiring them to submit
cash flow plans at aggregated levels of economic classification which are relevant
for cash forecasting. Another mitigating measure could be to require submission
of frequent cash flow projections only from the major budget users, while others
could submit quarterly updates. Prescribed procedures should ensure a trade-off
between the effort put in and the outcomes achieved.
Systems should be set in place to ensure that all significant cash flows are
identified, and, if needed, prioritized, and that reasonable projections of planned
expenditures are produced. Cash forecasting procedures prescribe the frequency
with which cash forecasts are produced and how many of the subsequent weeks
are covered; and whether projected flows are monitored against actual flows to
assess accuracy. Where surplus funds can be invested, it may be appropriate for
monthly projections to be supplemented by weekly and daily forecasts.
Cash planners should be able to recognize which items influence the organization’s
cash level, and develop strategies that provide for the collection of receipts as
soon as possible, and the delay of payments as long as possible. Fixed items such
as payroll, rent and outsourced contracts may need priority over discretionary
expenditures that may not be as critical to the organization or part of a fixed
payment cycle. A forecast for payments should also recognize statutory regulations
on prompt payment as well as payment schedules agreed with suppliers. Forecasts
should include room for error in accordance with predetermined tolerance limits.
The bottom-up projections provided by spending units are often determined by

cash management committees comprising members from the planning, budgeting
and financial administration units within the spending units. These projections,
as determined by the committees, are based on a review of the actual cash flows
during the year; changes in budget allocations resulting from virements and
supplementary budgets; past expenditure and revenue patterns; information on
Chapter 1 11
commitments, and transactions initiated but yet to be concluded during the year;
and information about changes in the underlying macroeconomic assumptions.
1.2.6. Information Technology
With the widespread implementation of IFMIS over the last decade, there have
been significant improvements in every aspect of government cash management.
An IMF publication on Integrated Financial Management Systems7 mentions
that the changes which have been driven by technological advances both in
computerized information databases and in telecommunications “have facilitated
government banking arrangements such that commercial banks can readily cope
with high volumes of electronic revenue and expenditure transactions across large
geographical regions. In addition, zero-balancing of accounts can occur on a daily
basis and in some cases more frequently, committed amounts for future payment
can be automatically included within cash plans, and spreadsheet analysis of actual
versus forecast is performed for thousands of line items that comprise annual
budget law appropriations. Government cash managers also rely heavily on the
availability of complete databases of historical revenues and expenditures to enable
better cash planning through the use of trend analysis, often using interfaces with
government financial management information systems.”
Another IMF technical note8 on cash planning cautions that “high-performing

IT systems are needed to facilitate the preparation and updating of short-term
cash projections and maintaining databases of cash-flow trends.” Countries which
use standardized IFMIS solutions across the government have the option of
configuring the cash planning modules of the IFMIS solution either (i) in the
spending units to enter cash flow plans, validate them against macro-economic
indicators, and check consistency with procurement plans; or (ii) in the MOF
cash management unit to consolidate and analyze cash flow plans submitted by
spending units, and to interface with debt and investment data bases.
Typically, IFMIS provides facilities to automatically reconcile bank transactions

with system transactions; retrieve information on cash inflows by accessing
the receivables, sales, and general ledger modules; retrieve information on cash
outflows by accessing the payables, purchasing, payroll and general ledger modules;
and interface with external systems to retrieve information on large tax payer
transactions, debt servicing transactions and local government balances. IFMIS
also has the capability of generating flow profiles related to different scenarios,
facilitating decisions on the issuance of treasury bills or other short-term lending

and borrowing strategies.
Furthermore, IFMIS provides the facility for data entry and validation at source,
ensuring the quality of budget execution data used for cash management. The IT
processes for handling budget execution in the Treasury vary considerably from
country to country depending on the availability of electronic data processing
facilities. In a majority of developing countries, the “Request for Payments”
from spending units is handled through the submission of paper documents,
or electronic documents transmitted through e-mails. In countries where the
spending units are direct users of IFMIS, requests for payment are controlled
by the system at source, for budget and cash availability. However, even though
IFMIS provides the facility for data entry and validation at source, prevailing
financial regulations continue to require transmission of paper documents for
review so that the electronic approvals at the different stages of the expenditure
cycle can also be verified manually. This could delay the recording of transactions
and manual interventions after the initial data capture and could result in a
deterioration of data quality if changes are made during the manual verification
process.
The implementation of automated procurement procedures can improve the

timeliness and quality of bottom up cash flow data. IFMIS providers offer
procurement modules, which can integrate with the different stages in budget
execution. IFMIS providers also offer cash management modules, which can be
configured as an integrated component of the overall IFMIS solution. This facility
enables straight-through data processing from requisition to payment and can be
designed to automatically links commitment data to cash flow plans. IFMIS also
maintains detailed supplier data, providing the opportunity to retrieve and review
data on the prices of goods and services purchased from each supplier. Spending
units can use this data for projecting the cost of procurements planned for the year
and for updating standard cost data wherever necessary.
While bottom up data is important for cash planning, an IFMIS cannot be

expected to fully resolve the challenge of preparing accurate cash projections.
Top down projections based on historical patterns of cash flows supplemented
by knowledge of large future transactions usually forms a substantial basis for
cash planning. In this environment the IFMIS can play a very useful role in
helping to investigate variances in the plan when they occur and identify necessary
improvements in the cash planning procedures.
Chapter 1 13
A number of countries using IFMIS have interfaced Treasury systems with the
payment systems used by banks to expedite electronic payments and automate
bank reconciliation. Data security continues to be a concern with the banks, but
with the evolution of IFMIS this concern is being addressed. The use of electronic
signatures is commonplace, and data security and data exchange agreements
between the Treasury, banks and government beneficiaries have been put in
place. While automated reconciliation between the Treasury and its banker is
commonplace, the reconciliation between the Treasury and the implementation
agencies is rarely automated. This is mainly because countries cannot afford to
provide IFMIS user licenses to spending units. Some countries are in the process
of developing additional software to interface stand-alone financial management
systems operating in implementation agencies with IFMIS. This will automate
reconciliation of payments made through the Treasury with the payments
requested by spending units and thereby improve the quality of expenditure data
used in cash management.
Hence, through utilization of expanded IFMIS functionality, many of tasks

comprising expenditure control, forecasting, debt and cash management, and
securities issuance and settlement can in principle be linked and synchronized
allowing “straight-through processing” of data from the different systems. Good
international practice suggests that this would facilitate the integration of debt
and cash management functions and encourage the development of a professional
team of staff with the specialist knowledge required for these functions.
In summary, the use of IFMIS in government enhances the quality and timeliness
of data required for cash management. Advantages include:
• Availability of comprehensive databases of historical revenues and

expenditures.
• Straight-through data processing from requisition to payment, enabling
automatic access to bottom up cash flow projections which can be used to
investigate variances from the cash plan.
• Availability of detailed supplier data, providing the opportunity to retrieve,
review and update data on the prices of goods and services.
• Possibility of interfacing IFMIS systems with banks and with systems
operating in spending units so as to automate reconciliation of payment
data.
1.2.7. Capacity Building for Cash Management
Cash management procedures, systems and financial instruments are evolving

rapidly in commercial and government environments all over the world. The
skills necessary to develop and maintain a cash management operation within the
government are rapidly converging to those in demand in the private financial
sector. However, government salaries are usually lower than those in the private
sector, making it difficult for the government to attract and retain competent staff.
Ministries of finance usually conduct staff training programs in the area of cash
management to ensure sustainability. Most of the training needed at the spending
units and sub-national levels does not have to be very specialized. Administrators
and financial managers at these levels need to have a basic grasp of the overall
objectives of cash management and their roles and responsibilities in promoting
efficient cash management within their own organization and at the national
level. The training programs should be delivered through a regular schedule of
programs structured to provide initial training for new staff and in-service training
for regular staff. An important condition for attending such programs would be
that the trained staff should be required to remain in their cash planning related
jobs for a fixed period of time following the training.
Active cash management in the Treasury requires training in more specialized cash
management techniques. Active cash management in the money market requires
skill sets that are currently lacking in ministries of finance in most developing
countries. Qualified staff could be recruited from financial institutions or the
existing staff provided with long-term formal training in appropriate educational
institutions to build capacity. Appropriate career opportunities and incentives
would be required to retain the specialized staff. Front office, transaction
processing and operational and credit risk management systems would need to
be put in place internally to support active cash management. The decision to
develop an active cash management function within the Treasury should be taken
after a cost benefit analysis. Many countries prefer to delegate this responsibility
to the central bank.9
1.2.8. Incentives and Sanctions
With the Treasury assuming the responsibility for ensuring availability of cash to
meet the budgeted commitments of spending units, their financial managers may
Chapter 1 15
not be motivated to improve their efficiency in planning their cash requirements.

They may not appreciate the need to inform cash managers in the Treasury about the
timing of large irregular cash flows, or anticipated delays in procurements as long
as they have access to their annual budget appropriations. A number of countries
motivate accurate in-year cash planning in spending units through incentives and
sanctions. IFMIS functionalities can be used by the cash management unit to
monitor the deviations of in-year cash plans provided by spending units from
the tolerance limits set by the Treasury. Budget institutions that submit accurate
projections of cash needs (not simply complying with the requirement to submit
a plan) can be provided with the incentive of increased autonomy to manage the
spending of their budget appropriations. Some other forms of incentives used in
developed countries are briefly discussed below:
In the UK, the Treasury10 has used a combination of reputational and financial
incentives:
• League tables that rank departments’ performance are circulated monthly.

• Notional charges based on the accuracy of cash flow forecasts are
redistributed to all Departments in the form of End Year Flexibility.
• The notional cost of capital charges is applied to balances held at
commercial banks but not to balances held at the Exchequer.
Expenditure planning and control arrangements serve to discourage budget users

from drawing cash in advance of actual needs. Budget users are, in effect, charged
for their notional use of capital. A budget user agreed expenditure provision is
defined in accrual terms and includes an allowance for capital charges, but any
unplanned increase in a budget user’s working or physical capital will add to the
charges, potentially leading to a reduction in the budget user’s expenditure on
other goods and services.
The 2011 NAO survey of the effectiveness of incentives shows that in the UK
reputational incentives are more effective in motivating cash managers. Financial
incentives are perceived as too insignificant to change behavior, but are useful to
illustrate the importance of good forecasting to non-finance staff, and therefore to
improve their performance.
In Sweden, appropriations are deposited into each agency’s interest-bearing

account, normally at the rate of one-twelfth each month. If an agency spends its
appropriations at a slower rate, it is paid interest on the balance in the account.

Similarly, if an agency spends its appropriations at a faster rate, then it must
pay interest to reflect the government’s cost of borrowing. This system creates
incentives to delay expenditures, which may raise operational problems, but it has
served to increase cash consciousness in agencies.
A number of developing countries have experimented with sanctions to ensure

adherence to cash plans. Sanctions should be carefully crafted to ensure that
they do not adversely affect the beneficiaries of the services provided by the
spending units. For example, sanctions that prevent disbursement of funds to
agencies delinquent in submission of timely or accurate cash plans are likely to
affect the clients of the government agency more than the staff responsible for
the delinquency. Often, sanctions in the form of holding back disbursement of
funds are likely to result in arrears of payments, which affect the reputation of
the government agency rather than penalizing inefficiencies in cash planning. It
should be ensured that outstanding liabilities resulting from implementing any
sanctions are attributable to individuals and not to the government agency.
Performance targets on cash management are often used to sanction or reward

cash managers. However, the performance targets often focus on the department’s
own performance rather than the benefit accruing to the government in terms of
reduced borrowing or interest on invested cash surplus. In developing countries
(such as Tanzania and Kenya), performance targets for Ministry of Finance staff
involved in cash management are sometimes linked to efficiencies in disbursing
funds. This may have unintended repercussions if the receiver of funds does not
have the capacity to absorb the funds disbursed.
1.2.9. Sequencing and Implementation
An IMF Technical Note11 on cash management defines four stages involved in

moving from primitive cash management to active daily cash management. These
comprise (i) addressing fundamentals; (ii) preparing cash plans and developing
cash management skills; (iii) going beyond prerequisites and basic cash planning;
and, (iv) introducing active daily cash management. The Note also suggests
that the speed at which cash management can be improved depends on: (1) the
starting point, especially the extent to which basic conditions for effective cash
management are in place; (2) the willingness of national authorities to move
Chapter 1 17
ahead, including confronting resistance to reforms that provide full treasury

oversight of all government bank accounts, as well as enhancing the transparency
of all government operations at the transaction level; (3) the infrastructure
available for rapid transfer of funds by electronic means; (4) the degree to which
financial markets have developed, including end-of-day bank account “sweeping”
and financial market instruments available for daily cash management; and (5)
human capacity and organizational arrangements. The IMF Technical Note
cautions that relatively long time periods may be required to implement some
of the fundamental features and therefore, one has to be realistic in planning the
timelines for addressing the fundamentals. A telling example given in the Note
is that even in middle-income countries, it may take a decade to establish an
operational TSA.
The fundamental features of cash management considered as preconditions

for developing effective modern cash management are: (1) centralization of
government cash balances and establishment of a TSA structure; (2) a clear
understanding on the coverage of the cash planning framework; (3) the ability to
make accurate projections of short-term cash inflows and outflows; (4) an adequate
transaction processing and accounting framework; (5) timely information sharing
between the central Treasury, revenue-collecting agencies, spending ministries
and/or Treasury branch offices; and (6) appropriate institutional arrangements
and responsibilities.
1.3. CASH MANAGEMENT IN INDONESIA
1.3.1. Background
After the crisis in 1998, the new government of Indonesia faced sharply increased
government debt levels and eroded government revenues, bringing to an end
Indonesia’s comfortable pre-crisis fiscal position. Recognizing the need for PFM
reform, a 2001 White Paper12 stated that transparency in government budget
preparation and accountability in treasury management would strengthen the
responsive, efficient and effective allocation and use of resources, and constitute
an essential element of Indonesia’s anti-poverty program.
With regard to cash management a fundamental reform was the reorganization of

the Ministry of Finance in September 2004 by splitting the erstwhile Directorate
for Budgetary Affairs into the Directorate General for State Treasury (DG
Treasury), and the Directorate for Budgetary Affairs and Fiscal Balance. The
then Finance Minister, Boediono, while inaugurating the new organizational
structure explained that “This is important to create a check and balance system,
as the planner and executor of the state budget is not the same (directorate). It’s
a common international practice.”13 The DG Treasury was made responsible for
the management of state funds. This included the authority to disburse funds to
ministries and government institutions, and responsibility for finding resources
to finance the state budget (until 2007 when the DG Debt Management was
established and took over from DG Treasury the responsibility for finding
resources). Since then, the DG Treasury has been expected to function as a fund
manager including identifying and managing any cash surpluses.
During 2003–2005, new laws relating to the state finance, national planning,
treasury, and external audit were adopted by parliament. The Treasury Law
provided a legal basis for the “fund manager” responsibilities of the Treasury
including the responsibility for the rationalization of government bank accounts,
many of which had been established by spending ministries and were outside
the supervision of the MOF. A number of decrees and financial instructions
were issued to implement the TSA regime and to establish the cash management
function. These are explained later in this chapter.
These timely and comprehensive PFM reforms helped Indonesia to recover from
the economic crisis of the late 1990s and establish robust financial management
systems that withstood the economic downturn of 2008. The IMF Article IV
Consultation Staff Report of 2012 noted that a fundamental reform of the policy
framework over the past decade had left Indonesia in a stronger position when the
global economy turned sour after 2007. The gross debt of the general government
as a percentage of GDP declined from 76% to under 25% between 2000 and
2011.14
An important lesson learnt from the crises of 1998 and 2008 was that the
management of state cash in Indonesia had become increasingly important, since
the country would lose credibility if the government did not have the liquidity
to meet its expenditure commitments. The conservative fiscal policy followed by
the government over the last several years has contributed to the accumulation of
Chapter 1 19
cash surpluses. The cash surpluses resulted from tax revenue coming in at or above
target and under-spending of budget appropriations resulting in a lower than
projected deficit while borrowing continued at the maximum ceiling permitted by
the fiscal targets. This can be seen from the illustrative table below, which shows
the annual cash surplus balances at end of year known as SILPA (annual budget
financing surplus or excess cash from unrealized budget) providing a considerable
degree of cash liquidity, but at the same time resulting in negative carrying costs
due to the fact that the remuneration on this excess cash is lower than the cost of
borrowing (yield of the state securities – SBN).
Table 1.1 Cost of Carrying Excess Funds 2010-2013
(in IDR/USD) 2010 2011 2012 2013
SILPA IDR 44.7 trillion IDR 46.5 trillion IDR 21.8 trillion IDR 26.1 trillion
(USD 4.47 billion) (USD 4.65 billion) (USD 2.18 billion) (USD 2.61 billion)
BI rate (average 6.50% 6.50% 5.75% 7.50%

for 1 year)
Net SBN (Bonds) IDR 91.1 trillion IDR 119.9 trillion IDR 159.7 trillion IDR 224.6 trillion
Issuance (USD 9.11 billion) (USD11.99 billion) (USD15.97 billion) (USD 22.46 billion)
SBN avg. yield for 8.00% 7.50% 6.50% 8.62%

1 year
TSA remuneration 4.25% 4.25% 3.75% 4.87%

(65% of BI rate)
Negative spread -3.75% -3.25% -2.75% -3.75%
Cost of carrying IDR 1,676 billion IDR 1,511 billion IDR 600 billion IDR 841 billion
excess Funds (USD 167 million) (USD 151 million) (USD 60 million) (USD 84 million)
for 1 full year
Moreover, as can be seen from the table below, the nominal amount of cash
managed by the Government in its budget for the last 9 years (2004 to 2013) has
increased significantly (more than three times).
Table 1.2 Nominal Amount of Cash Managed by the Government
State (Cash) Budget FY 2004 FY 2013 % growth
Revenue and Grant IDR 495 trillion IDR 1,529 trillion 308.9%
Expenditure IDR 509 trillion IDR 1,683 trillion 330.6%
Debt Financing (net) IDR 11 trillion IDR 153 trillion 1,390%

Given the prudent fiscal policy followed by consecutive governments over the last
decade, shortage of cash has never been a challenge during budget implementation
in Indonesia. The 2013 budget deficit reached 2.15 per cent, up from 1.14 per
cent in 2011 and 1.86 in 2012, but still under the fiscal target of 3 per cent of
GDP. Indonesia has, by law, set fiscal targets for general government (including
sub national governments) of a budget deficit of no more than 3 per cent of GDP
and a net public debt of no more than 60% of GDP.15 In addition, the government
usually has cash balances of around 1-2 per cent of GDP. The motivation for better
cash management in Indonesia, therefore, relates to more efficient management of
excess liquidity rather than shortages.
As seen in the figure below, in a typical year, the Government’s total cash balance
held in the Central Bank grows to a large surplus in the first half of the year,
remains at this level for a few months, and then declines late in the year, with an
average daily balance of around IDR 94 trillion during 2012 and IDR 60 trillion
during 2013.
Figure 1.2 Government’s Cash Balance Held in Central Bank
Trillion IDR
180
160
140
120
100
80
60
40
20
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2011 2012 2013
Chapter 1 21
These large cyclical surpluses are caused by three main factors. First, DG Debt
Management’s annual ‘front loading’ strategy for state securities (SBN) issuance
means that the majority of the financing for the budget is done in the first half of
the year, which is aimed at reducing uncertainty in obtaining funds from the less
liquid domestic bond market in a developing country such as Indonesia. Second,
the majority of tax revenues are collected in the first half of the year. And third, the
majority of the government’s expenditure occurs in the fourth quarter of the year.
The combination of these factors results in the government holding significant
cash surpluses for a large part of the year. While all countries require a ‘cash buffer’
to cover unexpected and/or volatile expenditure, more accurate cash controlling
and forecast would allow DG Treasury to provide advice on ways to smooth the
cash profile—and hence reduce the cash buffer—through the debt issuance and
redemption strategy. Reducing the average ‘cash buffer’ on the Indonesian account
will reduce the costs of unnecessary debt issuance, and will also allow for ‘term’
investing.
1.3.2. Objectives of Cash Management in Indonesia
The principal objective of state cash management in Indonesia is the efficient and
effective use of funds possessed by the state. This can be achieved by, among other
things:
• Determining the optimal amounts of funds needed to ensure that all

government activities can be funded;
• Obtaining the most economical and efficient financing (either domestic or
external) to pay for government activities;
• Minimizing the amount of idle cash and undertaking short-term
investment of this idle cash to provide additional revenue to the state;
• Speeding up the depositing of State revenues so that they can immediately
be available for use in funding government activities; and
• Making payments at the right times.
1.3.3. Regulatory Framework for Cash Management in Indonesia
The promulgation of the State Finance Law and the State Treasury Law provided
the basis for detailed regulations in the area of cash management. As stated in
the regulation, cash management objectives are to ensure (i) availability of cash
to cover the state liabilities, (ii) effective and efficient action to optimize returns
from cash surplus or to deal with cash shortage, (iii) provision of cash to Line
Ministries/Institutions in accordance with their cash flow projections to fund their
activities, and (iv) timely payment to suppliers of the Line Ministries/ Institutions
in accordance with their schedule of activities.
The Law on State Finance16 establishes the Minister of Finance as the General State
Treasurer. This is further elaborated in the State Treasury Law,17 which authorizes
the Minister of Finance to regulate and organize government accounts; save state
money in the account at the central bank; and open the accounts of revenue and
expenditure at commercial banks to accommodate state receipts and expenditures
for financing government activities.18 The Treasury Law19 also stipulates that the
central government obtain interest20 from the government account at the central
bank at the rate set on the basis of the agreement between the central bank
Governor and the Minister of Finance.
The implementing regulation on cash management21 defines the authority of the

Finance Minister to:22 (i) establish the system for receipts and expenditures in
the state cash account; (ii) appoint banks and/or other financial institutions in
the context of managing state budget revenues and expenditures; (iii) ascertain
requirements for the state budget, and arrange the funding needed to implement it;
(iv) deposit state funds; (v) place state funds and manage/administer investments
in the context of managing cash through the purchase of State Securities;23
(vi) make payments from the state general cash account based on the requests
of budget users; and (vii) provide information on state finances. The regulation
empowers the Minister of Finance to function as a cashier, financial supervisor,
and financial manager of the state. The implementing regulation also makes the
Minister of Finance24 responsible for cash forecasting and setting the minimum
cash balance, while obligating State ministries/institutions and parties associated
with State Budget receipts and expenditures to provide periodic projections25 of
receipts and expenditures to the Finance Minister as the State General Treasurer.
Chapter 1 23
Following up on the implementing regulations, the MOF issued an Instruction

on cash planning.26 The Instruction established the framework and objectives of
central government cash planning; responsibilities for cash planning; procedures
for submission of cash flow projections; and processes for the consolidation of
cash flow projections by regional treasury offices and DG Treasury. It set the scope
of cash forecasting to cover the forecasting of state receipts, state expenditures,
and the balance of the State General Cash Account in the context of the
implementation of the State Budget. In order to regulate the management of cash
surpluses, the Finance Minister has also recently issued a specific regulation27 to
manage placement of state cash at the commercial banks on the basis of forward
cash plans.
The recent issuance of a Government Regulation28 has further specified the duties
and authority of the Ministry of Finance in managing the receipts and spending of
State Cash through the State General Cash Account at the central bank in order to
better manage the implementation of the State Budget. The regulation details the
duties and responsibilities of the Treasurers of Receipts and Payments with regard
to the deposit of revenues in the State General Cash Account and for making
direct electronic payments from the State General Cash Account. It permits Public
Service Agencies (PSAs) to use their own revenues without depositing them in the
State General Cash Account. It regulates the end-of-year provisions for the carry
forward of budget allocations and for payments for goods and services that have
been ordered but not received.
1.3.4. Coverage of State Cash Management in Indonesia
The public sector in Indonesia consists of (i) Central Government, including

ministries, other state non-ministerial agencies, and Public Service Agencies
(PSA) subordinate to line ministries; (ii) Regional (provincial) Government;
and (iii) Local (districts/ municipalities) Government. However, government
cash management is currently implemented at the central government level only.
Within the central government a notable gap is the lack of coverage of PSAs.
These are entities with more operational independence than line ministries but
which are largely financed by the Government. It would be more transparent and
less risky to have their cash resources managed by DG Treasury.
With the introduction of regional autonomy, there is now separate management

of state cash at the central and regional levels. The Law on State Finance provides
a foundation for the implementation of decentralization and regional autonomy,
particularly for matters connected with financial management. This book focuses
primarily on cash management at the central government level. The arrangements
for regional government cash management are briefly described in Chapter 2.
1.3.5. Institutional Framework for Cash Management
In accordance with Law No.17 of 2003 Regarding State Finance, the Minister of
Finance, as an aide to the President in the field of finance, is the Chief Financial
Officer (CFO) of the Government, while the head of each institution/minister
is a Chief Operational Officer (COO) in the different sectors of government
operations.
The legal framework authorizes the line ministries/agencies as the COO to carry
out an action that results in the generation of a commitment of state expenditures;
the verification and authorization of invoices submitted by the vendors to the
ministry/ agencies in connection with the realization of commitments; and,
requesting Treasury for payments those vendors or collecting state revenue
receipts that arise as a consequence of budget implementation. Meanwhile, the
Minister of Finance, as the CFO, has the authority to implement the Treasury’s
cash management responsibilities. It also authorizes to verify the commitments
and expenditures request incurred by the ministries/agencies; release the payment
to the vendors and to verify and reconcile the revenues collected by them.
The Finance Minister as the State General Treasurer
A fundamental reform, which underpinned cash management in Indonesia,

was the reorganization of the Ministry of Finance in September 2004. The DG
Treasury was established in 2005 to integrate the functions that were fragmented
across several other DGs before the reforms. The reform also rationalized
the responsibilities for managing state finance by establishing other new DGs
including: (i) DG Fiscal Balance in 2006, for management of transfer funds to
local governments; (ii) DG State Asset Management in 2006 for the management
of state assets and receivables; and (iii) DG Debt Management in 2007, for the
management of foreign and domestic loans.
The current organizational structure of the MOF is shown in the figure below:
Figure 1.3 Organizational Structure of MOF
MINISTRY OF FINANCE
Inspectorate Secretariat
General General
Directorate Directorate Directorate Directorate Directorate Directorate Directorate Fiscal Agency for
General for General for General for General for General for General for General for Policy Finance
Budget Taxes Custom & Fiscal Treasury State Assets Debt Office Education
Excise Duties Balance Management Management & Training
Regional Regional Regional Regional Finance

Offices Offices Offices Offices Training
DG Taxes DG C & E DG Treasury DG SAM Centers
Chapter 1
25
26
Figure 1.4 Organizational Structure of DG Treasury, MOF
DG Treasury
Secretariat
Directorate General
Directorate for Directorate Directorate for Directorate for Directorate for Directorate for Directorate for Senior
Budget for Cash Investment Public Service Accounting Treasury Treasury Analyst
Implementation Management Management Agency & Reporting System Transformation
(PA) (PKN) System (SMI) (BLU) (APK) (SP) (TP)
33 Treasury
Regional Office
RTB/Kanwil
181 Treasury
Local Office
Cash Management Reform in Indonesia: Making the State Money Work Harder
LTB/KPPN
Chapter 1 27
The Directorate General of Treasury, Ministry of Finance
The main role of the DG Treasury is to execute the state treasury responsibilities,
especially for raising the efficiency, effectiveness, and control over the State’s cash
flow. The Finance Minister regulation No. 184/2010 on the organization and job
descriptions of the MOF set up DG Treasury with seven technical directorates
and one Secretary DG in the headquarters. Meanwhile, DG Treasury has 33
Regional Treasury Branches (RTB/KANWIL) and 181 Local Treasury Branches
(LTB/KPPN) across Indonesia. The RTBs are located in each of the provincial
capitals while most of the 181 LTBs are located in the capitals of regencies and
cities. Although the number of RTBs and LTBs are less than the total number
of provinces/regencies/cities in Indonesia, these regional and local treasury
offices are assigned to service more than 24,000 spending units of the central
government’s line ministries across Indonesia. With the decentralization, DG
Treasury is, however, not responsible for managing the treasury operations of the
Sub-National Governments. In total, DG Treasury has around 8,000 employees,
with more than 6,000 people located in its regional and local treasury offices.
The Directorate of Cash Management, DG Treasury, Ministry of

Finance
Given the coverage of the regional offices of DG Treasury, its responsibilities

with regard to government banking, and the availability to DG Treasury of real
time data on budget execution, it was considered appropriate to locate the cash
management function within DG Treasury. In the future, when all preconditions
are in place, the focus of the Directorate of Cash Management (DCM) of DG
Treasury can then be shifted to active daily cash management so that it coordinates
more closely with DG Debt Management (DGDM) to facilitate smoother debt
and liquidity management operations, and possibly lead to DCM and DGDM
being combined.29
At present, DCM is entrusted with defining the policy for cash management
and implementing the policy. DCM has around 100 staff equally distributed
and assigned to the following sub- directorates: (i) cash plan and management;
(ii) management of general state cash accounts; (iii) management of state cash
accounts; (iv) loan and grant accounts; (v) management of other state cash
accounts and spending unit treasurer accounts; and, (vi) management of state
revenues.
Figure 1.5 Organizational Structure of Directorate for Cash Management, DG Treasury
Directorate for
Cash Management
Supporting Unit
Deputy Director Deputy Director Deputy Director Deputy Director Deputy Director Deputy Director
for Cash Plan for General for State for Loan/Grant for Other State for State
and State Cash Cash Account Account and Spending Revenue
Management Account (RKUN) Unit Account
The Sub-Directorate of Cash Plan and Control
Among the six sub-directorates, the responsibility for preparing the cash plan
and cash management strategy is that of the sub-directorate for cash plan and
management, which is responsible for:
• formulating the cash (daily, weekly, monthly) plan, including preparation

of the borrowing and investment plan;
• preparing the cash management strategy, including conducting market
analysis, risk management, distribution of cash, and liquidity management;
• optimizing the use of idle cash (including deciding on the investment/
placement of idle cash, and monitoring the investment/ placement
performance) and other cash resources; and
• setting the ideal amount of cash to be kept in each of the state cash
accounts, monitoring and evaluating its implementation, and reporting
the budget realization (red book) and cash balance position (blue book).
The Sub-Directorate of Management of General State Cash Accounts
This sub-directorate is responsible for:
• administering the general state cash account/sub-accounts, placement

account in Bank Indonesia/commercial banks, and central treasury
expenditure accounts;
Chapter 1 29
• conducting the transfers from the TSA and operating the Government
Electronic Banking system;
• administering, accounting and recording the cash transfer transactions;
and
• consolidating the cash flow reports of the treasury branches
The Sub-Directorate of State Cash Account
This sub-directorate is responsible for:
• formulating the technical policy on the management of government

revenue or expenditure accounts at banks, post offices, and other financial
institutions;
• selecting the banks/post office to implement the state revenue and
expenditure; and
• calculating the refund, paying the banking service fee and collecting the
interest income.
The Sub-Directorate for Loan and Grant Accounts
This sub-directorate is in charge of administering the loan and grant imprest

accounts to finance some development projects that are funded by the World
Bank; Asian Development Bank; other bilateral and multilateral agencies; and
domestic creditors/grantors.
The Sub-Directorate for other State Accounts and Spending Unit Treasurer
Accounts
This sub-directorate is in-charge of administering the spending unit treasurer

accounts and other state accounts.
The Sub-Directorate of State Revenue
Lastly, the sub-directorate of state revenue is responsible for reconciling the data,
preparing the report, and accounting of the state revenue income collected by the
government accredited bank/post office.
Treasury Regional (RTB/KANWIL) and Local (LTB/KPPN) Offices
Local treasury offices (LTBs) were reorganized in 2007 into a modern front, middle
and back office administrative structure.30 The back office was given responsibility
for accounting, reporting, reconciliation, and maintaining the internal and
external cash position of the treasury branch. The capacity of Treasury staff was
enhanced to be able to deliver services in accordance with the new legal and
regulatory framework. Greater emphasis was also placed on the Treasury-Client
relationship with the spending units. Standard operating procedures of the local
treasury offices prescribed specific time limits to process and approve payment
documents presented at the front office.
The work of cash management itself, such as disbursing the state funds, managing
state revenue and expenditure from the state cash accounts, and administering
the cash transactions of the spending units of the central ministry’s agencies, is
done by the local treasury.31 The main responsibility for monitoring cash flow
requirements is that of the back office in the local treasury. The back office is also
entrusted with the task of advising spending unit staff, including providing them
with guidance and assistance in the preparation and submission of cash plans.
In the future, with the IFMIS in place, the disbursement and receipt functions
will be highly automated, requiring less involvement of the DG Treasury
regional office staff. It is intended that the main role of Regional Treasury Offices
(RTBs) will be shifted to provide technical support, guidance and capacity
building in the implementation of cash management at the levels of the local
treasury branch and the line ministries’ spending units in the regions. RTB staff
will be also expected to assist in developing the capacity of the local government
finance unit staff in managing their regional government money.
The Directorate General of Debt Management, Ministry of Finance
The Directorate General of Debt Management (DGDM) was established in 2007

as a result of the reform that required the government to establish a dedicated
unit to integrate debt management functions and manage foreign and domestic
loans and grants, state securities (SBN), and sharia financing portfolios. DGDM
is responsible for planning and implementing the financing of government
budget deficits, refinancing and investments. DGDM is also responsible for
the management of exposure to contingent liabilities; this includes improving
Chapter 1 31
the government guarantee program, and recording and monitoring outstanding

government guarantees. The responsibility for managing on-lending also rests
with DGDM.
The Directorate General of Fiscal Balance, Ministry of Finance
Established in 2006 as the result of the public finance and decentralization reforms,
the DG Fiscal Balance has a role to play in implementing the intergovernmental
transfer policy and in the projection of cash transfers (Balance Fund; Revenue
Sharing; General Allocation Fund; Specific Purpose Fund; Special Autonomy
Fund & Adjustment Fund) to the regions.32
The Law on Fiscal Balance33 prescribes the following roles for DG Fiscal Balance:
• In collaboration with the Fiscal Policy Office, establishing the limits for
the cumulative deficit of the local budget and maximum borrowing to
ensure that the total of central and local deficits is under 3% of GDP and
the total borrowings do not exceed 60% of GDP. This is to ensure fiscal
policy sustainability at national and subnational levels;
• Working together with the Budget Committee of parliament to set the
budget allocation for transfers to the regions;
• Signing the on-lending agreement for a loan from an overseas lender to the
local government;
• Setting up a regional finance information system on a national basis; and
• Granting permission for the issuance of regional bonds.
Asset and Liability Management Committee (ALMC)
A joint WB-IMF mission in 2009 on “Improving the Management of the Republic

of Indonesia’s Balance Sheet” recommended improved management of financial
assets and liabilities through closer coordination across debt management, cash
management, risk management (liquidity and market), contingent liability, and
public investment management.
Taking into account the WB-IMF recommendations and the need to have a
better cash flow projection to finance budget allocations, an Asset and Liability
Management Committee (ALMC) was set up in February 2013. The ALMC is
chaired by the Minister of Finance, with the Vice Minister as the Deputy Chair.
Members include DG Debt Management (Secretary), Secretary General, Head

of FPO, Expert Staff of MOF, DG Treasury, DG Budget, DG Tax, DG Customs
and Excise, DG Fiscal Balance, and DG State Asset Management (members).
The ALMC meets at least once every month or more frequently at the request of
the Minister of Finance. Two-thirds of the members constitute a quorum. The
ALMC may invite other participants at the request of its members. The chair takes
decisions based on consensus. The tasks of the ALMC are described in chapter 4.
Cash Planning Information Network (CPIN)
To improve the accuracy of the monthly cash forecast, an inter-directorate

committee called CPIN (Cash Planning Information Network) has been
established. CPIN’s members are technical staff from the various DGs and
directorates (DG Budget, DG Treasury, DG Debt Management, Fiscal Policy
Agency, and others). CPIN holds periodic discussions and releases a monthly cash
forecasting report for the MOF. This committee meets at least once every month
and more frequently if needed.
Line Ministries of the Central Government
The Planning and Finance Bureau (PFB)34 within each spending ministry plays
the main role in harmonizing the budget with the procurement plan and the
cash disbursement plan. During the fiscal year, the PFB conducts monthly
expenditure reviews with the major spending units and their respective DGs to
compare the actual procurements realized with the disbursements and timeliness
of the procurement packages included in the budget documentation. Some PFBs,
such as the MOF PFB, use a budget disbursement tool35 to monitor revenue,
expenditure, and procurement progress.
Line Ministries are required to submit detailed monthly rolling cash flow plans
to DG Treasury. The rolling plans include cash flows for the upcoming quarter
broken down by months; and for the upcoming month broken down by weeks.
1.3.6. Procedural Framework for Cash Management in Indonesia
The Minister of Finance has the authority to perform cash management functions,
which, according to regulations, should include cash planning through to cash
Chapter 1 33
forecasting, cash inflow, cash outflow, cash surplus and cash shortfall, as well
as implementation of a TSA. In addition, the management of bank accounts,
government collections and payments, and the remuneration of idle balances are
also part of cash management. In practice, the MOF delegates its authority by
appointing DG Treasury as the proxy of the Finance Minister to perform some
treasury functions. This authority includes setting up a government collection and
payment system, appointing operational banks and/or financial institutions for
the disbursement of the state budget, raising and managing the state funds needed
to execute the budget, and depositing/saving cash. In addition, the state treasury
also has the right to manage the placement of idle cash, manage the government’s
investments, and execute payment based on requests from spending units.
Under government regulations, the MOF is responsible for holding a minimum

cash balance, as well as developing a proper cash management policy to handle cash
shortfalls or to optimally use the cash surplus. In order to conduct cash planning,
through a bottom up process from its spending units, the line ministries, state
institutions, and other parties related to collections and expenditures of the state
budget must submit a projection of their updated collections and expenditures
on a monthly basis to the MOF. The updated cash plan data from those spending
units must be confirmed by the secretary general or respective Director General
of the line ministry prior to being submitted to the LTB as the basis to update
the MOF’s financial management database. The Finance Minister’s regulation36
provides for the splitting of annual cash flow projections included in the budget
documentation, into monthly, weekly and daily proportions. It provides for
periodic updates to the daily, weekly and monthly projections from all the
spending units (more than 24,000) to be used as the basis for budget execution.
LTBs are the focal points for receiving cash flow projections from the Spending
Units (local offices of line ministries) and submitting them to their Regional
Treasury Offices (RTBs). RTBs are responsible for receiving and consolidating
the cash flow projections of LTBs in their region and submitting the consolidated
plans to the Directorate of Cash Management (DCM). The DCM is responsible
for compiling and updating the cash flow plans received by the MOF and for
submitting the updated consolidated plans to the ALMC.
The institutional responsibilities for cash management processes as prescribed in

the regulation are shown in the figure below:
34
Figure 1.6 Institutional Responsibilities for Cash Management.

CASH MANAGEMENT
Directorate FPO with DG Tax & Debt Management Spending Unit

Cash Management DG Customs & Excise
Record debt and State revenue Spending/

historical records DMFAS
grant forecast withdrawal limits
 Expenditure forecast Forecast the Get borrowing

 Treasury General Ledger revenue reception information
 Cash Balances Prepare
 Spending/Withdrawal Limits expenditure
 Warrants forecast
 Borrowing Requirements Forecast the Prepare debt and
revenue reception grant forecast
Revise Expenditure
expenditure and forecast
revenue forecast Debt and grant Plan borrowing
forecast strategy/
requirements
Determine Updates spending/
borrowing withdrawal limit,
requirements warrants
Determine new spending/

withdrawal limits and warrant
and communicate to
Ministry/spending unit
Chapter 1 35
1.3.7. IT Systems Supporting Cash Management in Indonesia
In addition to the institutional processes shown above, active cash management in

Indonesia is facilitated by frequent data exchange with the following:
i. The Central Bank of Indonesia (Bank Indonesia – BI) systems related to

the conduct of the Treasury Dealing Room Settlement System includes:
- BI Government Electronic Banking (BIG-eB) system to provide an
internet banking connection for the Government.
- BI Centralized Automated Accounting System (BI SOSA) to provide
administration and accounting of the Government account managed
by the central bank.
- BI Real Time Gross Settlement System (RTGS) System to provide real
time on-line fund transfer of government money to the commercial
banks as the government partner banks for revenue collection and
expenditure payment.
- BI Script-less Securities Settlement System (SSSS) to manage settlement
of the government bond issuances in the primary and secondary
markets, in close coordination with the DG Debt Management.
ii. The DG Treasury in-house developed IT application, called Aplikasi
Forecasting of Spending Units (AFS), was developed and distributed to
each spending unit in 2010 to facilitate the submission of the periodic cash
updates to the daily, weekly and monthly projections from all the spending
units to be used as the basis for budget execution. The plan of MOF was
to link the updated cash plan with budget execution so that if the data is
not updated the funds cannot be disbursed. However, wish sanctions not
imposed by MOF this has not happened in practice.
iii. DG Treasury uses another in-house developed software application called
e-kirana to consolidate the daily funding needs of the LTBs and transfer
funds to their bank accounts to cover daily payments to the spending unit
suppliers.
One of the recent reforms undertaken by MOF is the development of an

integrated budget preparation and treasury payment system called SPAN.37 SPAN
is now being rolled out to all the local treasury branches. The functionalities of
cash management in SPAN include: Account management, Cash Forecasting and
Daily Funding, Fund Transfer, Bank Reconciliation, Accounting and Reporting,
and the Cash Management of different DGs that manage non-line ministry
budgets. The diagram below shows the standard features of the SPAN Oracle cash
management module, which interlinks with the other modules.
Figure 1.7 Standard Features of SPAN Cash Management Module
CASH MANAGEMENT MODULE
Acct. Payable
Module
Cash Bank Cash Other
Reconciliation
Forecasting Transfer Positioning System
Acct. Receivable Interface
Module
Budget
Commitment
Module
User Defined
Banking Manage Bank

Setup Banks
System Statement
Manage Bank Internet

Account Calculation
and Schedule
Starting in mid-2014, the SPAN Oracle COTS solution will be available not only
to the DG Treasury headquarters but also to the different units in the Ministry of
Finance including DG Budget, DG Fiscal Balance, and DG Debt Management
as well as to the regional and local treasury branches. Spending units will interface
with SPAN through integrated financial application software called SAKTI being
developed by the MOF. This new software will integrate all the currently used
stand-alone applications at the spending units and function as a feeder application
for SPAN. The SPAN cash management module will then have access to timely
and accurate financial information as a result of this direct interface with SAKTI.
The box below brings out the salient features of SAKTI.
Chapter 1 37
Box 1.1 Salient Features of the IFMIS (SPAN) Feeder Application SAKTI
• In parallel with the development of SPAN that will be operational at the Treasury
Headquarter and 181 Treasury branches (LTBs), MOF decided to develop a new
application, called SAKTI, as a middle layer application which would serve all the needs
of the 24,000 Spending Units (SUs) across Indonesia.
• The objective of SAKTI is to improve the quality of data input to SPAN, by integrating the
SPAN application and database which will be used by DG Treasury with the Spending
Units. SAKTI will cover the entire process of financial management at the Spending
Unit level, from the budgeting, to execution and reporting, including asset register and
other information support for accrual accounts.
• SAKTI is being designed in such a way that it could be used either online, off-line or a
LAN environment.
• The data would be piped into SPAN via a portal.
1.3.8. Capacity Building to underpin Cash Management in Indonesia
As part of the responsibility to improve the capacity of Spending Units to do cash

forecasting, in 2011, DG Treasury conducted capacity building and dissemination
on cash forecasting procedures for all the spending units through a series of training
and workshop activities.38 These were conducted in more than ten provinces for
staff from over 3,157 spending units, and around 200 regional and local treasury
offices, and DG Treasury Headquarters. Realizing that it would be time consuming
and expensive to train the staff of all the spending units, the MOF followed the
approach of prioritizing the training of staff of spending units whose total budget
covers at least 70% of total appropriation, and particularly staff in the biggest
spending ministries that are managing large infrastructure projects, since their
reliable cash plans would have a significant impact on the management of cash by
DG Treasury. Spending unit staffs that are not yet trained are those that manage
smaller budgets, primarily for routine salary and operational expenditure. The
positive impact from the training program was reflected in an increased awareness
of the Government’s staff regarding the importance of cash planning and the
increased number of spending units that submitted their updated cash forecasting
to the DG Treasury. However, compliance with the submission requirement is still
low because of weak enforcement of the policy on sanctions for those who do not
submit the updated plan.
1.3.9. Incentives and Sanctions
The daily and monthly cash ceiling projected by the spending unit is the
maximum cash that can be withdrawn by that spending unit during that period.39
Consequently, if the spending unit did not submit its updated and revised cash
forecasting plan, its request for payment is not processed if the ceiling of the
month has been exceeded. This sanction is, however, difficult to implement since,
in practice, for the last few years more than 60% of spending has occurred in the
last quarter (October–December); hence, by just denying the payment without
encouraging the spending units to update their cash plan prior to requesting for
payment, DG Treasury would be blamed for impeding budget disbursement.
In line with international practice, the sanction is imposed at the line ministry
level (budget users) and/or program manager (director general) rather than at the
individual spending unit level.
The implementation of a new module on commitment management in SPAN

will facilitate the monitoring of cash flow plans received from the spending units.
Comprehensive and timely information about commitments will supplement
the historical trend data used in cash forecasting with forward cash planning
information based on the expenditure that has been committed. Hence, it will
be possible to record commitments and their projected payment dates, and
accurately predict the cash needed to pay the committed expenditure, to monitor
the schedule of payments and to resolve issues regarding any delays in payments.
Currently there is no system of incentives in place to promote better cash

planning. DG Treasury proposed a possible incentive by offering an additional
cash allowance (honorarium) for the spending unit’s staff who regularly prepare
and update the cash plan to improve the compliance and accuracy of the cash
forecast. However, this allowance, which is proposed to be budgeted from the
spending unit’s operating budget, has not yet been implemented.
The MOF has attempted to introduce efficient management of budget

disbursement as one of the criteria in the performance evaluation of government
staff. However, it is not easy to attribute responsibilities for inefficiencies in
managing disbursement due to the existence of impediments at different levels
of government. Moreover, the performance indicators for programs included in
performance budgets are not always consistent with the indicators included in the
employee performance evaluation indicators.
Chapter 1 39
1.3.10. Sequencing and Implementation
The sequencing and implementation of cash management reforms in Indonesia

followed the traditional international practice of getting the basics in place
before migrating from primitive cash planning to active daily cash management.
The enactment of the State Finance Law and the Treasury Law provided the
foundation for the cash management reform. The reorganization of the MOF set
the institutional structure for the reform. The establishment of the TSA (which is
described in chapter 2) and the inventory of government bank accounts provided
a consolidated picture of government cash balances which are available for funding
government operations. The annual budget law provides the basis for budget
allocations which determine the annual cash requirements of the government. In-
year cash management procedures were implemented to finance the expenditures
included in the annual budget law. The procedures and institutional arrangements
are now being refined to move to active placement and/or investment of the idle
cash, based on the forecast of the idle cash on TSA balances in the coming period.
A comparison of the implementation of Indonesia’s cash management reform

with the IMF Generic Milestones for Implementing Cash Management (see
Appendix 1) shows that most of the milestones have been achieved. It will be seen
from the table in appendix 1 that Indonesia has almost achieved all the milestones
related to addressing the fundamentals of cash management. However, further
improvements are needed. For example, with improved cash management skills
and better prepared cash plans, the second phase of cash management needs to
focus on improving the comprehensiveness of the cash management function and
promoting compliance with the new regulations. The on-going implementation
of IFMIS will further help to automate the cash flow plans process through timely
and accurate data exchange between the treasury regional offices and the spending
units. The training of cash managers in the spending units is an on-going exercise
which has now been firmly established. While most of the government cash
balances are now consolidated into the TSA, there are a few remaining balances
that have to be reviewed and policy decisions taken on their consolidation into
the TSA.
DCM of DG Treasury has started to improve the quality of its daily cash
forecasting through including its performance in making cash projections as a key
performance indicator (KPI). This KPI will be used as the basis for measuring the
work performance of the unit. Therefore, it is important for DCM staff to ensure
that the accuracy of their cash projections is high, with minimum deviation
between forecast and actual. The table below on the deviation between the DCM
monthly cash forecast and actual realization over the last two years shows that
their accuracy in forecasting still needs to be improved.
Table 1.3 Deviation on Revenue and Expenditure Forecast
Deviation of Realization Deviation of Realization

From Revenue Forecast From Expenditure Forecast
Month 2012 2013 2012 2013
Jan -10% 5% -3% 1%
Feb 5% 2% 6% 2%
Mar 3% 10% 10% 13%
Apr -9% 14% 2% 0%
May -1% -1% 3% 0%
Jun -6% 3% -3% 2%
Jul 0% 1% 10% -2%
Aug 4% 5% 4% 13%
Sep 3% 4% 4% 0%
Oct 7% 6% 7% 2%
Nov 6% 18% 4% 1%
Dec 2% 2% -1% 2%
While continuing its efforts to improve cash forecasting quality, Indonesia is now
planning to move to active daily cash management. As will be seen from the
table in Appendix 1, the coordination of cash and debt management is always
challenging and complex, but it is now being improved through regular ALMC
and CPIN meetings. The preparation of the Treasury Dealing Room (TDR) is
underway although as explained in chapter 4 there are a number of important
matters to address to ensure that its operations do not conflict with those of DG
DM and of BI. Once the TDR is operating the Treasury will be able to participate
in the money markets to obtain a better rate of remuneration from the cash that
will be placed/invested in selected commercial state-owned banks and to trade the
short-term instruments (i.e., 90-day T-bills) in the money market. The Treasury
Chapter 1 41
continues to refine cash flow projections to improve the accuracy of projections,

the period of projections and the exact timing of large- value transactions.
Coordination between the cash manager, the government debt manager, and the
monetary authorities needs to be further strengthened by including central bank
representatives in the ALMC.
1.3.11. PEFA Findings on the Cash Management Practices in Indonesia
The Public Expenditure and Financial Accountability (PEFA40) assessment for

Indonesia was undertaken twice by a team of World Bank and bilateral donor
staff with the close involvement of counterparts from the Government of
Indonesia; the original assessment was conducted in 2007 and a repeat assessment
in 2011. Compared with the first assessment, there have been some significant
improvements in the cash management processes found in the repeat assessment.
Improvements have been made in the recording of cash balances and debt,
particularly as the TSA and cash forecasting have continued to be strengthened
(Table 1.3). New IT systems and procedures have strengthened the management
of personnel and payroll information at the line ministries and local treasury office
(LTB) level. However, weaknesses remain in reconciling the information at the
central government level and in the procedures at the sub-national government
level.
Table 1.4 PEFA Ratings for Recording and Management of Cash
Indicator Score Score Performance Change

2007 2011
PI-17 Recording and D+ B+

management of cash
balances, debt and
guarantees (M2)
(i) Quality of debt D B Debt management and reporting has improved

data recording and significantly, records are now complete, with minor
reporting reconciliation problems.
(ii) Extend of C B In practice the cash balances of nearly all government

consolidation of the bank accounts have been identified with most
government’s cash consolidated, albeit with the “virtual pooling” of some
balance balances
(iii) Systems for C A The MOF has exclusive authority to enter in to

contracting loans and loans and to provide guarantees on behalf of the
issuance of guarantee government. The budget exposure is now disclosed
and limited for PPPs by the creation of PII.
1.4. CONCLUSIONS
Regulatory frameworks for implementing standard features of an effective cash

management system are in place in Indonesia. The promulgation of the State
Finance Law and the State Treasury Law provided the basis for prescribing detailed
regulations in the area of cash management. Detailed presidential decrees and
MOF instructions define the roles, responsibilities and procedures for government
banking arrangements, arranging funds to execute the budget, entering into
commitments for the acquisition of goods and services, making centralized
payments from a TSA, and managing cash and debt. There are formal agreements
with banking service providers for handling government revenue collections and
payments. Together, these regulations effectively underpin cash management and
are in accordance with modern international practices. Remaining challenges
mainly relate to improving the comprehensiveness of the cash management
function and promoting compliance.
Currently, the coverage of cash management in Indonesia is limited to the

central government sector. Within the central government a notable gap is the
lack of coverage of public service agencies (PSAs). These are entities with more
operational independence than line ministries but which are largely financed by
the Government. It would be more transparent and less risky to have their cash
resources held in the TSA in the Bank of Indonesia.
The institutional framework for cash management in Indonesia, which was

established in 2004 with the reorganization of the MOF, is stable and working
well. The government set up separate Treasury and Debt Management departments
and chose to anchor the cash management function in the Treasury Department
in a separate Directorate for Cash Management. As in other countries that have
chosen this institutional arrangement for cash management, the reason was that
the Treasury has access to a network of field offices that are geographically well
placed to assist spending units in the in-year updating of their cash flow plans. The
field treasury offices are also directly responsible for ensuring that cash is made
available by the central treasury to meet the daily expenditures of the spending
units. Currently, a legacy system is being used by spending units to submit their
cash flow plans to the Treasury.
Chapter 1 43
Looking forward, an important challenge in the institutional arrangements for

cash management is to coordinate the roles of DG Debt Management and DG
Treasury if the Treasury moves to active cash management in money markets. The
implementation of an IFMIS system (SPAN), should greatly improve the quality
and timeliness of in-year cash flow updates as an input to the preparation of a
government cash plan. A feeder system (called SAKTI) is being developed and will
be used by the spending units to interface with SPAN which is currently being
rolled out to all treasury offices. The functionalities of cash management in SPAN
include: cash forecasting and daily funding; fund transfer; bank reconciliation;
and formulation and submission of cash plans and updates. The deployment of
the cash management module to the largest spending units is expected to improve
the quality of cash plans received from these units.
Notes
¹ Government Cash Management, United Kingdom’s National Audit Office, NAO HC 546, 16th
October 2009
² Cash Management Made Easy, 2002, Financial Management Service, US Department of Treasury.
³ Government Finance Statistics Manual 2001, issued by the IMF Statistics Department
4 For example in France
5 For example in India
6 This is the case in a number of African countries (MEFMI Public Debt Management Manual), and
East European countries such as the Czech Republic and Slovenia.
7 Public Financial Management and its Emerging Architecture, IMF; John Gardner and Brian Olden,
2013.
8 Ian Lienert, 2009, Modernizing Cash Management, (Washington: IMF’s Fiscal Affairs Department).
9 For example: Denmark.
¹0 UK NAO Report of 2011
¹¹ Ian Lienert, 2009, Modernizing Cash Management, (Washington: IMF’s Fiscal Affairs Department).
¹² Reform of the Public Financial Management System in Indonesia, 2001
¹³ The Jakarta Post, Jakarta, September 18, 2004
¹4 Article IV Consultation Staff Report 2012 (Washington: International Monetary Fund)
¹5 The Government Regulation No. 23/2003
¹6 Law No.17 of 2003
¹7 Law No. 1/2004
¹8 Article 22 of the State Treasury Law
¹9 Article 23 of the State Treasury Law
²0 “and/or banking services”
²¹ Government Regulation Number 39 of 2007 Regarding the Management of State/Regional Funds
²² Article #4 of the Government Regulation No. 39/2007
²³ (SBN)
²4 Article 32 Paragraph (1) Government Regulation Number 39 of 2007
²5 Article 32 Paragraph (4) Government Regulation Number 39 of 2007
²6 Finance Minister Regulation (PMK) 192 of 2009 on Cash Planning
²7 Finance Minister Regulation (PMK) 03 of 2014 on The Placement of the State Cash at the
commercial banks
²8 Government Regulation (PP) Number 45 of 2013 on “The State Revenue and Expenditure Budget
Implementing Guidelines”
²9 A 2013 study under taken by MOF on Institutional Transformation recommended a vision to have
a “lean and mean” combined unit performing “end to end” cash and debt management functions in
2019
³0 The LTB Percontohan
³¹ Finance Minister Regulation No. 169/2012
³² In 2013 33 provinces and 491 districts /municipalities were to receive transfer allocations from the
central government budget.
³³ Law No. 33/2004
Chapter 1 45
³4 The roles of the PFBs and their operating procedures are not uniform across ministries. The roles
and processes described above are based on an interview with the head of the PFB of MOF.
³5 MONIKA: an application developed and used by the PFB of the Ministry of Finance
³6 Finance Minister regulation No. 192/2009
³7 Sistem Perbendaharaan dan Anggaran Negara
³8 A series of events to socialize the new cash forecasting regulation (PMK 192/2009) and its IT
application in 2011 as part of the capacity building program for the spending units was partly funded
by The World Bank Public Finance Management Multi Donor Trust Funds (PFM- MDTF) program.
³9 Article 8 of the Finance Minister regulation No. 192/2009 and article 17 DG Treasury Regulation
No. 03/2010
40 The PEFA was founded in December 2001 as a multi-donor partnership between the World Bank,
the European Commission, and the UK’s Department for International Development, the Swiss State
Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, and the Royal Norwegian
Ministry of Foreign Affairs, and the International Monetary Fund. The PEFA Framework was created
as a high level analytical instrument which consists of a set of 31 indicators and a supporting PFM
Performance Report, providing an overview of the performance of a country’s PFM system.
Agus D.W. Martowardojo Muhamad Chatib Basri
Bank Indonesia Governor Finance Minister
Chapter 2
Setting Up and Managing the TSA
Chapter 2 49
2.1. INTRODUCTION
A preliminary and critical component of cash management is the Treasury Single

Account (TSA). During the 1980s, a number of emerging economies did not give
much importance to the time value of money. Approved annual budget allocations
were disbursed to the bank accounts of budget users and the cash balances
pertaining to budget allocations were held in these accounts for disbursement
during the financial year. With the increased demand for accountability and
transparency in the management of resources held by government, and the
evolution of IT systems for IFMIS and electronic banking, it became necessary
and feasible to implement a TSA to concentrate government cash resources and
manage government payments. This chapter examines the pivotal role of the TSA
in government banking, payment systems and cash management. International
experiences are reviewed and the Indonesian reform in implementing a TSA is
discussed in the context of emerging international practices.
2.2. TSA – CONCEPTS AND INTERNATIONAL PRACTICES
2.2.1. TSA Definition
Pattanayak and Fainboim1 define a TSA as a unified structure of government bank

accounts that gives a consolidated view of government cash resources. It is a bank
account or a set of linked bank accounts through which the government transacts
all its receipts and payments.
2.2.2. TSA Objectives and Characteristics
The primary objective of a TSA is to ensure effective aggregate control over

government cash balances. The consolidation of cash resources through a TSA
arrangement facilitates government cash management by minimizing borrowing.
These cost savings derive from the interest that is saved from using cash surpluses
in one area of government activity to cover cash shortages in another. If cash
was not consolidated, the extra cash requirement would have to be financed by
issuing debt. Thus, a TSA enables the Treasury to minimize idle cash balances in
government bank accounts. The aggregate control of cash also facilitates monetary
policy and budget management.
A TSA minimizes transaction costs during budget execution by expediting the

remittance of government revenues (both tax and nontax) by collecting banks, and
ensuring the efficient scheduling of the payment of government dues. It provides a
mechanism for controlling cash outflows in accordance with aggregated cash plans
and commitments and facilitates reconciliation between banking and accounting
data. The consolidation of government cash in a TSA provides the opportunity to
reduce transaction costs by effecting electronic payments directly to beneficiaries
and automating bank reconciliation. Given that the TSA is usually held at the
central bank, another objective is to secure government funds.
TSA Structure
Theoretically, TSA architecture can be divided into three types, based on the
structure of the bank accounts and the transaction processing model:
• A fully centralized TSA, wherein all government revenue and expenditure

transactions go through a single account, which is usually at the central
bank, with or without sub-accounts, such as in Armenia and Lithuania.
• A decentralized TSA, comprising several independent bank accounts
operated by spending units for their transactions. These accounts are
generally transitory zero-balance accounts opened at commercial banks.
The balance is swept into the main TSA account at the end of each
working day. Sweden and the United States are examples of countries with
a decentralized TSA.
• A distributed TSA, comprising central bank or commercial bank
accounts operated by local treasury branches for receipt and/or payment
transactions of the spending units under their jurisdiction. These local
treasury bank accounts are funded from the central Treasury either by the
“top-up” of residual balances, or, in cases where the residual balances are
“zero balanced” daily to the TSA, by transfer of daily cash requirements, as
implemented in Ukraine.
In practice, TSA structures are usually hybrids of these three versions. In many
countries, major payments such as transfers to lower levels of government and
subsidies to state owned enterprises are made by the central Treasury through
direct electronic payments from the TSA to the beneficiaries. Other payments
Chapter 2 51
are made through the regional treasury bank accounts, either by electronic
payments or through checks. Taking advantage of technological developments in
some countries, all central government transactions are processed electronically
through the central treasury without any intervention from local treasuries. In
such cases, the local treasury branches are either closed or tasked with processing
the transactions of local governments in their jurisdiction.
Imprest accounts, opened at the spending units with approved cash limits set
by the Treasury for making small payments such as those related to travel or low
value office supplies, are not always considered a part of the TSA system. Where
they are separate, banking arrangements for such imprest accounts range from the
“pooling” of daily residual balances for the purpose of receiving remuneration on
idle government balances, to elimination of imprest accounts by the issuance of
debit cards to the finance officers of the spending units (within limits prescribed by
the Treasury) so as to obviate the need for holding unremunerated cash balances.
Pattanayak and Fainbom (2010) suggest that a TSA structure can contain ledger
sub-accounts in a single banking institution (not necessarily a central bank), and
can accommodate external zero-balance accounts in a number of commercial
banks. However, these separate accounts should be integrated with a top account
(called the TSA main account) usually held at the central bank for netting off their
balances (usually at the end of each day) to get the consolidated cash position.
Usually two or three main government accounts are held within the central
bank ledgers. One main account (the “top” account) is set up to receive all the
government cash inflows. A second account is generally operated by the central
treasury for funding the zero balanced expenditure accounts held either by the
budget agencies or by the treasury branches. This second account is funded daily
from the “top” account. A third account is used as an “investment” account. This
account is funded from the “top” account whenever the combined balances of the
other two accounts exceed the operating balance targeted by the treasury and is
used to invest the surplus balances in accordance with instructions issued by the
Treasury.
Additionally, Mike Williams2 suggests that the TSA structure in the central
bank may include multiple sub-accounts, for example to maintain the distinct
accounting identity or ledger of line ministries, agencies and tax departments.
Electronic “CORE3 banking” facilities provide the opportunity for the Treasury to
set and modify cash disbursement ceilings in the sub-accounts of spending units
in accordance with their approved cash plans. For cash management purposes,
positive and negative balances in these accounts are netted into the main TSA
operational account—the top account in a pyramid structure. This distinction
between ledger accounts and actual bank accounts is important—the ledger
accounts do not hold cash but are used to monitor flows. A government spending
unit’s legal authority to spend is not represented by actual cash. At any one time,
the aggregate permissions to spend may greatly exceed the cash held in the top
account. This is not a problem so long as cash is available when payments actually
need to be made.
Maintenance of these sub-accounts in the central bank facilitates the monitoring

of payments against aggregate budget allocations and enforces the accountability
of spending entities by requiring them to keep their cash plans updated. In the
case of revenues, it provides the opportunity to get online information on revenue
receipts classified by major types of revenues. This information, coupled with the
ability to reconcile revenue collection data electronically with the Treasury and tax
departments, facilitates the timely transfer of the sub-national shares of collected
revenues. Preliminary aggregated tax collection and budget execution reports,
classified by major tax and expenditure categories, can be obtained from the ledger
sub-accounts maintained in the central bank. These preliminary reports can be
used by the Treasury, tax department and line ministries for managerial purposes.
As will be seen from the description of some international practices with regard
to TSA implementation below, Italy is one of the countries that maintain detailed
sub-accounts for expenditures in the central bank’s general ledger.
However, the maintenance of detailed sub-accounts within the TSA general ledger
in the central bank does impose additional transaction overheads on the central
bank. It is the responsibility of the owners of the data (Treasury/ tax department)
to ensure that the data resident in the central bank ledgers are properly classified
and reconciled. Though this reconciliation is automated, any discrepancies
noticed would have to be reconciled by the data owners with the central bank and
correction of entries made in the detailed sub-accounts of the central bank. This
would result in additional transaction costs for the central bank.
Chapter 2 53
TSA Coverage
The coverage of the TSA varies from country to country depending on the
political and legal framework. The coverage of the TSA is determined by the PFM
legal framework; central bank acts; state revenue agency acts; and decentralized
fiscal responsibilities prescribed in national constitutions. The political and legal
environment determines the extent to which the cash balances of the general
government4 (see chapter 1) sector are consolidated in the TSA. The cash balances
of some agencies held outside the TSA may be held in designated accounts within
the central bank.
In cases where practical or legal considerations make it necessary for general

spending units to hold their cash balances in commercial banks outside the TSA
structure, there should be requirements for providing the Treasury with periodic
information on the cash flows and balances related to such accounts.
The Treasury should have a comprehensive view of all government cash

resources and all government liabilities that can and may be legally charged to
the government cash resources. As the Treasury has the responsibility to ensure
the availability of cash resources to meet the emerging liabilities of the national
government, it should have timely, relevant and accurate information on
government cash balances held by agencies covered by the general government.
This requirement should be considered while determining the coverage of
the TSA. Mike Williams5 points out that some central government funds are
managed entirely separately from the budget and may have to be excluded from
the TSA for policy, transparency or legal reasons. Such funds might include
bond redemption funds or pension or other social security funds. However, it is
still possible to lend surplus cash from these funds to government. Such lending
should only be undertaken where it does not pose a risk to the fund’s ability to
meet its liabilities. The transactions involved must be transparent and objective,
for example, based on a short-term market-related interest rate.
TSA Processes
Options for accessing and operating the TSA mainly depend on institutional
structures and transaction processing arrangements. The Treasury, as the chief
financial agent of the government, should manage the government’s cash (and
debt) positions to ensure that sufficient funds are available to meet financial
obligations, idle cash is efficiently invested, and debt is optimally issued in
accordance with the prevailing acts and fiscal targets.
In a TSA environment, the Treasury is responsible for an orderly flow of funds

from revenue collection agencies and from the state budget to other spending
units, acting as a bank for them, and ensuring fiscal discipline. Spending units are
responsible for collecting taxes, fees and charges as authorized by various acts and
regulations. The collections are remitted to the TSA through appropriate revenue
concentration mechanisms. Spending units enter into expenditure commitments
in accordance with their approved budget and associated procurement plans. In a
TSA environment, they make payments for goods provided and services rendered,
through the TSA held by the Treasury. The Treasury is responsible for ensuring
that there are adequate cash balances in the TSA to cover the authorized liabilities
of spending units. To be able to exercise this responsibility, the Treasury monitors
the cash flows of spending units against their approved budget allocations and
projected in-year cash flows. This approach balances control by the government
agency over its own budget and underlying procurements, with control maintained
by the Treasury over public funds.
In order to prepare financial reports and to reconcile payments made through the
Treasury on behalf of spending units, the Treasury, in its general ledger, maintains
individual spending unit budget allocations. In other words, individual spending
unit cash balances earlier maintained in bank accounts are replaced by ledger
accounts in the Treasury general ledger to identify available budget allocations
during the year. Inter-agency transfers are accounted for within the Treasury
general ledger, without affecting TSA operations. The Treasury should lay down
procedures for reconciling the government balances in the books of the central
bank with the balances recorded in its general ledger. In some countries, the
spending units record their cash flows in a central general ledger “hosted” by
the Treasury and issue pay orders directly on the central bank (see scenario 4 of
chapter 3). In this arrangement, it is the responsibility of the spending units to
reconcile their cash flow with the central bank. In other countries where spending
units maintain their own stand-alone general ledgers (see scenario 1 of chapter
3), the reconciliation procedures developed by the Treasury should provide for
reconciliation of their own general ledger sub-accounts with the corresponding
ledger accounts maintained by the spending units.
Chapter 2 55
2.2.3. TSA Banking Arrangements
In most countries, the TSA is kept in the central bank so as to ensure the security
of government funds. The fiscal risk of government funds lying outside the central
bank is mitigated by periodically sweeping surplus cash balances pertaining
to these funds into the TSA. In cases where legal agreements (such as donor
requirements) require government funds to be kept in commercial banks, public
funds are secured through pledges of corresponding collateral by the respective
commercial banks.
If the central bank does not have an adequate network of regional branches or
does not have the capacity to handle the large volume of transactions, which are
associated with government payments and receipts, retail banking operations
can be delegated to a fiscal agent (normally an authorized commercial bank or
government run post office). The Treasury transfers funds daily from the TSA in
the central bank to the fiscal agent. The fiscal agent makes payments on behalf
of the Treasury and returns any residual balances remaining at the end of the
day to the TSA. Revenues collected by accredited fiscal agents on behalf of the
government are remitted daily to the TSA.
The Treasury usually negotiates agreements with the central bank and commercial
banks for providing banking services to the government. These agreements could
be informal such as allowing commercial banks to either retain government
funds for limited periods of time, thus enabling them to invest these funds in
overnight money markets, or set them off against statutory liquidity requirements.
Alternatively, the agreements may specifically provide for rates per transaction for
processing government revenues and payments. International practices generally
provide for the payment of transaction related banking fees. Bank fees can add
up over time, particularly when multiple bank accounts are being maintained,
but these fees can be reduced through consolidation of bank accounts while
continuing to maintain separate ledger accounts in the books of the Treasury.
International good practices also recommend periodic floating of tenders (say
every 3-5 years) for securing banking services. This facilitates maximizing interest
and minimizing fees. Banks continually refine their products and services, and
periodic tendering for their services can encourage competition to identify the
most cost-effective banking services.
There have been significant improvements in commercial banking systems over the
last decade. Nowadays, most banks use CORE6 banking applications to support
their operations. Banks make these services available across multiple channels like
ATMs, internet banking, and branch banks. Governments are increasing their use
of ATMs and internet banking to collect government revenues. Debit cards issued
by banks under the authority of the Treasury are also being used to make urgent,
low-value payments for the purchase of goods and services by the spending units.
2.2.4. Sequencing the Implementation of TSA
The sequencing of the implementation of TSA varies considerably from country

to country. It depends on the political ownership of the reform, the institutional
structure of the government, the existing PFM legal and regulatory framework,
the legal and administrative relationship between the MOF and the central bank,
the available commercial banking facilities, the extent of fiscal decentralization,
the capacity of MOF staff, donor willingness to use government systems, and the
financial information processing capabilities of the Treasury.
Given a contemporary financial administration environment across the

government, it is possible to enumerate certain basic steps to implement the TSA.
i. The MOF should first develop a functional design for the operation of the
TSA, including the roles of the central and commercial banks.
ii. The Treasury should complete an inventory of all the bank accounts owned
by spending units.
iii. A schedule to consolidate these bank accounts into the TSA should be
established and agreed with the owners of the bank accounts so as to
ensure that there is no disruption in government activities as a result of the
transfer of ownership.
iv. The Treasury should tender for banking services, keeping in mind the large
volumes of transactions associated with government activities and the need
for timely and accurate information on government cash resources for cash
management.
v. The Treasury should review any special circumstances that prevent the
integration of residual government-owned bank accounts into the TSA so
as to find ways of bringing the information related to such bank accounts
into the cash management exercise. In parallel, the Treasury should also
Chapter 2 57
establish a modern financial information system to facilitate the collection

and reconciliation of information on government cash flows and cash
balances.
2.2.5. Contemporary International Practices in TSA Implementation – some

Illustrative Examples
Australia, India7, and Kyrgyz Republic are some countries implementing mixed
TSA architectures that combine the three models discussed earlier in section
2.2.2. In large countries with decentralized federal governments such as India
and Australia, each federal government maintains its own TSA. The federal TSAs
could be held in branches of the central bank as in India or in commercial banks
as in Australia.
The French TSA8 covers national and regional (local) governments, municipalities
and quasi-governmental bodies. It is managed by the agency of the French
Treasury (Agence France Trésor). The government cash, which is required by
7,562 operating (transaction) accounts all over the country, are swept back into
the TSA account (the state treasury account) at the Central Bank (Banque de
France) in real time. Banque de France has a number of branches at the regional
level, which are used to handle government transactions. There is no involvement
of commercial banks.
In the United States, the TSA is managed by the US Treasury. It covers only
the federal government. The Federal Reserve Bank (FRB), which has a role as
the main government bank, maintains the Treasury’s general account (TGA).
Disbursements are managed through the intermediation of the FRB and are
reflected in the TGA in real time, while tax revenue collections are made through
a network of a thousand financial institutions. Under this TSA system, although
each agency and bureau has accounting control and responsibility for the timing
and use of its funds, they do not hold the funds in bank accounts outside the
Treasury. An IFMIS is also available to support the implementation of TSA in
the US.9
Balances in government revenue accounts held in commercial banks are usually

swept daily into the TSA. Expenditure accounts, held by field treasury offices
in commercial banks, are usually funded daily by the central treasury from the
TSA and unused balances are swept back into the TSA at the end of each day.
In some countries like Ukraine, government revenues are deposited into the
commercial bank accounts of field treasury offices and net balances remaining
in those accounts, after paying for expenditures during the day, are swept to the
TSA. In such cases, anticipated shortages of cash resulting from timing differences
between inflows and outflows are funded through remittances made by the central
Treasury from the TSA.
In some other countries such as India, expenditure accounts held by field treasury
offices are virtual cash balances identified in terms of expenditure ceilings recorded
in commercial bank accounts. Payments are made by the banks from their own
resources, up to the ceiling limits, followed by a daily transfer of funds from the
TSA to recoup the resources utilized by the commercial bank during the day.
The banks are compensated for the short-term credit provided to government
through a comprehensive transaction fee. Another variation of this structure is the
implementation in Rwanda, where the virtual ceilings are dynamic to the extent
that they are increased to reflect “own revenues” remitted by the non-tax revenue
collecting ministries. This is intended to provide an incentive for ministries to
collect their dues efficiently, although it is desirable to have some budgetary
oversight of the expenditures.
Some of the developed countries found it expeditious to provide incentives to the

budget agencies to maintain their cash balances in the central bank. For example,
in Denmark,10 public bodies that are independent of central government, for
example, universities, schools and museums, must also open an account within
the central banking structure at Danske Bank. Any state funding that these
institutions receive is paid into this account. The bodies are permitted to move cash
to a bank account outside the Danske Bank central pooling structure. However,
the government pays independent bodies interest on cash balances to incentivize
them to keep their money within the central banking structure. Interest is set at
predefined rates for these bodies and is funded from the overall interest that is
earned by the government account at the Danske Bank. In the UK, the notional
cost of capital charge is applied to balances held at commercial banks but not to
balances held at the Exchequer.
To summarize, the TSA concept is still evolving. The earlier versions of TSAs
were managed by the central banks of those countries. When Treasuries were
Chapter 2 59
established in these countries, the management of the TSA was transferred from
the central bank to the Treasury under the Ministry of Finance. The Treasury
became the hub for revenue collection and payment transactions. Many different
TSA solutions have been implemented. In some countries where the central bank
has a presence at the sub-national level, the preference is to operate through the
regional branches of the central bank. However, in other countries, central banks
are reluctant to enter the retail banking business as this is a diversion from their
main responsibilities related to banking supervision and the management of
monetary policy. In most countries, the central bank hosts the TSA, which is
managed by the Treasury. At the same time, there are countries like Italy where the
central bank manages the TSA on behalf of the Treasury.
With the evolution of electronic banking systems, vastly improved inter-bank

connectivity, implementation of RTGS, and installation of IFMIS (ERP)
systems in spending units, the Treasury can participate directly in the inter-bank
settlement system. The central bank in most countries hosts such settlement
systems, facilitating the direct participation of Treasuries, provided Treasury
IFMIS solutions are secured for interfacing with the RTGS. It is quite possible that
the Treasury in developing countries will in future host the TSA on behalf of the
budget agencies. The arrangement would be similar to that introduced in Armenia
in 2010, where a web-based operating system allows the budgetary institutions to
manage their accounts on-line within the commitment/ expenditure limits set by
the Treasury.
2.3. IMPLEMENTATION OF THE TSA IN INDONESIA
2.3.1. Background
Prior to the implementation of a TSA in 2009, the Indonesian government’s

banking arrangements comprised tens of thousands of government bank accounts
operated by the DG Treasury headquarters and local offices, line ministries and
agencies across the country. These accounts carried significant unremunerated
balances. The treasury revenue recording and disbursement procedures also
generated significant revenue and disbursement floats, which benefited the
commercial banks at the expense of the government.
Prior to the formation of the TSA, a number of inefficiencies existed in Indonesia

in the management of state expenditures and revenues, as described below:
i. On the expenditure side, the inefficiencies included the existence of

“idle funds” kept outside the central bank, which were not adequately
remunerated. Specifically:
- provision and funding in cash of expenditure ceilings in operational
bank accounts (BO-I) for payments to suppliers of goods and services
to spending units;
- provision and funding in cash of expenditure ceilings in operational
bank accounts (BO-II) for salary payments six days before salaries were
due;
- the existence of a reserve money mechanism in the Expenditure
Treasurer account; and
- the existence of sub-national governments’ transfer and pension
payment procedures that provided for the transfer of funds to
commercial banks to cover expenditures before payments were due.
ii. On the revenue side, initially “floats” were permitted in government
balances held by revenue collecting banks (bank/post persepsi)11 as
remittance procedures allowed collecting banks to transfer revenue
collections to the TSA two or three times a week.
The State Treasury Law is the main legal basis for the implementation of TSA
in Indonesia. The law authorizes the Minister of Finance to appoint banks and
financial institutions to conduct government business, deposit state money and
manage investments.12 The Minister of Finance is also authorized to organize and
operate a single account (the State General Cash Account) at the central bank. All
state revenues and expenditures of the government are required to go through the
state general cash account (RKUN).13
Detailed regulations issued to implement the provisions of the State Treasury Law
included procedures for:
• depositing all state receipts in the TSA and making all state expenditures
from the TSA;14
• implementing Zero-Balance Expenditure Bank Accounts at designated
commercial banks of LTBs;15
Chapter 2 61
• implementing Zero-Balance LTB Revenue Accounts in the implementation

of the TSA;16
• implementing the Treasury Notional Pooling Account covering imprest
accounts held in spending units;17 and
• implementing the Treasury Notional Pooling Account for revenue accounts
held in spending units.18
2.3.2. Objectives and Characteristics of the TSA in Indonesia
The government’s effort to improve state cash management focused on the

implementation of a TSA in accordance with international good practices. The
figure below shows the links between cash management and the TSA.
Figure 2.1 Linkages Between Cash Management and TSA
State Cash Revenue Treasury Single State Cash Expenditure

t5BY t(SBOUT Account SGCA t#VEHFU&YQFOEJUVSF
t/PO5BY t0UIFS3FWFOVF in Bank Indonesia t0UIFS&YQFOEJUVSF
$BTI#BMBODF
Deficit 4VSQMVT
'*/"/$*/( 1-"$&.&/5
*/7&45.&/5
The goals of TSA implementation in Indonesia are:
• controlling the cash balance and cash flow through legal provisions
requiring all receipts and expenditures to pass through the TSA;
• consolidating government cash balances in the TSA on a daily basis by
incorporating cash balances dispersed over numerous bank accounts used
for defraying government operational costs;
• minimizing the cash float in government bank accounts outside the TSA
to minimize risk and optimize returns on government cash resources; and
• augmenting accountability through transparency in the management of
state cash receipts and expenditures.
2.3.3. TSA Banking Arrangements in Indonesia
Prior to the implementation of the TSA, Indonesia’s government banking structure

comprised: (i) accounts opened in the headquarters and regional branches of the
central bank (Bank Indonesia – BI), operated by the Treasury headquarters and
local offices; (ii) accounts held in commercial banks and controlled by regional
treasury branches (RTBs); and (iii) accounts held in commercial banks and
controlled by spending ministries, many of which were considered by the MOF
to be “unknown/illegal” accounts.
With the improvements in electronic banking systems, the government bank

accounts held in the BI and/or commercial banks have fallen in number and been
centralized, i.e. it is no longer necessary to have bank accounts held by BI regional
branches.
Government Accounts in BI following the Introduction of the TSA
The basic bank account structure in Indonesia is shown in the figure below:
Figure 2.2 Government Accounts in Indonesia

Placement Accounts held in
Account Bank Indonesia
Accounts held in
Revenue Account SGCA Other Account/SAL
Bank Indonesia
Sub SGCA Revenue Accounts held in

Bank Indonesia
Bank/Post Persepsi Expenditure Held in Commercial

(tax collector) Account Banks/Post Office
Bank Operational Held in Commercial

I/II Banks
Chapter 2 63
In general, the government bank accounts, which are categorized as TSA and
managed by the Finance Minister as the State General Treasurer in BI, can be
classified as follows:
i. The State General Cash Account (SGCA/RKUN): used for fulfilling the
government daily cash needs and maintained at a minimum of IDR 2
trillion for the Rupiah account and USD 1 million (or equivalent) for
USD and/or other foreign currency accounts, and remunerated at 0.1%
per annum.
ii. Investment/Placement accounts: used for keeping the idle government
cash and remunerated by BI at 65% of the BI rate for IDR accounts, 65%
of the Fed Fund rate for USD accounts, and 65% of the reference rate of
the home currency for other currencies.
iii. Revenue accounts: used for retaining the receipts from revenues other
than tax and non-tax. Most of these (129) mainly foreign currency
denominated accounts pertain to loans/grants provided by the donors.
The balance kept in these accounts is remunerated by BI at 65% of the
BI rate for IDR accounts, 65% of the Fed Fund rate for USD accounts,
and 65% of the reference rate of the home currency for other currencies.
These are managed by one “special” LTB for loans and grants management
located in Jakarta.
iv. Sub-SGCA/RKUN revenue accounts: used for the temporary deposit of
tax and non-tax revenues collected by the commercial banks/post offices as
the Bank Persepsi, before they are pulled into the SGCA.
v. Other government accounts kept in BI: these include contract oil
production sharing accounts, accumulated surplus of cash from unrealized
annual budget (SAL), natural resources agreement revenue accounts,
reforestation funds, and entrusted funds. These “other” MOF accounts are
categorized as TSA but different from the placement accounts in terms of
the flexibility on the use of the cash. These accounts are “less liquid”19 since
their use is limited to the financing of predefined purposes and they can
be spent by the Government only upon approval. However, the balances
of these accounts are all remunerated by BI at 65% of the BI rate for IDR
accounts or 65% of the Fed Fund rate and/or reference rate of the home
currency for USD and other currencies, like the remuneration for the cash
held in the placement accounts.
At end of 2012, BI held 169 Government accounts (the complete list can be seen
in Appendix 2).
Table 2.1 Government Account in Bank Indonesia
Government Accounts in BI 2012 Note
SGCA/RKUN 4 IDR; JPY; USD; EURO

Placement 4 IDR; JPY; USD; EURO
Others (including loan/grant imprest 161 21 IDR; 12 JPY; 112 USD; 6 EUR;
account) 9 AUD; 2 GBP.
Total 169
Local Treasury Branch (KPPNs/LTBs) Accounts in Commercial

Banks
Before TSA Implementation
Before the implementation of the TSA, accounts managed by LTBs, numbering in

the thousands, constituted the bulk of treasury bank accounts. They were spread
over the following generic types:
i. Budget operation accounts known as BO-I, BO-II, BO-III. These were

used for settling expenditure claims presented by the spending units. For
BO-I, BO-II, and transfer of General Allocation Funds (DAU) for the
regions, the DG Budget prescribed ceilings on overnight balances, based
on the expected demand the following day. In practice, however, these
ceilings were set at the start of the year based on some norms, and the local
treasury offices typically interpreted the maximum ceiling as the minimum
allowable balance. The ceilings for an LTB varied between IDR 1 million
to IDR 58 million for BO transfer; and IDR 6 million to IDR 170 million
for DAU transfer. BO-III was used to temporary deposit land and building
sharing revenue funds that is belonged to the local governments.
Chapter 2 65
ii. Revenue mobilizing20 accounts. These were opened in commercial banks,

both in private and public banks, into which taxpayers remitted tax. Before
the TSA was in place, these banks were allowed to retain the tax receipts
for three days. Using the RTGS, they transmitted collections to MOF’s
account every Tuesday and Friday, and on the first day of each month. As
the banks were allowed to retain amounts for three days, these accounts
were not swept to zero and so generated a significant daily float. The float
was permitted in commercial banks for three reasons:
- it was an informal compensation arrangement since the MOF did not
remunerate commercial banks for government transaction services,
- it provided time for reconciliation of transactions before the final
transfer, and
- not all branches of the collecting banks had access to electronic
clearance facilities enabling daily clearance.
The twice a week clearance of revenue receipts through LTBs and regional BI
offices to the central government required significant effort and additional
transaction costs in terms of monitoring and reconciliation.
After TSA Implementation
After the implementation of the TSA, each LTB is only allowed to open two
spending accounts in an accredited commercial bank designated as the BO-I and
BO-II accounts. The accreditation of commercial banks is carried out centrally by
DG Treasury in accordance with the regulations for the procurement of goods/
services. The BO-I and BO-II accounts are zero balance accounts. BO-I which is
used for payments related to the purchase of goods and services is zero balanced
daily. The BO-II account, which is used for salary payments, is zero balanced
during the period immediately after funds are transferred from the TSA till after
the payment of monthly salaries is complete. The same procedures apply to
spending accounts held in post offices. Essentially, the spending accounts held by
each LTB are transitory accounts.
The following bank accounts are managed by the LTB:
Table 2.2 Local Treasury (LTB) Accounts Held in the Selected Commercial Banks
Type of Account # of Account Balance Remu- Legal basis

neration
I. Local Treasury (LTB) accounts held in the selected Commercial Banks
1 Bank Operational I 603 Bank Accounts Zero Zero PMK 98/2007
2 Bank Operational II 570 Bank Accounts Zero Zero PMK 98/2007
3 Bank Operational III - - - -

(closed)*
4 Reverse payment (retur) 1,138 Bank Accounts Balance Zero Per 33/PB/2012
5 Land/property tax - - - -
persepsi (closed)*
6 Revenue collection 3,782 Bank’s branches Zero Zero PMK 99/2006;

accounts Accounts Per 25/2013
* The Bank Operational III and land/property tax persepsi are no longer necessary in view of the policy after the shift of the
collection of land/property tax from the central government to local governments in 2013.
Bank Accounts held by Line Ministries
Before the implementation of TSA, line ministries operated thousands of

government accounts, both revenue and expenditure accounts, many of which were
unreported and thus were not included in the government financial statements.
The actual number of bank accounts being operated in 2002 is not known. These
accounts were being used to bank own revenues generated by line ministries.
The State Treasury Law21 authorizes ministers/institutional heads to carry out

treasury duties related to the administration of the revenue and expenditure
budget in their subordinate offices. In the context of performing these duties, they
are empowered to open receiving and/or expenditure bank accounts in the name
of the government with the approval of the Minister of Finance. Government
regulations22 also permit ministers/ institutional heads to open petty cash
accounts23 managed by spending unit treasurers, in commercial banks or at the
central bank after obtaining the agreement of the Treasury.
Currently, there are 40,248 petty cash accounts held by the line ministries and
their subordinate offices. A minimum balance is kept in these accounts for
covering residual transactions pending at the end of the fiscal year and the rest is
returned to the MOF at the end of the year.
Chapter 2 67
Local Government Bank Accounts
Budget transfers to local governments constitute one-third of the total budget,

and these funds are held in local government accounts in commercial banks. The
arrangements for managing local government bank accounts and the trend in the
movement of their cash balances is shown in the box below:
Box 2.1 Local Government Bank Accounts
In accordance with the State Treasury Law (Article 9 of Law Number 1 of 2004) the Heads
of provincial/regional/city governments as regional General Treasurers carry out treasury
duties related to financial management in the region. In pursuance of these duties, the
Governor/mayor/head of districts may use commercial banks and/or central bank to deposit
the regional government money generated from regional revenue and to pay regional
expenditures. Financial regulations require that the opening of such accounts must be on
the basis of an agreement with the bank which covers: (i) type of services to be provided;
(ii) mechanism to withdraw the funds; (iii) transfer receipt to and expenditure from the
regional TSA; (iv) remuneration for balances; (v) service fee; (vi) reporting obligation; and,
(vii) sanctions and procedure to resolve disputes.
The Head of a Regional Finance Manager Work Unit (PPKD) is the proxy of the Heads of
the Region to act as a Regional General Treasurer carries out the treasury duties related to
financial management in the local governments. One of the main tasks of PPKD is to set up
an implementing guideline on the regional revenue and expenditure cash management
system. The other tasks of PPKD in the management of cash include: preparing cash
budget; releasing payment order; monitoring the cash from revenue and expenditure kept
in the commercial banks; obtaining money to finance budget; depositing the regional cash;
placing and investing the cash; paying expenditure on the request of the spending units;
managing debt and receivable of the local government. The PPKD in implementing its duty
is responsible to the Head of Region (Governor/Mayor/Regent) through the Secretary of
Region. Regional autonomy finance requires regional governments to be able to use the
funds allocated to those regions in accordance with the targets of regional development,
thereby making it capable of spurring on regional economic growth.
It is difficult to accurately determine the number of accounts held by all the local
governments and their spending units since the existing regulations do not require those
local governments to submit any report on either the number of account or balances held
in those accounts, to the Ministry of Finance.
At the end of 2012; local governments have large cash balances (IDR 99.2 trillion). However,
it should be noted that these large cash balances are held by a few local governments.
Another feature to be noted is that most of the surplus cash balances of local governments
are held in government owned regional development banks. There are 26 regional
development banks (BPDs), each owned by one province or jointly by a number of
provinces. The accumulation of large balances in some of the local government commercial
bank accounts poses a challenge to the BI in managing monetary policy. Various options
that could be considered to address this challenge include (i) providing incentives to local
governments to participate in a central government cash investment program; (ii) assisting
local governments to set up their own TSAs and getting them to place these in the BI; and
(iii) convincing the local governments to open ledger accounts with the DG Treasury and
consolidate their balances in the TSA (see example of France).
2.3.4. Sequencing and Steps Taken to Implement the TSA in Indonesia
The steps taken to implement the TSA are summarized in the box below:
Box 2.2 Summary of Steps to Implement the TSA
1. Consolidation of government cash balances into the single bank account (TSA) in
the Bank of Indonesia, in which all state receipts must be deposited in and all state
expenditures are paid out from this account (2009) and all government accounts
opened by each line ministry as well as MOF must be consolidated and approved by
Treasury (2007-2012).
2. Implementation of TSA for expenditure accounts through Zero-Balance Accounts in
Operational Banks (BO-I and II) for payments made to suppliers so as to eliminate floats
in government bank accounts held outside the TSA (2008).
3. Implementation of daily sweeping of revenue collection accounts in collecting banks/
post offices and a requirement that all state receipts be swept to the TSA in Bank
Indonesia on a daily basis (2010).
4. Non-cash consolidation and monitoring balances in imprest accounts held by
spending units through the application of the Treasury Notional Pooling arrangement
(2009).
5. Remunerations for surplus cash balances held in Bank Indonesia (2009).
6. Payment of service fee for government banking services provided to the commercial
banks that collect the state revenue from tax and non-tax payers (2009).
7. Based on accurate cash forecasting, placement of idle funds into interest-bearing
accounts at the Bank Indonesia/commercial banks or making short-term investments
in secure and profitable monetary instruments (plan in 2014). This is further elaborated
in chapter 4.
Consolidation of Government Cash Balances into the TSA
As a first step in the implementation of the State Finance Law and the State
Treasury Law, in 2007 the Minister of Finance24 established a team for monitoring
the government accounts (Tim Penertiban Rekening Pemerintah-TPRP).
The team was made responsible for collecting and maintaining the data of all
government accounts in each line ministry as well as for examining the status
of each government account. Discussions were conducted so as to identify the
ownership of the accounts, verify the objectives and legal basis of the accounts,
and determine the flows and balances in the accounts. Based on the outcome of
the discussions, decisions were taken as to whether to allow the accounts to be
used permanently or temporarily, or to close the account and transfer the balance
to the TSA.
Chapter 2 69
Based on Supreme Audit Agency (BPK) inspections from 2004 to 2006, a total
of 4,643 government accounts were found in all central line ministries/agencies
with a consolidated balance amounting to IDR 32.35 trillion, which were not in
the annual financial reports. Further, according to a census of government bank
accounts by the Supreme Audit Agency, as of December 31, 2007, a total of
32,876 government accounts were being operated by spending units. A total of
26,553 of those accounts were allowed to be used permanently or temporarily.
2,086 of those accounts, with balances of IDR 7.27 trillion or 585 million USD,
were closed by MOF.25 Discussions on the retention of the remaining accounts
could not be completed for several reasons; for instance the owner of the accounts
could not be identified, required documents or information could not be obtained
or their closure was under process at the time of the audit.
Progress in the consolidation of bank accounts held by spending units in

commercial banks into the TSA over the last four years can be seen from the table
below:
Table 2.3 Total Number of Bank Accounts Approved by MOF
2008 2009 2010 2011 2012
Total number of accounts 39,477 40,084 41,390 46,586 40,248
1. Operational Accounts
i. Approved and allowed to be 28,216 29,819 30,213 40,248

continuously used
a. revenue 1,513 1,507 2,098 2,031
b. expenditure 19,771 19,754 21,811 24,744
c. other 6,914 8,558 6,304 13,473
ii. About to be approved by MOF 2,291 1,378 4,091 -
2. Accounts closed 3,930 6,877 7,499 9,275 -
3. Accounts still being reviewed 2,839 2,700 2,694 3,007 -
By the end of 2012, considerable progress had been made in closing a significant
number of illegal or extra budgetary fund accounts. The MOF report showed
that a total of 40,248 bank accounts maintained by spending units were allowed
to be retained as operational accounts with a very minimum balance kept in
each account (mostly used by over 24,000 spending units for its daily operations
such as depositing the non-tax revenue and conducting petty cash expenditure).
Consequently, at the end of 2012, MOF decided to end the consolidation process
and dissolve the TPRP team. It is consistent with the opinion of the Supreme
Audit Agency (BPK) to consider that this issue of illegal or extra budgetary
accounts that are not registered by MOF is no longer material considering that
those unregistered accounts outside TSA (if any) have insignificant balances.
Implementing the TSA for Expenditure Accounts
The TSA was first implemented for expenditure accounts as a pilot and then
rolled out to cover all spending units. Implementation of the “expenditure TSA”
through zero-balancing of the non-salary expenditure accounts (BO-I) held
in commercial banks was carried out on a pilot basis for three treasury offices,
based on a regulation issued by DG Treasury in 2005. This was then rolled out
to 50 treasury offices and underpinned by a MOF decree of 2006. By 2008 the
“expenditure TSA” was fully implemented with the establishment of Zero Balance
bank accounts held by LTBs for making payments to the suppliers of spending
units. Implementation of Zero Balance “expenditure TSA” for the salary accounts
(BO-II) was not prioritized till 2009, as the balances in these accounts reduced to
zero within 3 to 5 days upon completion of salary disbursements. Moreover, it was
necessary to first issue regulations, requiring employees to open bank accounts for
salary deposits. The “expenditure TSA” for salary payments has also been fully
implemented with electronic payments being made immediately to employees
through the BO-II bank accounts.
In order to ensure transparency and accountability in the implementation of the

“expenditure TSA”, the MOF tendered for the selection of banks. The selection
of Operational Banks, both Operational Bank-I for non-salary payments and
Operational Bank-II for salary payments, was carried out in accordance with the
provisions specified in the Presidential Regulation on the procurement of goods
and services.
In addition to this, to enhance competition among commercial banks, the

agreement with banks was limited to three years. To date, the tender for the
selection of Operational Bank-I has been carried out three times: for 2006-2008;
2009-2011, and 2011-2013. In two earlier periods, Bank Rakyat Indonesia (BRI)
was accredited to service 167 out of 178 non-salary disbursing bank accounts. In
Chapter 2 71
the third bid held in 2010, more commercial banks participated and the three
main accredited banks were Bank Mandiri (73 accounts), BRI Bank (28 accounts),
and BNI Bank (64 accounts). This showed that the centralized tendering process
fostered a degree of competition between banks for providing payment services
to the government. Surprisingly, up to 2012, the selected commercial banks
proposed a “negative” service fee (willing to pay instead of charging MOF a bank
service fee). This is because the banks were looking to gain indirect benefits from
getting the additional accounts of government clients (such as vendors/suppliers/
contractors) who would open accounts with the banks to receive the cash from the
government. From 2013, this arrangement was changed and rather than receiving
remuneration from the commercial banks, MOF requested that banks contribute
to the development of their IT systems, which will connect with MOF’s IFMIS.
Implementing the TSA for Revenue Accounts
Government regulations mandated the implementation of a full “revenue TSA”

by January 1, 2009.26 However, the remittance of revenue collections to the TSA
in BI by collecting banks on the following workday was undertaken in stages from
3 November 2008 to January 2010; and by early 2010, the same day sweeping of
revenue collection accounts was fully implemented. Since then, 2,516 branches
of 81 commercial banks and the post offices have been used as collecting agencies
(Bank Persepsi) for revenue transactions.
The banking service fees paid by MOF to 81 commercial banks / post offices
persepsi for managing revenue payment in the last four (4) years are shown in the
table below (the current fee is IDR 5,000 per revenue transaction). Although the
banking service fee was significant (a total of around USD 20 million a year in
2013), it is more cost efficient for MOF to pay the fee rather than to permit them
to keep the revenue remittances (a total of around USD 106 billion in 2013) for
3 days to compensate for banking services:
Table 2.4 Banking Services Fee for Revenue Collections
2009 2010 2011 2012 2013
Paid fee by MOF to the IDR IDR IDR IDR IDR

commercial banks/post 31,465.5 102,072.1 199,802.8 199,934.8 203,116.25
(In Million) (USD 3.14) (USD 10.2) (USD19.9) (USD 19.9) (USD20)
Revenue collection IDR 621,000 IDR 710,300 IDR 833,640 IDR 978,360 IDR 1,063,030
(In Billion) (USD 62.1) (USD71.0) (USD83.36) (USD 97.84) (USD106.3)
Implementing the Treasury Notional Pooling for Imprest Accounts

held by Spending Units
The last step in consolidating the state bank balances was the implementation
of the Treasury Notional Pooling (“virtually” sweeping) applied to revenue/
expenditure spending unit treasurer accounts in commercial banks.
The basic principle of payment of the state expenditure in Indonesia is, as much
as possible, made directly from TSA to the beneficiaries’ account. Hence, the cash
balance held in each spending unit’s imprest account shall be relatively small and
used for holding the petty cash only. The average daily balance of all spending unit
expenditure accounts is shown below:
Figure 2.3 Average Daily Balance of all Spending Unit (Petty Cash) Accounts in 2013
12,000 30,000
Total Daily Balance Total Number of Accounts
10,000 25,000
Balance (Billion of IDR)
8,000 20,000
15,000
Number of Accounts
6,000
4,000 10,000
2,000 5,000
0 0
Implementation of the Treasury Notional Pooling accounts is underpinned by a

set of government regulations and Minister of Finance decrees.27 Before the MOF
decided to apply the Treasury Notional Pooling for the spending units’ imprest
accounts, the following three possible alternatives were evaluated:
Chapter 2 73
Table 2.5 Treasury Notional Pooling for Spending Units – Alternative Options
Options Benefit Disadvantages
Daily Sweeping of the more Full Implementation of TSA Time constraint

than 24,000 spending unit Reducing the idle money in BI did not want to do retail
accounts to TSA account in circulation banking transactions (daily
Bank Indonesia transfer and sweep cash
from and to spending unit
accounts)
Daily Sweeping of spending Time benefit Cost: the bank would charge
unit accounts to an account Obtaining remuneration IDR 5,000 for each transfer
opened at the Head Quarter from the selected from and to spending unit
of a commercial bank commercial bank accounts (hence, +24,000
account times IDR 5,000
times number of working
days in a year)
Zero balanced at branches’

account but centralized in
HQ account
Treasury Notional Pooling Efficient in time Pure zero balanced account

is not implemented
Cash is always available in
Spending Unit’s account
ready to be used at any
beginning of day
No transfer fee to be paid

(no actual transfer of funds)
The end of day balance

are mostly below IDR 2
billion per account which
automatically fall under
threshold of deposit
insurance scheme
Obtaining remuneration
from the selected
commercial bank
The bank can provide real
time on line information on
balance position of each
Spending Unit’s account at
end of day
Based on the above assessment, the TNP was chosen as the best option to manage
the imprest accounts held by spending units. From the latest data, there are 29
different commercial banks (where the Spending Units have opened accounts)
registered to join TNP program in which they are obligated to provide real time
on line information and pay remuneration on the daily balance kept in the imprest
accounts. The characteristics of the TNP are described in the box below:
Box 2.3 The Characteristics of the TNP
Treasury Notional Pooling (TNP) for the Revenue/Expenditure Treasurer accounts is a

balance consolidation management program involving every revenue/expenditure
treasurer account in the commercial banks without doing any overbooking or cash transfer.
The balances from all revenue & expenditure treasurer accounts are consolidated at the
end of the day after the closing process.
Some of the Basic Principles of TNP Application in Indonesia are:

a. The spending units of the line Ministries/agencies (K/L) ask the LTB for permission for a
new/additional/closing account;
b. The LTB adds the change to the accounts in the LTB account database and conveys this
to the Directorate of State Cash Management;
c. The Directorate of State Cash Management registers the spending unit’s treasurer
account to the head office of the commercial bank that manages the TNP, to be added
to the TNP system;
d. The balances of all treasurer accounts in commercial banks are consolidated at the end
of each day by using the TNP system;
e. The balances of treasurer accounts receive remuneration from the head office of the
commercial banks and these funds are deposited to the RKUN at the start of each
month;
f. The implementation of TNP is done at each commercial bank’s head office where the
treasurer opened the account;
g. The direct deposit interest income on treasurer accounts which are in the TNP are
directly deposited by the head office of the TNP-executing bank to State General Cash
Account 423253 (revenue from the implementation of Treasury Notional Pooling) to the
BUN Budget Section (999);
h. The spending unit’s treasurer accounts that are not included in TNP still receive direct
deposit interest income, which is deposited to the State General Cash Account to the
Ministry/Institution Budget Section in question; and
i. The amount of TNP remuneration is determined by an agreement between the
commercial bank and the Directorate General of the Treasury as the Proxy of the BUN.
The balances of expenditure and revenue treasurer accounts are consolidated at the
end of every day. The concept of “notional” pooling means that the cash is not actually
pooled; rather, the balances of all treasurer accounts held at commercial banks are virtually
consolidated and the information on the balances is used to determine the interest.
The interest of these balances will be given daily on the total of all consolidated balances.
The rate of interest is based on the agreement between the government and the related
bank, which is stated in the contract.
Chapter 2 75
The Treasury Notional Pooling is expected to have the following benefits:
• A remuneration on the daily cash balances held in imprest accounts;

• Improved administration of the Expenditure and Revenue Treasurer
Accounts resulting from daily information on the balances held in imprest
accounts;
• Ease of calculation and monitoring of the non-tax revenue (PNBP)
received from interest on Expenditure Treasurer Account balances;
• Avoidance of the daily transfer in and transfer out of Expenditure Treasurer
Account balances through consolidation at the bank Head Office for
reporting purposes; and
• No charge by banks for the application of TNP on the Expenditure
Treasurer Accounts.
The revenue generated by the implementation of TNP is received by the

government as non-tax revenue (PNBP). From 2009 to 2013, the government
has received total revenue of around IDR 669 billion by implementing TNP. The
following table shows the government revenue from implementing TNP per year
since 2009.
Table 2.6 Government Revenue from Implementing TNP 2009 – 2013
Year 2009 2010 2011 2012 2013
Revenue (Million IDR) 51,470 119,677 193,856 176,929 126,903
Looking forward DG Treasury is considering options to reduce the aggregate

balance held on these imprest accounts. One option is to issue debit cards to the
finance officers of the spending units (within limits prescribed by the Treasury)
to make urgent, low-value payments for the purchase of goods and services. This
option would require a full analysis of the costs and benefits before it is introduced.
Bank Accounts Managed by the Ministry of Finance and/or Spending

Units and Excluded from TSA (other non-TSA accounts)
While the MOF has tried to consolidate all the state funds into the TSA or
TNP, there are still many accounts that are known and continue to operate with
permission from MOF, but on which TNP and TSA cannot be implemented.
Those accounts are classified under the category of “other non-TSA” accounts.
The opening of these “other non-TSA” accounts must be approved by the Minister
of Finance as regulated by financial decrees.28 However, the spending unit of the
ministry/agency has full responsibility and authority over the management of
these accounts, including on the use of the interest generated from the balances.
Therefore, if those accounts are to be included in the TNP and TSA structure,
then there must be prior approval from the spending unit of the ministry/agency.
The features and characteristics of the accounts falling under this category are:
• Grant account: This is an account in a work unit of a ministry/agency that

is used to hold domestic/foreign grants. Usually, the provision of this grant
is embodied in an agreement between a grant provider and grantee.
• Cooperation/partnership/joint account: This is an account in a ministry/
agency that is used to deposit funds pertaining to bilateral cooperation
agreements between the government and other parties. A spending unit that
receives the funds still has certain obligations towards the bilateral party.
• Transit Account: This account is used to temporarily hold other revenues
in a ministry/agency.
• Specific Service Support Fund Account: This account is used to hold
specific purpose funds in certain spending units in accordance with its
main duties and functions.
• Collateral Account: This account is used to hold collateral funds against a
matter that has not been decided or as a requirement in a work relationship.
• Escrow Account: This account is used to hold temporary trust funds
pledged for payment to other parties.
• Public Services Agency (PSA) accounts: Accounts held by PSAs can be
divided into 3 types, namely:
1. PSA Operational Account: an account used to hold revenues as well as

to pay all the expenses of PSA spending units.
2. PSA Cash Management Account: an account used to hold idle cash in
commercial banks related to PSA cash management. This is generally a
demand deposit account in which the interest is deposited into a PSA
operational account.
3. PSA Management Fund Account: an account used to hold funds that
cannot be held in a PSA operational account or cash management
account, including revolving funds and funds that have not yet become
the right of the PSA.
Chapter 2 77
The 4,456 non-TSA accounts had a total balance at the end of 2012 of IDR
20 trillion, of which more than IDR 16.4 trillion was held in the PSA (BLU)
account. This warrants consideration of a further expansion of the TSA coverage
to include PSA accounts without affecting the autonomy of the PSA operations.
The numbers of each type of “other non-TSA” accounts are:
Table 2.7 Other Non TSA Accounts
No Type of Account Number
1 Grant Account 28
2 Cooperation Account 90
3 Transit Account 3,036
4 Specific Services Support Fund Account 161
5 Collateral Account 99
6 Escrow Account 123
7 PSA accounts 290
8 Other Accounts 703
TOTAL 4,456
2.3.5. Remuneration of Cash Balances in Bank Indonesia
Before the agreed MOU between the MOF and BI on the TSA was in place, the
government did not receive any remuneration from the cash kept in BI. Then, the
MoF and BI agreed that remuneration on government deposits at BI would be
a “win-win” situation for both parties, even if the rate were less than the market
rate. From the MoF’s viewpoint, BI will provide full security at zero risk and any
remuneration paid by BI would add to state revenues. From BI’s perspective, the
retention of government money in BI would reduce the cost of monetary policy
operations to sterilize the liquidity resulting from government cash balances being
held in commercial banks. If the government placed its surplus cash in fully
remunerated deposits in commercial banks, BI would have to sterilize it. Another
factor to be considered is that, although the payment of interest or remuneration
by the central bank will provide additional income to the government, it will also
reduce the profits of the central bank, eventually leading to a reduction in the
dividend that the central bank can pay the government.
In 2007, the Governor of BI and the Minister of Finance reached an “in-principle”

agreement that the government deposits should be remunerated at a rate less than
the market rate provided this was consistent with prevailing law. However, the
discussion on the remuneration rates were prolonged until finally in August 2008,
the BI Governor and Minister of Finance agreed to the specific remuneration rates
for government deposits in placement accounts opened at BI, which would receive
funds from the State General Cash Account (SGCA/RKUN) once the agreed
minimum balances were exceeded. The MOU between the Finance Minister and
the Governor of Bank Indonesia formalizing this agreement on remuneration was
signed at the end of January 2009.29 The full content of the MOU can be seen in
Appendix 3.
The rates of remuneration for different types of government accounts held in BI

are shown below:
Table 2.8 Rates of TSA Remuneration
Type of account Currency Balance Remuneration
a. SGCA (RKUN) used as a Rupiah Minimum IDR 2 Trillion 0.1% p.a

current account for daily
transactions USD Equivalent to 0.1% p.a
US$1 million
YEN 0.1% p.a
EURO 0.1% p.a
b. Placement/Investment Rupiah No limit 65% x BI rate

Account used as a deposit
account to place the idle USD No limit 65% x Fed Funds rate
cash to be invested
YEN No limit 65% x BOJ cash rate
EURO No limit 65% x ECB refinance

rate
The figure below show the trend of remuneration paid by the BI since January
2011.
Chapter 2 79
Figure 2.4 Remuneration for TSA Held in Bank Indonesia
Billion IDR
600
500
400
300
200
100
-
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
May 13
Remuneration (in Billion IDR)
The table below shows the total annual remuneration paid by BI from 2011 to
2013.
Table 2.9 Total Remuneration Paid by BI in 2011 - 2013
In Rupiah 2011 2012 2013
SGCA (RKUN) 2,515,529,137 3,014,747,014 3,276,540,811
Placement 1,972,374,511,655 2,061,153,198,126 1,616,387,708,707
Other accounts 2,691,796,457,699 2,092,703,337,761 990,830,669,950
Total 4,666,712,430,668 4,156,871,254,901 2,610,494,919,468

2.3.6. Quantifying the Benefits from TSA Implementation
In order to make an assessment of the quantifiable benefits of implementing the

TSA two approaches have been used. The first is a quantification of the direct
financial flows to DG Treasury as a result of the implementation of the TSA,
and the move to remunerate government cash balances held at BI. This is an
objective measure as the flows are relatively easily identified. However it has some
weaknesses as it mixes the TSA reform and the potentially separate decision to
remunerate the balances held at BI. It also fails to capture either any costs to BI of
the payment of interest (which ultimately are a cost to the Government through
a lower profit / dividend) or any gains to the Government through a reduced
borrowing program.
The second approach makes a broader fiscal assessment of the gains from the TSA
reform by attempting to quantify the benefit to the Government as “idle balances”
were moved from the commercial banking sector into the TSA. This assessment is
less precise as many of the components need to be estimated, but it is conceptually
a more robust approach to the quantification of benefits of the reform.
i. First Approach: Direct Financial Gains from TSA Reform
Available data show that the implementation of TSA and the decision to
remunerate BI balances at 65% of the BI rate, has generated a relatively
significant amount of income for the government, with around IDR 2-4
trillion (US$ 200-400 million) being collected every year, most of which is
generated from the balance of cash kept in BI. The direct financial benefit
of TSA in Indonesia is summarized in the table below:
Chapter 2 81
Table 2.10 Direct Benefit to the Treasury of TSA and BI Remuneration
Type of Amount collected/ Amount collected/ Notes

transactions spent in 2012 spent in 2013
(IDR) (IDR)
(a) Remuneration 4,156,871,254,901 2,610,494,919,468 The benefit for the

on cash balance in Government of having
the Bank Indonesia the remuneration paid
kept in SGCA/ RKUN; by Bank Indonesia on all
Placement; and other the state cash balance
accounts kept in BI.
(b) Revenue Daily (199,934,810,000) (203,116,245,000) The cost for the

Sweep: Banking service Government of
fee paid by MOF to the having the Paid fee
81 Bank/post Persepsi for processing +42
for collecting tax million tax payment
revenue and daily remit transactions at IDR 5,000
into the TSA cost per transaction
(c) Zero balance 84,071,000,000 0 The benefit for the

account in Bank Government of having
Operational I/ the commercial banks
II to manage the willing to pay ranged
government from IDR 1,000 to
expenditure paid to its IDR 50,000 from each
vendor/contractors/ payment order (SP2D)
supplier processed by those
banks.
(d) Treasury Notional 176,929,000,000 126,903,791,564 The benefit for the

(virtual) Pooling to Government of having
consolidate all balance the consolidated
maintained by +24,000 spending unit’s account
spending units Remunerated at current
deposit rate on the
aggregate daily balance
account of around IDR
5.3 trillion.
Total Direct Benefit 4,217,936,444,901 2,534,282,466,032

received from the
implementation of
TSA
ii. Second Approach: Quantifiable Fiscal Benefit of TSA Reform
Table 2.11 below presents the findings of an assessment of the broader

fiscal benefits of implementing the TSA. The conclusion is that a saving
of IDR 3 trillion (USD 300 million) would have been made had the TSA
reform been in place in 2007 – the last year of the pre-TSA environment.
This is approximately 4 percent of the central government financing costs
that year.
The assessment is based on three paths through which Government idle

balances in the commercial banks in 2007 were eliminated. These are
through (i) having revenue receipts which were immediately swept to the
TSA at the end of the day rather than held by the commercial bank, (ii)
having the balances of local treasury offices (RTBs/LTBs) held in zero
balance accounts, and (iii) closing many of the bank accounts of spending
units and ensuring that any remaining accounts are covered by the notional
pooling system. It is assumed that any reduction in idle balances provides
a saving to the government either through a reduction in borrowing from
the market, or a reduction in BI sterilization activity as higher balances are
held by the Government in BI. In both cases the benefit accrues at the BI
interest rate in 2007, which was 8 percent, while estimates have been made
for offsetting fee payments, or lost interest using a range of assumptions.
For this assessment no distinction is made for “idle balances” previously
held at state banks. It should also be mentioned that while the approach
assumes that a gain to BI is a gain to the Government generally, BI has
never paid a dividend to the Government and the benefit is therefore
reflected in an increased ownership interest for the Government as the BI
balance sheet expands.
Chapter 2 83
Table 2.11 Fiscal Benefit of Implementing TSA
Benefit from TSA reform Quantification of the Gain Notes

IDR billion
(i) Revenue Daily Sweep: IDR 57.5 billion (i) Assumed that all (IDR
416,925 billion) revenue
(a) Reduction in idle IDR 416,925 billion/360 collections in 2007 were
balances in commercial days = IDR 1,158 billion of held by commercial banks
banks through daily sweep average daily revenue x 2 for an average of two days.
to TSA. days float x 8% BI rate = IDR The BI interest rate in 2007
185.3 billion was 8% as the cost should
be paid if BI had to sterilize
(b) Estimate of banking 22,551,307 transactions x IDR the idle balance in market.
service fee payable to 5,000 fee per transaction = (ii) Assumed that the
commercial banks for the (IDR 127.8 billion) banking service fee for
service. 22,551,307 revenue
collection transactions in
2007 would have been the
same as in 2013 at IDR 5,000
per transaction.
(ii) RTB/LTB zero balanced IDR 1,044.9 billion DG Treasury estimates that
accounts: the daily average aggregate
balance of regional treasury
(a) Using Zero Balance IDR 13.66 trillion daily offices in 2007 was IDR
accounts to consolidate the balance x 8% = IDR 1,092.8 13.66 trillion and that would
balances of regional treasury billion had been sterilized by BI at
offices. interest of 8%.
This is the reported interest
(b) Lost interest from (IDR 47.9 billion) revenue in 2007.
consolidation of regional
treasury balances.
(iii) Notional Pooling IDR 1,920 billion DG Treasury report that

there were spending unit
(a) Closure of spending IDR 22.5 trillion x 8% = IDR balances of IDR 36.76 trillion
unit bank accounts in 1,800 billion in commercial banks in 2007.
commercial banks and Of these balances IDR 22.5
transfer of balances to BI. trillion were subsequently
returned to BI once the
(b) Treasury Notional (virtual) IDR 6 trillion x 2% = IDR 120 accounts were closed
Pooling to consolidate all billion Assumed that remaining
balance maintained by balances of daily average
+24,000 spending units IDR 6 trillion were covered
by the TNP with an interest
rate of 2% - which is the
average rate on current
accounts in 2007.
Total IDR 3,022.4 billion

Other than the quantifiable benefits, some “non-quantifiable and indirect”

benefits have emanated from implementation of the TSA. These include:
i. Better Coordination between Cash and Debt Management

Improved coordination between DG Treasury and DG Debt Management
leads to greater efficiency in debt issuance, redemption programs, and
use of cash. Having a consolidated balance in the TSA helps DG Debt
Management and DG Treasury to decide on the borrowing strategy, cash
plan and placement. This can also support efficient cash management
by altering the profile of debt redemptions (i.e. through buy-backs or
swapping securities of different maturity structures). While DG Debt
Management used to set a schedule for bonds issuance in a particular year,
the issuance of bonds was usually seen as a “front loading” policy, since DG
Debt Management based the schedule around securing its own financing
needs at the beginning of year without consultation with DG Treasury on
their cash needs. This imposed unnecessary carrying costs resulting from
the increase in the idle cash under management at the beginning of the
fiscal year.
ii. Reduction in Corruption

The elimination of thousands of government bank accounts through the
consolidation of balances in the TSA has eliminated the potential for
corruption resulting from the authority to manage large cash balances in
commercial bank accounts. Since the TSA has been in place, the LTBs
and spending units have had much less discretion than before, because
of the direct disbursements and minimal balance kept in their account.
Furthermore, it is not possible for a public agency or unit to open an
unauthorized bank account. Also, all public employees including teachers
receive their salaries through direct transfer into their bank accounts.
2.4. CONCLUSIONS
The hybrid TSA structure chosen by Indonesia is based on practical considerations

and generic international practices. The “top” account of the TSA is established
in the central bank—Bank Indonesia. The geographic spread of the country and
the limited number of BI branches required the conversion of previous payment
Chapter 2 85
accounts held by local treasury branches into zero balance accounts in commercial
bank branches for making payments across the country. More than 2,500 zero
balance accounts were also set up in commercial banks to facilitate revenue deposits
and to implement electronic transfer of revenue remittances into the TSA.
The implementation of the “notional pooling” account enables the government to

get a return on the idle cash balances in imprest accounts. Government spending
units often require quick access to cash for making small value but urgent payments.
Most developing countries provide this facility for spending units by allowing
them to keep limited cash in imprest accounts and in some cases zero balancing
the petty cash accounts on a daily basis. Indonesia has permitted spending units
to hold petty cash accounts in commercial accounts and at the same time ensured
that the residual balances in these accounts are virtually consolidated through a
daily “notional pooling”. Agreements with commercial banks provide for interest
payments on the amounts held in these accounts as identified by the “notional
pooling”.
In Indonesia, following good international practice, banking services provided by

the central bank and commercial banks are formalized through bilateral agreements.
The MOU with the BI also has provisions for remunerating cash balances held
in an investment account with the BI. Commercial banks are chosen through
a transparent process and the agreements explicitly provide for fees for services
rendered. In Indonesia, up to the end of 2012 the arrangement on the expenditure
side was that the commercial banks are paying the government a commission
for each transaction. This is because the banks evaluated that they have “knock-
on” benefits from the fact that government suppliers and government employees
open accounts with them to receive payments. From 2013, this arrangement was
changed and rather than receiving remuneration payment from the commercial
banks, MOF requested that the banks contribute to the development of the IT
system, which will connect with MOF’s IFMIS.
The sequencing of the implementation of the TSA has been very much in line with
international practices. The preparatory phase involved institutional reforms and
setting up the TSA architecture. Government bank accounts were surveyed and
most of them have been gradually brought into the TSA regime. The consolidation
was done in phases, with the expenditure accounts being brought in first followed
by the revenue accounts and finally the imprest accounts.
An assessment of the direct financial benefit to the Treasury of the consolidation

of government cash balances and the introduction of remuneration at 65%
of the BI rate showed gains of approximately IDR 2-4 trillion (US$200-400
million) per annum, mostly generated from the balance of cash kept in BI. This
is a partial assessment without taking into account a possible reduction of the
dividend payment from BI to MOF or potential gains where the consolidated
cash allows the government to reduce its borrowing program. Another approach
is through a fuller assessment of the economic benefits of eliminating the idle
balances in commercial bank accounts through the establishment of the TSA
found gains in 2007 of IDR 3 trillion (USD 300 million). The benefit arises as
the consolidation of cash allows either a reduction in government borrowing or a
BI sterilization activity. For this calculation a consolidated view is taken of the BI
and Treasury position. These financial benefits are in addition to the qualitative
benefits associated with the introduction of the TSA (i.e., reduced opportunities
for corruption, better security for government cash, better coordination between
cash and debt management, etc.).
Chapter 2 87
Notes
¹ Pattanayak, Sailendra, and Israel. Fainboim, 2010, Treasury Single Account: Concept, Design and
Implementation Issues, IMF Working Paper WP/10/143.
² Williams, Mike, 2009, Government Cash Management: International Practice, Oxford Policy
Management Working Paper 2009-01.
³ “Centralized Online Real-time Environment”: This basically means that the bank’s branches
process their transactions through a centrally maintained database. The deposits made are reflected
immediately on the central database.
4 As defined in the GFSM 2001
5 Williams, Mike, 2009, Government Cash Management: International Practice, Oxford Policy
Management Working Paper 2009-01.
6 “Centralized Online Real-time Environment”: This basically means that the bank’s branches
process their transactions through a centrally maintained database. The deposits made are reflected
immediately on the central database.
7 India practices a TSA arrangement. At the central government the TSA was implemented in
1977 and thereafter it was implemented in the state (federal) governments. The central and state
governments hold their TSAs in the Reserve Bank of India. No government cash balances are held
in commercial banks. Revenue accounts held in commercial banks are cleared daily to the respective
TSAs. In the case of expenditures, the accredited banks make payments out of their own cash resources
up to the extent of available ceilings set by the treasuries, and are compensated at the end of each day
from the respective TSAs. The government pays an agreed transaction fee for this arrangement.
8 Source: Pattanayak and Fainboim (2010)
9 Refer to row 4 of the table in appendix 1 of the IMF Working Paper on TSA: Concept, Design,
and Implementation Issues.
¹0 Government Cash Management Part One National Audit Office paragraph 1.41 Danish
Government.
¹¹ Bank/Post Persepsi: a commercial bank/post appointed by the Minister of Finance to receive
Non- Import State Receipt deposits, which consist of tax receipts, domestic customs and non-tax state
revenues.
¹² Article 7
¹³ Article 12 paragraph 2: “All state revenues and spending shall be performed through the State
General Cash Account.”;
¹4 Government Regulation No 39/2007 on State/Regional Cash Management; Article 14 (2): “All
state revenues shall be deposited to the State General Cash Account and all state spending shall be
disbursed from the State General Cash Account.”
¹5 Regulation of the Minister of Finance No.98/PMK.05/2007 regarding the Implementation of
Zero Balance Spending Accounts in Commercial Banks’ Counterparties in the Framework of TSA
Implementation
¹6 PMK No. 116/2009 regarding Trial Implementation of Zero Balance LTB Revenue Accounts in
the Implementation of TSA.
¹7 Regulation of the Minister of Finance No. 61/PMK.05/2009 regarding the Application of Treasury
Notional Pooling in the Spending Treasurer Account
¹8 Regulation of the Minister of Finance No. 126/PMK.05/2009 regarding the Application of
Treasury Notional Pooling in the Revenue Treasurer Account
¹9 There are four types of cash liquidity in the TSA accounts. They are categorized on the basis of
flexibility in the use of the cash from the directorate cash management (DCM) perspective. They
are: (i) Very Liquid accounts, consisting of SGCA and placement accounts; (ii) Liquid accounts,
consisting of the cash in transit awaiting to be transferred back to SGCA/placement accounts, e.g.
cash in revenue account in persepsi banks/post office before being pulled into SGCA; (iii) Less Liquid
accounts, consisting of SAL, Oil and Gas, imprest accounts, etc; and (iv) Illiquid accounts or cash with
limited use, consisting of PSA/BLU accounts, escrow accounts for USDA grant, civil service pension
funds, petty cash of spending units, forest rehabilitation accounts, etc.
²0 Known as RK Gabungan
²¹ Article 10 of Law Number 1 of 2004
²² Article 20 of Government Regulation No. 39 of 2007
²³ UP (uang persediaan)
²4 Regulation of the Minister of Finance (PMK) No. 58/PMK.05/2007 Regarding the Issuance of
Government Accounts at State Ministries/agencies is a PMK which regulates the ordering of accounts
in the environment of State Ministries/agencies/Offices/Work Units. For implementation guidelines,
Regulation of the Director General of the Treasury Number 35/PB/2007 Regarding Following Up on
the Ordering of Government Bank Accounts at State Ministries/agencies/Offices/Work Units has been
published.
²5 Data from central government financial statements (LKPP) 2007
²6 Law No. 1 of 2004 regarding State Treasury and by Government Regulation No. 39 of 2007
regarding State/Regional Cash Management, and by Joint Decree of the Minister of Finance and
Governor of the Bank of Indonesia dated 31 January 2009 regarding Coordination of State Cash
Management.
²7 Article 25 of Government Regulation No. 39 of 2007 Regarding the Management of State/Regional
Funds, Regulation of the Minister of Finance No. 61/PMK.05/2009 Regarding the Application of
Treasury Notional Pooling for Treasury Expenditure Accounts, and Regulation of the Minister of
Finance No. 126/PMK.05/2009 Regarding the Application of Treasury Notional Pooling for Treasury
Receivables Accounts.
²8 PMK No. 57/PMK.05/2007 as amended by PMK No. 05/PMK.05.2010 and Regulation of the
Director General of Treasury No. 35/PB/2007
²9 Memorandum of Understanding between MOF and BI: Joint Decree of the Minister of Finance
and the Governor of the Bank of Indonesia Number 17/KMK.05/2009 and Number 11/3/KEP.
GBI/2009 dated 30 January 2009 regarding Coordination of State Cash Management.
Chapter 3
Cash Planning and
Budget Execution
Chapter 3 91
3.1. INTRODUCTION
As detailed in Chapter 1, the Public Financial Management (PFM) regulatory

framework of a country sets out the environment for cash management, one
of the main purposes of which is to finance the activities undertaken by the
government during a fiscal year. It establishes the roles, responsibilities, systems
and procedures for: (i) linking annual cash flow plans to the revenue mobilization
and procurement plans; (ii) committing budget allocations when entering into
contracts, or at the time of issuing purchase orders; (iii) recording payables and
receivables; (iv) making payments or collecting receivables; (v) reconciling cash
flows recorded in the Treasury, with bank statements and the original transactions
recorded in the spending units; and (vi) accounting and reporting outcomes. If the
budget is not well prepared, external conditions are unstable, control over in-year
commitments is inadequate, the billing/ invoicing procedures are not transparent,
or if the collection/ payment systems are complex and user-unfriendly, significant
adjustments may have to be made to cash flow plans during the execution of the
budget.
This chapter analyses the interaction between cash planning and each of the in-
year stages in the budget execution cycle depicted in the figure below:
Figure 3.1 Budget Execution Cycle
Budget
Payment Procurement
Plan
Cash flow
plans
Delivery Contracts
Purchase
Order
3.2. CASH PLANNING AND BUDGET EXECUTION – THE GENERIC ISSUES
3.2.1. Cash Planning and the Annual Budget
Cash Planning and the Credibility of the Annual Budget
The credibility of the annual budget and the timing of its approval are fundamental
to in-year cash management. Budget allocations need to be sufficient to fund the
policy outcomes that budget users are expected to deliver during the year. Only
when the Ministry of Finance (MOF) and the responsible spending ministry agree
that the budget allocation is appropriate for its purpose can a meaningful cash
flow plan be formulated and implemented. The PFM legal framework usually
provides for a budget calendar allowing for adequate time to discuss and approve
annual budgets well before the commencement of the fiscal year. It also provides
for interim funding measures in case of unforeseen delays in the timely approval
of the annual budget.
The reasons for in-year divergence between budget allocations and cash flow plans
should be analyzed and understood before action can be initiated to mitigate such
divergence. The cash flow dynamics related to the implementation of government
activities have to be understood not only by the cash managers in the Ministry of
Finance but also by the financial managers in the executing agencies. The effect
of in-year changes to cash flow dynamics is often not trivial, particularly when
they are linked to commodity prices or exchange rate variations. Methods used
for forecasting annual budget requirements can be applied equally to analyze and
understand in-year variations between expected cash flows and actual outcomes.
The analysis should bring out any differences between cash plans and outturns
for each ministry, policy area, or program resulting from in-year changes in: (i)
macroeconomic determinants, such as GDP growth, inflation, or unemployment;
(ii) operational parameters specific to the particular ministry, program, or policy
area; and (iii) accounting changes, such as changes in the accounting treatment of
particular transactions within ministries or reclassification of a particular budget
line from one ministry to another.
The credibility of budget execution could be undermined by inappropriate

budget classifications. Budget classifications should be consistent across spending
units and for past data. GFSM20011 provides a standard and well documented
framework for classifying stocks and flows related to budgetary transactions.
Most countries are moving towards adopting budget classifications consistent
Chapter 3 93
with the classifications prescribed in GFSM2001 as part of a budget classification

that also identifies the program and administrative classification. It should be
ensured that (i) budget appropriations are classified under the appropriate revenue
and expenditure categories instead of undefined groups such as “not classified
elsewhere”; and (ii) residual data pertaining to earlier classifications are migrated
to the new classifications so as to maintain the history of past trends.
Contingency budget provisions used during the year should be subsequently

vired (reallocated) to the appropriate budget classifications to ensure meaningful
analysis of expenditure trends. The frequent use of contingency provisions for
meeting expenditures during the year could also undermine the quality of cash
flow plans. Contingency provisions are usually meant for meeting unforeseen
expenditures such as those related to natural disasters. However, some countries
establish contingency provisions in budgets for dealing with uncertainties in
inflows resulting from donor pledges or excessive shortfalls in revenues. The PEFA
Field Guide suggests that accepted “good practice” for the use of contingency
provisions requires that these amounts be vired to those votes (budgetary heads)
against which the unforeseen expenditure is recorded (in other words, that
expenditure is not charged directly to the contingency vote).
The quality of forecasts used in the preparation of the budget and to guide budget
implementation should be assured through quality assurance processes that may
involve independent reviews. In most countries, fiscal forecasts are based on a
single, central scenario with limited exploration of the implications of alternative
assumptions. There is a natural tendency in such cases to underestimate the cash
outflows of new spending programs and to overestimate the inflows from tax
increases. Independent fiscal councils are being established in a growing number
of countries to help guard against over-optimistic economic and budgetary
estimates. An important task of the auditing function of fiscal councils is to
review government forecasts. Some fiscal councils are mandated to provide
independent forecasts for use by government. Given this mandate, independent
fiscal councils can play a useful role in removing biases and providing quality
assurance of government fiscal forecasts. However, a recent IMF publication2
cautions that “their (fiscal councils) benefits should not be oversold, especially
for developing countries in which the fiscal policy reform agenda is long and
institutional capacity is limited. Moreover, along with many other good fiscal
policy practices and innovations, the decision to create a fiscal council, and its
role should a council be set up, has to be appropriate to country circumstances.”
Cash Planning and in-year Changes in Budget Allocations
Cash planning should take into account the greater flexibility provided to line
managers in a Performance Based Budgeting (PBB) environment, to plan the
deployment of their resources. In a number of countries (such as Botswana,
Tanzania, and Indonesia) the budget allocations and cash ceilings are set at a
very detailed level of budget classification. In a PBB environment, budgets are
appropriated for programs and activities instead of for line items of expenditures.
Managers have the flexibility to decide on the optimal use of resources to
facilitate the achievement of performance targets. With this flexibility comes
the added responsibility of managing in-year budget allocations in an efficient
and transparent manner. The responsibility for adjusting unit cash plans to meet
changes remains with the line managers, while the Treasury continues to be
responsible for ensuring the overall availability of cash to meet the projections
made by the line managers. In cases where cash ceilings are required to deal with
in-year cash constraints, it is preferable to set the ceilings at an aggregate level, e.g.,
for the spending unit as a whole rather than by detailed line items of the budget
- while recognizing that ensuring that future budgets can be financed is the only
sustainable response.
Cash Planning and Budget Carry-Overs
Budget carry-overs are exceptions to the general concept of annuality of budget

appropriations and are usually closely regulated. Disproportionate end -year
expenditure is a common feature of budget execution in most developing
countries. These are largely related to delays in implementing capital projects
due to complexities in procurement processes or delays in preparatory activities
such as land acquisition. Delays could also result from impediments to budget
disbursements such as delays in approving the budget or delays in transferring
budget disbursement authority to the spending units. The resulting rush of
expenditure towards the last quarter of the year to use the annual budget often
leads to wasteful use of budget funds. Allowing end-year carry-overs is one way
of preventing poor quality expenditures resulting from the rush to use the budget
before the end of the fiscal year, as this provides limited flexibility to use the
budget in the following year.
Chapter 3 95
The planning of cash flows to defray expenditures related to budget carry-overs

is one of the challenges in cash management. The possibility of using carry-over
balances, in addition to the current year’s appropriation, introduces uncertainty
in the expenditure outturn, which needs to be considered when monitoring
compliance with the expenditure ceiling. If a large stock of accumulated carry-
overs is translated into expenditure in any one year, this poses a challenge for cash
management as the amounts to be carried forward are usually not known till after
the final quarter of the prior year is complete.3 A comprehensive picture of the
actual cash flows related to budget carry-overs is therefore not available until well
after the start of the fiscal year. It is therefore essential that procedures are put in
place to ensure that the cash flow implications are quickly incorporated into the
cash flow plans.
Summary
The quality of in-year cash plans is dependent on the credibility of the annual
budget appropriations. While preparing cash flow plans the following aspects of
budget appropriations should be considered:
• The timing of budget approvals and any impediments to the conveyance

of budget authority.
• Reasons for in-year divergence between budget allocations and cash flow
plans.
• Appropriateness and consistency of the budget classification of revenues
and expenditures.
• Shifting of the contingency budget provisions used during the year to the
appropriate budget classifications.
• Quality assurance through independent reviews of forecasts used in the
preparation of the budget.
• Comprehensive inclusion of budget carry-overs in cash flow plans.
• In cases where cash ceilings are required to deal with in-year cash
constraints, it is preferable to set the ceilings at an aggregate level, e.g.,
for the spending unit as a whole rather than by detailed line items of the
budget.
3.2.2. Cash Flow Plans
Introduction
Cash management defines those activities undertaken by the government cash

manager to ensure that financing is in place to meet the government’s spending
obligations and that identified cash surpluses are put to the most efficient use
consistent with the defined risk parameters.4 Cash planning is the process by
which a government forecasts its cash availability and cash needs for a future time
span—often the fiscal year, and in more detail over shorter periods. Its objective
is to understand how the procurement and activity plans of the government are
linked to the expected trends in aggregated liquid financial resources over the
chosen time horizon, or, put simply, the overall expected balance in its bank
account.
Annual cash flow plans are disaggregated by months, weeks and even days to
facilitate efficient cash planning. Liabilities arise when goods or services are
delivered in accordance with contractual terms. These liabilities are reflected and
prioritized for payment in cash flow plans. In some countries, funds (commitment
ceilings, authority to spend or transfers of cash) are released by the ministry
of finance in stages within the budget year (monthly or quarterly). In others,
the passing of the annual budget law grants the full authority to spend at the
beginning of the year, but the ministry of finance (or other central agency) may in
practice impose delays on ministries in incurring new commitments (and making
related payments), when cash flow problems arise.
Annual cash flow plans formulated at the beginning of the fiscal year based on the
approved budgets are at best indicative. These are invariably modified and refined
during the course of execution of the annual budget. The first part of this chapter
describes the dependencies between cash flow plans and the different stages in the
annual budget execution cycle. Following the thread of discussion in Chapter 1,
this chapter addresses cash planning both from the top-down perspective within
the MOF and from the bottom-up perspective of the budget execution agencies. As
changes and modifications to the annual cash flow plans are inevitable, it becomes
important to ensure that both the MOF and the budget executing agencies are
“on the same page” while making and executing in-year updates to cash plans. The
changes could result from inefficiencies emerging during the budget execution
cycle, or due to in-year volatility in the basic macro assumptions. It should be
Chapter 3 97
noted that it is not good practice to frequently update for macro developments.
The in-year practice should be to monitor developments against the projected
flows and periodically update cash plans if required, but not more frequently than
quarterly as otherwise this may result in losing sight of the trends.
Planning for Revenue Flows
The International Handbook of Public Financial Management5 reiterates that

the short-term forecasting of revenue collections within a financial year is a basic
input into treasury cash management.
The amount of revenue that can be collected is mainly determined by policy

settings, economic fluctuations and tax administration capacity. Major fluctuations
in in-year revenues could arise in economies that are dependent on revenues
from minerals or other commodities vulnerable to world prices. It is difficult to
modify tax legislation or to accelerate tax collection to mitigate an unexpected
fall in in-year revenues. On the other hand, it is equally challenging to formulate
development projects in time to absorb unexpected in-year revenue surpluses.
Explicit rules and regulations for revenue forecasting underpinned by well-defined

responsibilities are essential for ensuring robust in-year cash flow plans. An IMF
Working Paper6 on revenue forecasting in 34 low-income countries indicates that
“most of the 34 countries sampled score low on various aspects characterizing the
quality of the revenue forecasting process. Forecasting responsibilities are often
not well defined and there are few formal rules and regulations governing the
forecast. Revenue forecasts, for the most part, are produced late in the budget
process, and estimation techniques are rudimentary. The production of forecasts
usually involves multiple executive agencies outside the ministry of finance, setting
high coordination requirements. As a result, the existence of multiple competing
forecasts is quite common. Public accountability, in terms of access to forecast data
or through participation of nongovernmental agencies in the forecasting process,
is limited.” These challenges encountered while developing medium- term and
annual revenue forecasts have adverse impacts on the quality of in-year revenue
projections.
Some good practices for projecting government revenues recommended in the

OECD reference book7 on PFM are described in Box 3.1.
Box 3.1 Good Practices in Revenue Forecasting
Forecasts of the monthly distribution of revenues should be prepared. These forecasts

should be updated regularly, preferably every month, since changes in the macroeconomic
environment or in the tax administration system may affect revenue collection.
The preparation of monthly revenue forecasts requires economic analysis as well as

management expertise, in order to take account of changes in the tax administration
system. This exercise should be carried out by the tax and customs departments, in close co-
operation with the treasury and the departments responsible for macroeconomic analysis.
In some countries, monthly forecasts prepared by the tax administration departments are
stronger on administrative detail than economic analysis. They show the distribution of
budgeted revenues over the fiscal year but do not take into account fiscal and economic
developments after the budget has been adopted by parliament. The government may
therefore have to strengthen the forecasting capacities of tax administration departments.
A good monitoring system is a prerequisite for effective forecasting. Thus, revenue

collections need to be monitored on the basis of the major tax categories and adjusted
to reflect changes in the assumptions underlying the forecasts. In-year revenue forecasts
should be based on revenue assessment and tax collection reports, the results of economic
surveys, etc. Short-term forecasting tools, such as short-term macroeconomic models and
tax forecasting models, are also helpful.
The revenue forecasts must also include forecasts of non-tax revenues prepared by the
treasury in close co-ordination with the agencies responsible for the management and
collection of these revenues.
Systemic biases in revenue flows should be analyzed and considered while

formulating cash flow plans. In some countries, the incentives given for improving
the efficiency of revenue collection could result in a deliberate underestimation
of revenue flows. An example is the bonuses given to tax collectors for exceeding
the revenue collection targets, which encourage tax authorities to project lower
levels of revenue inflows. Biases in forecast can be mitigated through using a
conservative approach to revenue forecasts, or through improving the quality of
the forecasts to counter the biases. International best practice8 suggests that, given
the inevitability of biases and the serious fiscal and macroeconomic implications
of revenue shortfalls, erring on the side of caution is understandable.
Different practices followed in budgeting for non-tax revenues will affect the
way in which forward cash plans are made. Some countries budget for non-tax
revenues in gross terms in the sense that the budget provides separately for the
revenues and expenditures of the service delivering agency. In other countries, the
revenues are netted against the expenditures in the budget. For purposes of cash
Chapter 3 99
planning in the service delivery units, non-tax revenue flows and the expenditure
flows should be projected separately. It should also be ensured that whenever
service delivery units are permitted to retain non-tax revenue collections in their
own bank accounts, the cash planners in the MOF have timely access to the cash
flows and balances in those accounts.
A high level coordinating body should be made responsible for reviewing and
approving in-year revenue projections. In a complex government environment,
the responsibility for projecting in-year revenue flows usually rests with a number
of stakeholders. It then becomes the responsibility of a high level coordinating
body such as a liquidity committee, usually headed by the Minister of Finance
or the Permanent Secretary of Finance, to moderate the different positions
and establish an agreed projection, which taken together with the expenditure
projection, determines the borrowing or investment positions of the government.
The liquidity committee also provides advice on the steps to mitigate deviations
from the revenue inflows projected in the annual cash plans. The role of the
liquidity committee is further discussed in Chapter 4 “Financing the Budget”.
Planning Tax Revenues
A review of the tax revenue profile provides a good basis for analyzing and
updating in-year cash flow plans. The review brings out the significance of
different components of tax revenues, the specific characteristics of the type of
taxes and the likely risks associated with the actual collection of planned revenues.
The potential tax revenue is dependent on a number of factors, such as how broad
the tax base is, what the tax rates are and the extent to which businesses comply
with the tax. For example:
• VAT is largely dependent upon economic variables such as growth in the

economy and more specifically the final consumption of goods or services.
Estimating the value of goods and services purchased by final end users
automatically captures the tax base under VAT.
• Excise taxes are typically charged on selective consumption items and
structured in coordination with other broad-based taxes on consumption
of goods and services such as VAT. The complexity in the projection of
excise taxes is also related to whether the imposition of the tax is as a
specific unit tax or as ad valorem rates.
Past trends in conjunction with current revenue collection data can help
establish likely month-to-month inflows of tax revenue. During the fiscal year
the government continues to collect tax revenues and data from either advance
installment payments or actual tax payments. The data should be used, in
conjunction with a comparison of this year’s actual monthly tax collections up to
the month of assessment with the corresponding months of the previous year, for
refining and updating projections of cash inflows during the year.
Planning Non-Tax Revenues
Revenue forecasts include forecasts of non-tax revenues prepared by the Treasury

in close coordination with the agencies responsible for the management and
collection of these revenues. Non-tax revenue comprises social contributions,
grants, property income, sales of goods and services, fines, penalties, forfeits, and
settlements arising from judicial processes. Past patterns can help establish likely
month-to-month inflows of non-tax revenues. These should be adjusted for any
economic and regulatory changes and emerging trends.
Royalties and dividends related to mineral sources are impacted more than other
non-tax revenues by the global economic environment. In an uncertain economic
situation, and due to the highly elastic nature of these revenues, they are somewhat
unpredictable. The best projection of these flows can be made by the industry
itself, both on a short-term and long-term basis. Cash planners in the Treasury
should, therefore, set up mechanisms for frequent exchange of information with
the responsible spending units to be able to anticipate in-year variations in mineral
revenues.
Summary
The quality of in-year cash plans for revenues is dependent on the quality of the
annual budget appropriations. While preparing cash flow plans the following
aspects should be considered:
• Short-term forecasting of revenue collections within a financial year is

a basic input into treasury cash management. This is required so that
accurate financing decisions can be taken to ensure cash is available for the
planned budget disbursement over the financial year.
Chapter 3 101
• Explicit rules and regulations for revenue forecasting underpinned by well-

defined responsibilities are essential for ensuring robust in-year cash flow
plans. Past trends in conjunction with current revenue collection data can
help establish likely month-to-month inflows of tax revenue.
• Systemic biases in revenue flows should be analyzed and considered while
formulating cash flow plans.
• A high level coordinating body should be made responsible for reviewing
and approving in-year revenue projections.
• A disaggregated projection of tax revenues by major tax categories improves
the quality of in-year projections of revenue inflows.
• There is a need to draw a distinction,9 for forecasting purposes, between
revenues assessed and collected through voluntary compliance versus those
collected through administrative actions.
• Monitoring certain aspects of the macro fiscal budget assumptions and
reviewing in-year cash flows accordingly, particularly revenues that are
dependent on internationally traded commodities, will improve the
quality of the in-year cash projections.
Planning for Expenditure Flows
As mentioned in Chapter 1 the objective of cash flow planning is to determine

how much cash is available, when will it become available and for how long will
it be available. The in-year planning of revenue flows, described in the previous
section, helps in determining how much cash is available and when it will become
available. In-year planning for expenditure flows determines how long the cash
will be available before it is required to meet government obligations in the most
efficient way. Planning of expenditure flows is needed to determine the financing
implications of in-year differences between cash outflows and cash inflows.
The accuracy of cash flow projections is to some extent dependent on the nature
of the cash spending and the period of the forecast. A U.K. NAO report on
cash management10 made a series of observations on the variability of cash flow
projections of different agencies in the government of UK (Box 3.2).
Box 3.2 UK NAO report on cash management
In 2007-08, for example, the Department for Culture, Media and Sport had relatively even
month to month expenditure, and grants to its sponsored bodies represented 98 per
cent of its expenditure, which may partly explain why it achieved the highest forecast
accuracy. By contrast, the Department for Environment, Food and Rural Affairs’ expenditure
fluctuated considerably, and only 25 per cent of its expenditure was on grants, with the rest
being a combination of administrative expenditure as well as bill payments and receipts on
the part of its Executive Agencies. This complexity may explain why it was one of the least
accurate forecasters.
Another factor that seems to influence the accuracy of forecasting is the month of the year.
In particular, departments consistently produce less accurate forecasts for March (which
is the last month of the fiscal year of the United Kingdom). Between 2005-06 and 2008-09
March was the only month in which the forecast error was always greater than £1 billion.
This might be partly due to expenditure being highest in March. Between 2005-06 and
2008-09 the 14 departments in our survey collectively spent between £5 billion and £8
billion, or 17 per cent and 24 per cent, respectively, above the monthly average in March.
Some issues to be considered while projecting in-year cash flows for expenditures
include:
• When personnel management and payroll is performed by separate

agencies it is important to validate forward cash plans by ensuring that
there is minimum delay between a personnel change and corresponding
payroll change.
• The scheduling and costing of capital projects should be periodically
reviewed by spending units while formulating in-year cash flow updates.
3.2.3. Cash Management and Commitments
Commitment management gives the Treasury the ability to schedule cash outflows
to match government obligations. Many countries are now adopting commitment
management processes within a cash based accounting regime. Commitment
management procedures require the spending units to register expenditure
contracts or purchase orders with the Treasury. The registration obligates the budget
allocations available against the appropriate budgetary classification and ensures
that the obligated amount is not available for other purchases. The registration
also provides the ability to record the underlying disbursement schedules for
contractual payments. Whenever the Treasury receives payment requests, these are
checked against the amounts earlier obligated for the budget classification before
a payment order is issued. The commitment process facilitates the planning and
Chapter 3 103
monitoring of cash flows resulting from spending commitments made during the
contracting stage in the expenditure cycle. This helps the Treasury to manage cash
more efficiently as it provides additional information on how long the cash will
remain in the TSA before it is required to meet government obligations.
The Box below shows the relationship between different types of commitments and
the timing of cash required to meet the liabilities arising from the commitments:
Box 3.3 Commitment and Cash Requirements for Payments11
Salaries, wages, and allowances. The need to pay salaries, wages, and allowances arises
from an implicit or formal agreement between the employer and an employee, according
to conditions laid down in various acts and regulations. At any point in time, the ministry
of finance (MoF) (and each line ministry accountant) should know, with a fair degree of
accuracy, what the salary bill will be for the foreseeable future. Because of the stability,
predictability, and regularity of these types of payment, the cash flow is often deemed to
occur monthly at the same time as the line ministry’s monthly commitment (e.g., from a
payroll management system).
Other recurrent costs. This category contains a variety of items, some items where
expenditures might be expected to occur simultaneously with commitment, and others
where actual expenditures take place after the placing of a requisition or order. However,
likely expenditures on most of the items are predictable, including post and telephone
services, water, electricity and sanitation charges, printing and stationery, etc. The key is to
examine each line item and determine the amount and its pattern of payment.
Grants/transfers. Commitments to pay grants and transfers will be known based on the
program developed at the beginning of the year, influenced by law, regulation, and/or
policy.
Financing. The profile of debt services and loan receipts and repayments should be readily
identifiable from the debt database or corresponding loan agreements.
Capital projects. This category is probably the most difficult to forecast in terms of both
commitments and the associated cash payments. However, most projects are the result
of contracts placed, so payment details should (broadly) be known when the contract is
signed. The commitment can be for a long period of time (probably more than one year)
and expenditure flows tend to be “lumpy.” Delays can occur in construction and delivery, so
updated forecasts on the progress of work and requirement of funds are needed regularly
for these projects.
Updates to in-year cash flow plans should incorporate delays in the finalization
of contracts for the purchase of goods or services. Registering and monitoring
commitments, either at the time of contracting or at the time of issuing purchase
orders, provides the basis for updating cash flows to reflect changes in disbursement
profiles or delivery dates. Most countries use IFMIS, which provides facilities for
blocking budgets at the commitment stage and recording the schedule of cash
outflows related to the commitments. In some countries, which control in-year

cash ceilings, commitments can be registered in IFMIS only if the total amount of
the commitments is within the cash ceiling for the period, even if the underlying
payment schedule of the commitment extends over several cash ceiling cycles.
In such cases, the cash flow forecasts should incorporate the contractual cash
outflows for the entire year and not just for the cash ceiling cycle.
Financial managers in spending units should review commitment information

while updating cash flow projections. Spending units are authorized to enter
into commitments for making expenditures. Financial procedures prescribed for
spending units should require them to manage commitments by updating the
information as new developments occur. Wherever spending units use IFMIS,
end-of-period closing routines of the system provide for reports on “hanging”
commitments—commitments which remain unused even after the dates registered
for delivery of the contracted goods or service. Financial managers should use
these exception reports to review the reasons for delays in contractual deliveries
and to reschedule cash flows. If the contractual deliveries are no longer feasible
within the financial year, then timely action should be taken to reallocate the
budget through appropriate virement.
Summary
Commitment management can provide the Treasury with better information to

schedule cash outflows provided that the information is kept up to date. Some of
the common practices related to commitment management are:
• Cash flows related to personnel emoluments are deemed to occur monthly

on the dates prescribed in payroll regulations.
• In the case of other recurrent costs, depending on the nature of the expense,
cash flows might be expected to occur simultaneously with commitment,
or at a specified time after the placing of a requisition or order.
• Commitments to pay grants and transfers will be known based on the
program developed at the beginning of the year, influenced by law,
regulation, and/or policy.
• Cash flows for capital projects should be specified when the contract is
signed but need to be regularly examined.
• IFMIS systems should be configured to implement commitment
management procedures.
Chapter 3 105
• Financial managers in spending units should use exception reports on

outstanding commitments to update cash plans and, if appropriate, to
reallocate budgets.
3.2.4. Cash Management and Invoicing
Cash collections can be improved and revenue inflows smoothened over the year
with more frequent and timely billings. For example, semi-annual billing for
water user fees can be accelerated to quarterly, to provide a quicker and steadier
stream of income.
At the payment stage of the budget execution cycle, cash management should take
into account some widely used commercial practices for the efficient timing of
disbursements. Some of these are:
• Take full advantage of creditor payment terms. If a payment is due in 30

days, don’t pay it in 15 days.
• Use electronic funds transfer to make payments on the last day they are
due.
• Carefully consider vendors’ offers of discounts for earlier payments. These
can amount to expensive loans to suppliers, or they may provide a chance
to reduce overall costs.
The Treasury’s centralized payment systems supported by IFMIS enable it to time

government cash outflows at the disbursement stage of the payment cycle. Payable
modules of IFMIS are usually configured to validate payments with reference to the
original purchase order, the goods or services actually delivered, and the amount
of actual payment made. In the absence of IFMIS systems, this validation is done
manually by requiring storekeepers and contracting officers to sign off on invoices
before they are processed for payment. During the course of this validation, it
should be possible to identify any payment arrears as long as the invoices received
from suppliers are registered. However, in an environment of cash constraints it is
not unusual for finance officers in spending units to delay the processing of invoices
pertaining to non-prioritized expenditures and expenditures not committed in
the system. An example is that of expenditures pertaining to the usage of utilities
such as electricity and water. Such delays generate payment arrears and add to
the domestic liabilities of the government. Cash flow projections should explicitly
indicate such arrears with proposals to liquidate the outstanding payables.
Summary
Billing and invoicing procedures should be improved so as to ensure that

government cash balances are predictable and returns on such balances are
optimized. Some of the issues to be considered are:
• Cash collections can be improved and revenue inflows smoothened over

the year with more frequent and timely billings.
• Payments should be timed to take full advantage of creditor payment
terms.
• Centralized treasury payment procedures should facilitate electronic
payments to beneficiaries on the last day that payment terms permit.
• Cash flow projections should explicitly indicate any payment arrears with
proposals to liquidate the outstanding payables.
3.2.5. Arrangements for Revenue Collection and Payment
This section discusses the way in which revenues are collected and payments are
made through the banking system. It is closely related to the discussion in Chapter
2 of the structure of the government banking arrangements.
Banking Arrangements for Revenue Collection
An important goal of good cash management is to minimize the time required to

process revenue deposits and payments between spending units and between the
government and the banking system. Revenue concentration mechanisms should
ensure that funds deposited as government revenues are remitted into the TSA
immediately and any residual inconsistencies related to the classification of the
revenue and identity of the revenue depositor resolved subsequently through a
reconciliation process between the Treasury, the collecting bank and the revenue
billing agency. In countries where internet facilities and commercial banking
presence in the regions are limited, treasury branches play an important role in
the transmittal of revenues deposited in cash or by check. Usually the remittance
from local treasury branches to the TSA is electronic and made periodically or
when the collections reach a prescribed threshold.
In some countries, central banks have operational offices in the regions. Commercial
banks with their widespread network of branches operating on CORE banking
Chapter 3 107
systems are increasingly being used as collection points for government revenues.
The OECD recommends12 that when revenues are collected by commercial banks,
arrangements must be defined to foster competition and ensure the prompt transfer
of collected revenues to government accounts. They suggest that a system of bank
remuneration through float, which consists of authorizing the banks to keep the
revenues collected for a few days, is inefficient. This is reiterated in a 1984 report of
the Auditor General of Canada, which indicates that “financial institutions take an
average of 2.3 calendar days to deliver government revenues collected through them
to the government account in the Bank of Canada. However, when questioned by
them, Canadian banks stated that they can give same day service. Based on this
information, the report asked the government to take advantage of this same day
service offered to other financial institution customers. It was estimated that the
failure to receive same day service cost the government about $18 million in lost
interest each year.” This example from Canada indicates the gains that could be
achieved by accelerating cash inflows into the TSA even by a single day.
One of the challenges in using commercial bank branches as collection points

is the need to ensure the quality of revenue data entered at these points. With
the increased sophistication of IT capacity, networks and application software,
it is quite common for banks to host additional “front-end” services for revenue
transactions such as online transaction validation and automated ledger posting
in the depositor’s account with the billing agency. The collecting banks are often
provided with read-only access to the data bases of the billing agencies so as to
facilitate real time confirmation of the revenue depositor’s ledger identification
number and tax classification. The on-line confirmation of the revenue depositor’s
identity and revenue classification obviates the need for post-transaction
reconciliation of data. In some countries, the commercial banks provide a
straight- through facility for posting validated revenue transactions into the tax
payer’s ledger account maintained by the tax authorities.
While availing of such additional services from commercial banks, it becomes

necessary to clearly define the roles and responsibilities of the billing agency
and those of the bank through a Performance Level Agreement (PLA). The PLA
should clearly specify the fees to be paid to the banks, the access to be provided to
the billing data, the services to be rendered, and the periodicity of the remittance
of revenue collections into the government TSA. Stringent rules to ensure prompt
transfers should be established. Moreover, bank remuneration through fees is
more transparent and promotes competitive bidding.
Banking Arrangements for Payments
Centralized payment systems managed by the Treasury help reduce transaction

costs and promote efficient cash management. As mentioned earlier in this chapter,
the implementation of a TSA enables the Treasury to make direct electronic
payments to government suppliers as close to due dates as possible. Centralized
payment systems also provide the opportunity to make a single payment to a
supplier providing common services to a number of spending units. An example
is payments made to a utility company providing electricity or water to a number
of spending units in the same city. A number of payment requests emanating
from the spending units could be consolidated by the Treasury into one payment
order for transferring funds to the bank account of the utility company. There are
a number of possible options for configuring electronic payments through the
banking system. Some of them are discussed in the paragraphs below.
Electronic banking facilities provide for direct electronic transfers through Real
Time Gross Settlement System or through Electronic Fund Transfers. The main
difference between the two systems is shown in the table below:
Table 3.1 Difference between RTGS and EFT
RTGS EFT
Definition Transactions are processed and Transactions are processed and

settled in real time and on gross settled in batches, typically at the
level end of the day.
Money Transfer Swifter Comparatively slow

System
Transactions Focus on high value transactions Usually any transaction
Inter-bank Participating banks pay only the net Each transaction is generally settled
Payment difference of debit and credit individually
Amount Minimum is fixed at a certain No minimum or maximum

amount; No maximum limit stipulation of amount.
With the advent of CORE banking systems most transactions are now settled
between banks through the RTGS and recorded in individual bank accounts of
each branch bank in the centralized general ledger maintained by the headquarter
of that branch bank. In other words, transactions are now increasingly being
processed seamlessly at the gross and the individual level without delay irrespective
of the value of the transaction.
Chapter 3 109
Typically, payments through the TSA are structured in four basic ways, as depicted
in the four scenarios below:
Figure 3.2 Banking Arrangements for Payments
Scenario 1 Scenario 2
2 2
Treasury Central Bank Treasury Central Bank
Head Office (Govt. Bank) Head Office (Govt. Bank)
4 4
4 2 4 3
Treasury 2 Central Bank Treasury 2 Accredited

Regional Regional 3 Regional Commercial
Office 4 Office Office Bank
4 2 Beneficiary 4 2 Beneficiary
Bank Bank
1 1
Treasury Spending Treasury Spending
Local Office Unit Local Office Unit
4 4
Scenario 3 Scenario 4
Treasury 3
Treasury 6
Head Office Central Bank Head Office Central Bank
(RTGS (RTGS host) (RTGS (RTGS host)
4 4
Participants) Participants)
4
3 3
4 1 5 2
Beneficiary Beneficiary
Spending Bank Spending Bank
Unit Unit
1 Request for Payment 3 Electronic Transfer 5 Cash Plans

2 Payment Order 4 Reconciliation 6 Withdrawal limits
Scenario 1. The TSA is held in the central bank and managed by the central bank.
Treasury payment services are managed through a central Treasury Head Office
and sub-treasury offices servicing regional and local governments. Payment orders
are issued by the Treasury offices at each level of government to the corresponding
levels of central bank branches. Wherever electronic transfer facilities are not
available, the Treasury branches issue checks, which are presented for payment to
the respective central bank branches by the beneficiaries. The payments made by
the branches of the central bank are reconciled with the payment orders (or checks)
issued by the respective treasury branches. The role of regional treasuries varies
depending on the extent of fiscal decentralization prevailing in the country. In
some countries where the fiscal operation is centralized, regional treasuries provide
payment services to the regional administrative units of central government
ministries. In some countries with a partly decentralized fiscal environment, sub-
national governments continue to be serviced by regional treasury branches with
the difference that the regional treasuries execute payments on behalf of the sub-
national governments. In countries with a fully decentralized fiscal environment,
regional governments often have independent treasury systems and TSAs.
Scenario 2. Again the TSA is held by the central bank and managed by the
central bank. However, the central bank does not have regional offices, and so
the retail banking services for treasury payments are provided through accredited
commercial banks. There are variations of this arrangement depending on the
IT environment obtaining in the accredited commercial banks. As mentioned in
Chapter 2, most banks have now standardized their IT environment to the CORE
banking environment. The Treasury operational environment has also moved
from a stand-alone environment to a distributed data processing environment. In
countries where both the Treasury and the banking systems have been modernized,
it is convenient for the sub-national treasury branches to route their payment
orders electronically to the central Treasury office for onward transmission to the
central bank or onward transmission to the head offices of commercial banks.
Another variation is related to the service level agreements with commercial banks
for availing of banking services. In many countries, the Treasury transfers funds
daily from the TSA to government accounts held in commercial banks for making
payments. Residual balances are swept back into the TSA at the end of each day.
In some countries, the commercial banks pay out of their own resources and claim
reimbursement from the TSA (central bank) at the end of the day.
Chapter 3 111
Scenario 3. This scenario relates to countries where the Treasury is a direct

participant in the RTGS clearing facility. In such cases, the central bank’s role is
limited to hosting the TSA rather than managing it. The Treasury draws down
from the TSA directly and makes electronic transfers to the commercial bank
accounts of beneficiaries through the RTGS.
Scenario 4. In the fourth scenario, the “hosting” arrangements with the central
bank may extend to permitting the Treasury to maintain expenditure ceilings in
sub-accounts of the TSA. In such cases, line ministries are given direct access
to draw down from their sub-accounts in the TSA and make payments directly
to their beneficiaries. This arrangement requires a robust cash management
arrangement within the Treasury so that the ceilings set in TSA sub-accounts are
updated to synchronize with the in-year cash flow plans.
Summary
By speeding remittance of government revenues into the TSA through appropriate

revenue concentration mechanisms, the government ensures the timely availability
of cash to meet its obligations and can use any surplus cash to maximize returns
through appropriate investments. The following issues should be considered while
making arrangements for revenue collection and remittance:
• Funds deposited as government revenues should be remitted into the TSA

immediately and any residual data inconsistencies resolved subsequently.
• Selection of commercial banks for providing revenue collection and
transmission services should be done through an open tender process to
foster competition.
• The quality of revenue data entered at source by collecting banks should be
assured by ex-ante validation.
• Performance Level Agreements for banking services should clearly specify
the fees to be paid to the banks, the services to be rendered, and the nature
of access to the revenue authority’s billing data.
• Centralized payment systems managed by the Treasury should be
configured so as to reduce transaction costs and promote efficient cash
management.
3.3. CASH PLANNING AND BUDGET EXECUTION IN INDONESIA
3.3.1. Cash Planning and the Annual Budget in Indonesia:
In Indonesia, the prescribed budget process provides sufficient time for budget
discussions and approval for the budget to be appropriated well before the
commencement of the financial year. The main stages in the annual budget
process are shown in the box below.
Box 3.4 Annual Budgeting Process in Indonesia
The budget process starts in February by establishing the resources available for the next
financial year. Once the Fiscal Policy Office of the Ministry of Finance has established
the maximum level of expenditure consistent with the government’s deficit target, the
Directorate-General Budget (DGB) distributes the available resources into those required
for funding on-going activities (non-discretionary) and those available for discretionary
programs. This distinction focuses the budget discussion with the parliament on evaluating
the performance of the new initiatives rather than on the on-going recurrent activities.
• For the non-discretionary on-going activities, the DGB uses the current year’s budget
and applies pre-determined norms (e.g. standard cost) and indexes to arrive at a figure
for the next year’s budget. This process also highlights the rigid nature of the budget.
• Once the Ministry of Finance has established the ceiling for resources available for new
(discretionary) programs, the State Planning Agency (NDPA/BAPPENAS) takes the lead,
in co-operation with the Ministry of Finance, for establishing priorities for programs.
For the central spending units, the exercise is essentially top-down, although spending
ministries do of course give input through preliminary contact with NDPA. NDPA also
conducts a series of national fora with regional governments, de-concentrated units
of government ministries and various civil society organizations before finalizing the
government-wide work plan.
• This process culminates in a March cabinet meeting to discuss the draft annual
government-wide work plan (RKP) and to approve its broad outlines. Following the
March meeting, BAPPENAS and the Ministry of Finance issue a joint budget circular
to spending ministries. Based on the development priority and the “indicative
budget ceilings”, each ministry prepares its work plan, broken down by programs and
expenditure types.
• The final government-wide work plan is issued by the President following a cabinet
meeting in May. By law, it must be issued no later than mid-May to be submitted to the
Parliament together with fiscal policy and macroeconomic framework.
• From mid-May to mid-June discussions are held by the Ministry of Finance with
the Parliament Budget Committee on fiscal policy and overall ceilings. At the same
time, discussions are held by spending ministries and agencies with their respective
Parliament sectoral commissions on detailed allocations.
• The government submits the budget proposal to Parliament in Mid-August
• From mid-August to late October, the Government, the Parliament Budget Committee
and the sectoral commissions review the budget proposal.
• The Parliament approves the annual budget law for the next fiscal year by 31st October.
Chapter 3 113
The budget formulation process is quite well structured and provides for the
approval of the budget by Parliament as early as two months before the start of
the fiscal year. This gives enough time for the spending ministries to prepare the
detailed budget allotment documents for each of their budget users.13 This is the
last stage of the budget formulation process and is quite unique to Indonesia.
However, there are still impediments in the budget execution process that delay
cash disbursement.
One impediment is that the budget is approved by Parliament at a very detailed

level, limiting the flexibility to move budget allocations. Following the final
approval of the budget by Parliament, the Directorate-General Budget (DGB)
prepares disbursement warrants that are issued to more than 24,000 budget users.
Each warrant is very detailed, providing breakdowns by organization, function,
sub-function, activities, and two levels of economic classification of expenditure.
Each breakdown must be respected, and reallocations (virements) are very
difficult, even within spending units. The use of carry-overs is possible for certain
transactions, but in practice is not done to any significant extent.
A further impediment is that Parliament’s review sometimes goes beyond the end
of October deadline, even if the budget has been formally approved. Individual
sectoral commissions in Parliament can place a “hold”14 on disbursements from
the approved budget until their concerns15 have been addressed by the spending
ministries. These “holds” could be at the level of a very detailed line-item of the
budget or even at aggregate levels. They cannot be removed unless the discussions
(negotiations) between each ministry and its sectoral commission in Parliament
have been completed. As a result of this practice, budgets are sometimes not
executed until several months into the next fiscal year. For example, at the
beginning of FY 2013 about 41 per cent of line ministries’ total budget was on
“hold” and could not be executed from the start of the fiscal year. This is one of
the reasons for the delays in capital expenditure, with only 28% of the ceiling
being disbursed by the end of July 2013. According to an analysis made by the
MOF, IDR 32 trillion of line ministries’ budgets (5 per cent of the total) was still
on hold in July 2013.16
3.3.2. Planning for Revenue Flows in Indonesia
The Revenue Profile
Government revenues during the period 2008–2012 showed a steady increase.

In this period, in nominal terms, the revenues earned by the Government rose
8.1 per cent per annum on average, i.e. from IDR 981.6 trillion in 2008 to IDR
1,338.1 trillion in 2012. The revenue consisted of (i) domestic revenues (99.7 per
cent on average), and (ii) grants (0.3 per cent on average).
An assessment of Indonesia’s revenue profile brings out certain characteristics

relevant for in-year cash flow planning:
• Revenues are largely dependent on international commodity prices,

notably those of tobacco, crude palm oil, and oil and natural gas. The risk
arising from volatility in international commodity prices that would create
significant deviation between the cash plan and realization needs to be
monitored closely during in-year cash management.
• MOF agrees with collecting ministries on the amount of non-tax revenue
that is permitted for their own use. This procedure provides some degree
of stability in the in-year revenue flows of non-tax revenues related to fees
and charges for services rendered, since the ability to retain part of non-
tax revenue is considered as an incentive to motivate the line ministries to
collect more non-tax revenue.
• Regulations at present allow PSAs to keep their revenues in commercial
bank accounts and use them to finance their own expenditures. PSA
revenues are therefore not available for purposes of central government
cash management.
• Cash inflow from grants is now insignificant, reducing the risks related to
the timing of cash inflows from donor funds.
Revenue Flow Planning
Revenue flows in Indonesia are seasonal, since there are significant fluctuations in
revenue flows during the year, with the usual peaks in April (the deadline for closing
the corporate tax payment obligations four months after the end of the fiscal year)
and December (the combination of an increase in economic transactions and
Chapter 3 115
the payment of bonuses/dividends/rewards by corporates to other parties at the

end of the fiscal year). Revenue forecasts are also heavily dependent on volatile
international oil and gas prices. Roughly one quarter of state revenue is derived
from oil and gas through tax (VAT and income) and non-tax sources (production
sharing and royalties). As is the case in many countries rich in natural resources,
actual revenue outturns are highly vulnerable to volatile international commodity
prices.
Figure 3.3 Revenue Flows in January - December 2013
Billion IDR
250,000
210.327
200,000
142,266 137,102
150,000
119,484
120,919 124,874
100,000
105,379 101,744 115,929
93,019
85,577
75,258
50,000
0
Planning revenue flows for the next fiscal year typically starts in February and
is the responsibility of the Ministry of Finance, namely the Fiscal Policy Office
(FPO). In implementing its responsibility, the FPO is required to work together
with various Directorate Generals within the MOF.17 The roles and functions
of those Directorate Generals and the FPO during the planning of revenues are
shown in the box below:
Box 3.5 Planning of Revenues in Indonesia
(i) Planning Tax Revenues:

• FPO prepares and recommends the estimated revenue target as the basis for formulating
the draft annual budget;
• DG Tax and DG Customs and Excise provide inputs and their assessment of the feasibility
of achieving the projected tax and customs/excise revenue forecasts, to FPO;
• Once the estimated annual revenue target is agreed, these targets are conveyed to DG
Budget who uses the information for preparing the Financial Note and the Budget Bill.
• During the year, DG Tax and DG Customs and Excise set the monthly revenue target by
regions and types of revenues.
• FPO also monitors target realization.
(ii) Planning Non Tax State Revenues (PNBP):

• FPO prepares and formulates the policies on non-tax revenue (PNBP), based on data
and information from the Directorate of Non Tax State Revenues of DG Budget, and
policy recommendations on Non Tax State Revenues from the line ministries - such as
the Ministry for Energy and Mineral Resources (for oil and gas) and the Ministry for SOEs
for SOE revenues
• Directorate of Non Tax State Revenues then recommends the estimated revenue target;
• DG Budget also monitors Non Tax State Revenues outcomes.
The budget documentation makes explicit the key economic assumptions and
provides sensitivity analysis for some of them, such as the effects of different oil
prices. The committee proposes a range – albeit a narrow one – rather than fixed
values for each macro-fiscal variable: economic growth, foreign exchange, interest
rate, inflation, oil price and crude oil production.
Fixing the exact values of the macro-fiscal variables within the range proposed by
the FPO is subject to negotiation between the government and Parliament. This
approach promotes ownership of the forecasts through consensus. The downside
is the fact that forecasts of inflows, such as the tax revenue targets put in the annual
budget law, are largely based on a political consensus rather than on the basis of
transparent underlying macroeconomic models, and tend to be overestimated.
This disconnection between the underlying macro-fiscal assumptions and the
targets included in the approved budget makes it difficult to explain the deviations
that may arise between the budget and realization.
The table below shows the deviation between the revenue target and actual
outturns for the tax managed by DG Tax:
Chapter 3 117
Table 3.2 The Deviation between the Target and Actual Outturns for the Tax Managed by DG Tax
In trillion IDR revenue target Realization Deviation

(State Budget)
FY 2009 647.85 544.53 -16% below target
FY 2010 658.24 628.22 -4.5% below target
FY 2011 764.48 742.75 -2.8% below target
FY 2012 914.20 835.83 -8.6% below target
FY 2013 (unaudited) 921.99 832.52 -9.6% below target
Over-estimation of revenues is not desirable as it can lead to a budget which is

not fully funded and thus not credible. However, in Indonesia this deviation has
been offset by underspends on expenditures. It should also be noted that the main
reason for the large deviation (lower realization than budgeted revenue) in revenue
outturn in 2009 was the introduction of a fiscal stimulus package during that year
to combat the impact of the global financial crisis. Indonesia’s stimulus package
was unusual at that time in terms of the large share allocated to tax cuts—around
IDR 61 trillion was allocated to income and corporate tax cuts.
Non-availability of accurate data on non-tax revenue (NTR) realization is an

impediment to in-year cash flow projections. A WB study indicates that, given the
absence of a comprehensive license registry and lack of data on non- compliance
with royalty payments, DGB does not have accurate data to evaluate NTR
forecasts, and to provide oversight of NTR realization. This hampers MOF’s
ability to develop revenue projections and assess fiscal risks. Significant focus
and energy of the NTR directorate of DG Budget is spent on recording and
reconciling NTR payments with DG Treasury and sub-national governments to
ensure correct revenue sharing. Currently, no systematic use is made of other coal
producer data collected by the government (customs, VAT, tax, production data)
to evaluate NTR payment calculations by companies.
3.3.3. Planning for Expenditure Flows in Indonesia
The Expenditure Profile in Indonesia
It can be seen from the figure below that around one-third of the government
budget in Indonesia was spent by the central government’s line ministries for
their own operations (personnel, goods and services, and capital expenditures).
The remaining two-thirds were spent on regional budget (transfer) expenditures,
subsidies, social assistance, and debt repayments.
Figure 3.4 Profile of Government Expenditure in Indonesia

2013 2012
13,6% 11,4% 13,3% 9,3%
11,2% 9,5%
30,6% 32,3%
20,2% 23,4%
6,5% 6,5% 5,1% 6,8%
Personnel Goods & Services Capital Subsidies

Debt Spending Social Assistance Regional Budget Expenditure
The methodology for estimating cash outflows by different categories of economic

classification is summarized below:
Compensation to Employees (Personnel Expenditures)
Estimates of cash outflows pertaining to compensation to employees are adjusted

during the year for inflation. The projections provide for the practice of disbursing
one month additional salary every year and for the increase in personnel
expenditures resulting from the on-going bureaucratic reform program.
The management of salary administration for government employees was

transferred18 to the line ministries to increase their accountability and
responsibility in managing their own salary expenses. The personnel costs are,
therefore, now computed, verified and recorded against the budget allocation
Chapter 3 119
of the line ministries. With the regular reconciliation of personnel records and
controls in the automated payroll system19 for central government, it is possible
to more systematically identify government employees, eliminate ghost workers,
and thereby improve the accuracy of payroll data.
Each spending unit is required to appoint20 a Salary Expenditure Treasurer21 who

is responsible for maintaining employee data, issuing employment letters, and
preparing the payroll (gross salary amount and deductions).
DG Treasury has also distributed an IT application22 to spending units to enable

them to manage their employee expenditure data. This application facilitates the
preparation of cash flow forecasts pertaining to compensation to employees.
Goods and Services Expenditures
The costs of operating goods (e.g. office operation costs; office inventory; food;
uniforms; and honoraria) are more predictable and easier to estimate and
standardize. The non-operating goods budget (e.g., materials, utilities, consultant
services and maintenance costs) is estimated for each spending unit on a case to
case basis.
The main challenge in estimating cash outflows on goods and services is the
introduction of new policies that affect the budget allocation for goods and services
such as across-the-board cuts applied during the fiscal year. The experience in
FY 2013 has shown that implementation of the Presidential Decree23 on budget
efficiency delayed budget execution, since each of the more than 24,000 spending
units were required to adjust their budget allotments to accommodate this general
budget cut, mainly affecting the budget allocation for goods and services. These
potentially adverse impacts of in-year changes to budget allocations, on budget
execution, should be anticipated by allowing enough time during the budget
execution cycle for making adjustments for on-going commitments.
Capital Expenditures
The slow pace of absorption of the capital budget in the last 5 years highlights
on- going challenges with budget execution. Less than 90 per cent of the revised
capital expenditure budget was disbursed and more than 50 per cent of total
disbursements occurred in the last quarter (see figure below).
Figure 3.5 Disbursement of Capital Expenditure Budget by Quarter
100%
90%
80%
52% 50%
70% 57% 56% 58%
Q4
63%
60% Q3
50%
Q2
40% 24%
25% 22% 22%
30% 22%
18% Q1
20% 15% 16%
16% 15% 14%
10% 15%
8% 10% 6% 4% 7% 6%
0%
2008 2009 2010 2011 2012 2013
Low absorptive capacity coupled with skewed spending patterns towards the end
of the fiscal year on the capital expenditure budget raise particular concerns, as
these could hinder the achievement of development targets and affect the quality
of the infrastructure being built. This slow and low disbursement performance
has been consistent over recent years and needs to be taken into account in cash
planning so that cash balances are not accumulated and left idle.
A team has been established by the President to monitor budget disbursements for
capital projects24 and assigned to evaluate the spending performance of the line
ministries’ capital budget. The team’s work will include monitoring the spending
performance not only of the central government ministries but also the sub-national
governments. The team is also expected to coordinate and harmonize policies
and regulations that affect the execution of the budget. The Government has also
improved its policy on procurement by issuing a new Presidential Regulation25 to
accelerate the procurement process for the infrastructure development projects.
For cash management purposes, attention needs to be given to whether these
efforts cause a change in the patterns of capital expenditure during the year.
Subsidies
The projection of cash outflows for subsidies is determined on the basis of the
formula agreed between the Government and Parliament. It is the responsibility
of the Government to pay and/or transfer the money to the beneficiaries on a
timely basis in accordance with the established parameters. The main challenge
with estimating cash outflows on subsidies is the substantial deviation between
Chapter 3 121
the budget and realization with regard to the fuel subsidy allocation. This mainly
arises due to unrealistic estimations of fuel consumption. Consequently, for the
last few years the budget outcome on subsidies is always higher than the budget.
This is reflected in the table below:
Table 3.3 Central Government Expenditure Budget and Subsidy Realization (in Billion IDR)
Year Total Disbursement Revised % overall Subsidy expenditure

(excluding Transfer) Budget disbursement to Excess of the budget
budget
2011 878,300 908,243 97% 124%
2012 1,001,300 1,069,534 94% 141%
2013 1,126,000 1,197,000 94% 102%
Given the historically unreliable forecast of the fuel subsidy in the budget,
monitoring this expenditure within the year is a high priority for cash management.
It will be important to identify any likely deviation from the budget at the earliest
opportunity so that plans can be adjusted accordingly.
Social Assistance
Provisions for expenditures related to social assistance are made through the
budgets of the relevant line ministries. There is no specific formula to calculate
the amount and to set the schedule of payment. It is therefore important that
information is collected from the responsible line ministries on the plans for
disbursement and that these are regularly updated.
Regional Budget (Transfer) Expenditures
In Indonesia, transfer from the central to the regional governments is done

through budget allocations made under the Balanced Fund, the Special Autonomy
Fund and the Adjustment Funds scheme. The Balanced Fund consists of: (i) the
Revenue Sharing Fund26 as a means of reducing the fiscal imbalance between the
central government and regional governments; (ii) the General Allocation Fund27
as a means of reducing inter-regional disparities; and (iii) the Specific Allocation
Fund28 as a means of assisting poorer regions. Details of the types of transfer funds
can be seen in appendix 6.
Fund transfers to the regional governments over the last few years have been
around one-third of the annual state budget, with the minimum required amount
to be allocated through the General Allocation Fund being at least 26% of net
domestic revenue, as established in the annual budget.29
It should be noted that projecting oil prices and oil production has been especially
difficult in recent times. Indonesia is generally viewed as having forecasted these
variables very conservatively in the past. There are also be incentives to do so.
Under Indonesia’s revenue-sharing arrangements with regional governments, the
amount is based on the assumed oil prices contained in the budget. If the actual
revenue is higher, there is no need to share the additional revenue. If the actual
revenue is lower, the government cannot get any money back from the regional
governments. In some years, the oil price was underestimated by over 100%
compared with the real market price. More recently, the oil prices assumed in the
budget have been more realistic but still underestimated by just over 10%.
Implications of the Expenditure Profile for Cash Management
The above description of Indonesia’s expenditure profile brings out certain

characteristics relevant for in-year cash flow planning:
• The responsibility for monitoring and accounting for personnel emoluments

has been transferred to the line ministries, while the Government
Employee Administration Agency (GEAA) retains the responsibility for
monitoring changes resulting from new appointments or in-year changes
in entitlements. This division of responsibilities requires timely exchange
of information between the line ministries and the GEAA to ensure timely
payments to employees and to prevent in-year accumulation of arrears in
personnel payments.
• Estimating cash flows for goods and services is a challenge when new
policies are introduced that affect the budget allocation for goods and
services, such as across-the-board cuts applied during the fiscal year.
• The slow pace of absorption of the capital budget in the last 5 years
highlights on-going challenges with budget execution. The government
has recently issued regulations to accelerate the procurement process for
infrastructure development projects and established a team to monitor the
in-year disbursement of capital budget allocations. For cash management,
attention will need to be paid to whether these effect a change in the
pattern of disbursement through the year.
Chapter 3 123
• The main challenge with estimating cash outflows on subsidies is the

huge deviation between the budget and realization with regard to the
fuel subsidy allocation. This arises from the unrealistic estimation of the
expenditure on fuel consumption as a result of the inability to get timely
approval from Parliament for increases in fuel prices.
Planning of Expenditure Flows in Indonesia
Institutional Arrangements
The roles and functions of the various Directorate Generals within the MOF,
the NDPA (BAPPENAS), FPO, and line ministries during the planning of
expenditures are described below.
Fiscal Policy Office (FPO), Ministry of Finance
Unlike the dominant role that the FPO has in setting the economic assumptions
for the preparation of state revenues for the annual budget, the FPO plays
a limited role in in-year cash outflow projections.30 The responsibility of FPO
for state spending is limited to collecting information on central government
spending policies, which it then provides as an input to DG Budget, which in
turn establishes the overall budget policy and amount of central government
spending in the budget.
Directorate General of Budget, Ministry of Finance
DG Budget has the important role of establishing the overall amount of central
government spending in the budget and of monitoring budget realization.
After the budget is approved by Parliament, DG Budget issues budget

disbursement warrants for each spending unit (more than 24,000 in number). As
mentioned in section 3.3.1, each warrant is very detailed, providing breakdowns
by organization, function, sub-function, activities, and two levels of economic
classification of expenditure. Referring to the disbursement warrants prepared
by DG Budget, the spending ministries prepare detailed proposals for budget
allotments to each of their subordinate spending units, which are ratified by DGB.
There is a specific page in the budget allotment document (page #3 of DIPA) that
lists the initial spending unit’s projections on its cash flows during the year. Budget
execution can commence only after the budget allotments have been ratified by
DGB and communicated through DG Treasury to the spending units and their
servicing Treasury branches. The ratification and management of DIPAs was
previously with DG Treasury but, since 2012, the Finance Minister has transferred
this responsibility from DG Treasury to DG Budget.31 The responsibility was
transferred so as to implement a “single” budget office that undertakes the full
cycle of the budget process from formulation and appropriation to allotment and
virement.
The State Finance Law requires that the DIPA be issued by end-December of the
previous year, which is generally adhered to, and it was even issued earlier for FY
2013 (by December 20) following the integration of budget submission

data with the detailed budget allotments proposed by the line ministries (as a
result of the additional responsibilities given to DG Budget mentioned in the
previous paragraph). With regard to in-year cash flow projections, under the new
dispensation, DGB has the responsibility to coordinate with DG Treasury (DCM)
and ensure that the cash flow profiles and the underlying spending unit work
plans are updated regularly by the spending unit at the beginning of each month
for onward communication to the servicing treasury branches (RTBs and LTBs).
MenPAN and RB32 for Personnel Expenditures
The Government Employee Administration Agency (GEAA)33 under MenPAN

and RB endorses the appointment, recruitment, promotion, demotion, and
retirement of staff at line ministries and all local governments, and maintains
central personnel records. The role of MenPAN and RB in approving additions
or reductions in the number of civil servants and in setting their emoluments is
important for cash management, given that more than 50 per cent of central and
local government budget allocations are used for personnel expenditures. While
the monthly cash outflow for personnel expenditures is projected by the spending
units, the accuracy and speediness of the updated data on personnel from the
MenPAN and RB is important to improve the quality of the cash forecasting.
Line Ministries
The Planning and Finance Bureau (PFB)34 within each spending ministry plays
the main role in harmonizing the budget with the procurement plan and the
cash disbursement plan. In the early stages of the budget preparation process,
the PFB conducts a “learning by doing” workshop for the major subordinate
Chapter 3 125
spending units,35 to train their staff in preparing budget submissions and the
annual cash plans. This is followed up by assistance from the administrative office
or secretary Directorate General of each Echelon I during the preparation phase.
The budget documents and the annual cash plans submitted by the spending
units are then reviewed by a team from the PFB, the procurement services unit,
the e-procurement unit, and the IT unit. One of the checks performed during the
review is to ensure that the annual procurement plans are consistent with the cash
disbursement plan. After the budget appropriations are approved by parliament in
October, the annual cash disbursement plan is finalized by November.
During the fiscal year the PFB conducts monthly expenditure reviews with
the major spending units and their respective DGs to compare the actual
procurements realized with the disbursements and timeliness of the procurement
packages included in the budget documentation. The review is used as the basis
to update each spending unit’s cash flow plan. Any deviation from the previous
cash realization performance and its original plan will be analyzed to improve the
quality of the next updated cash plan. The reviews become more frequent before
the finalization of the supplementary budget and the preparation of the annual
budget. Two months before the date for the presentation of the supplementary
budget, the PFB discusses with the spending unit which procurements are
unlikely to be implemented and looks for a possible reallocation of the budget to
other priority areas. The PFB in the MOF uses a budget disbursement tool36 to
monitor revenue, expenditure, and procurement progress.
Ministries have attempted to introduce efficient management of budget

disbursement as one of the criteria in the performance evaluation of government
staff. However, it is not easy to attribute responsibilities for inefficiencies in
managing disbursement due to the existence of impediments at different levels
of government. Moreover, the performance indicators for programs included in
performance budgets are not always consistent with the indicators included in the
employee performance evaluation indicators.
Cash Flow Projection Processes
Currently, there are three kinds of cash-flow projections: (i) the (bottom- up)
annual ‘rough’ cash-flow estimation made in the annual budget allotment
documents37 prepared by spending units; (ii) the (top-down) monthly cash-flow
prediction (Cash Planning Information Network—CPIN—report) developed by
an inter-directorate committee in the MOF; and (iii) a daily cash withdrawal plan
report developed on the basis of cash requested by Treasury branches to settle the
payments requested by spending units for the following day. The three types are
explained in the box below.
Box 3.6 Types of cash flow projections in Indonesia
• Annually: Spending units roughly estimate their annual disbursement (on a monthly
basis) and send it to DG Treasury (Directorate of Budget Execution). This estimate is
basically a formality which provides rough figures as opposed to a disbursement plan
which the spending units are committed to (the rough figures at the beginning of the
fiscal year are normally derived from dividing the annual budget equally into twelve
month periods presented in the spending unit’s budget allotment document which
shall then be regularly updated throughout the year).
• Monthly: The CPIN holds periodic discussions to prepare a monthly cash forecasting
report for the Ministry of Finance. The committee uses historical data of revenues and
expenditures, as well as recent updated cash plan data (daily/weekly/monthly) from
the spending units and assumptions of key macroeconomic and monetary indicators.
• Daily: Twice a day (morning and afternoon), all local treasury branches prepare
an estimation of cash needed to settle potential payments on that particular day
(morning) or the next day (afternoon), based on requests for payments received from
the spending units
The updated bottom-up cash outflow projections from each spending unit are
regularly made for one budget year, broken down into outflows for each month,
week, and day. Every month, each spending unit is required to submit the updated
cash plan, in which for the immediate two months ahead, these projections are
broken down by weeks, while for the immediate week ahead, the projections are
broken down by days. DG Treasury utilizes three mechanisms to develop the
forward cash plans:
• Analysis of historical time series spending patterns;

• Statistical models to forecast the future estimated spending in addition
to the updated data obtained directly from spending units through the
regular monthly submission of their cash plan; and
• Meetings of the CPIN – a regular meeting of working-level officials of the
MOF and some line ministries for the purpose of maintaining oversight of
spending units with large expenditure budget allocations.
Despite the promulgation of regulations and administrative measures to impose

discipline on the spending units to update their cash flow projections during the
Chapter 3 127
year, a review of the implementation of this regulation by the Directorate of Cash

Management of DG Treasury concluded that compliance rates and the accuracy of
the bottom-up forecasts were very low, with less than 50 per cent of the spending
units regularly submitting their updated cash projections and many of those were
of poor quality in terms of accuracy. This may be attributed to a combination of
the onerous requirements of the new procedures for updating the cash plan and
the lack of sanctions imposed on noncompliance.
The low quality of cash forecasts and lack of compliance in the submission of
regular cash plan updates from the spending units does not lessen the importance
of this bottom-up information process. The spending units as budget owners
should decide, through the “bottom-up” process, when and how much cash they
will actually withdraw during the year. While DG Treasury uses time series models
to estimate (daily/ weekly/monthly) cash flow projections for each currency, the
model might not be effective unless underpinned by timely and accurate data
to factor in unexpected and irregular cash withdrawals. A further benefit of the
bottom up projections is to help identify the reasons for variations in the plan.
To improve the quality of the forecasts Treasury is proposing to give more attention
to the plans of the larger spending units. An analysis of the transaction volumes
and amounts pertaining to spending units based on the budget allotment for FY
2013 is shown in the table below.
Table 3.4 Distributions of Budget Allotment in 2013

Budget Number of % number of SU Total budget % of SU budget to
Allotment Spending to total allotment the total Budget
Range (IDR) Unit (SU) (in Billions of IDR) allotment
< 1 billion 4,573 18.69% 2,182.57 0.13%
1-5 billion 10,092 41.24% 25,184.75 1.55%
5 - 10 billion 3,633 14.85% 25,538.38 1.57%
Sub-Total 18,298 74.77% 52,905.70 3.25%
10 - 15 billion 1,474 6.02% 18,000.69 1.11%
15 - 20 billion 968 3.96% 16,713.33 1.03%
20 - 30 billion 1,066 4.36% 26,071.56 1.60%
30 - 50 billion 935 3.82% 35,886.85 2.21%
Sub-Total 4,443 18.16% 96,672.44 5.95%

Budget Number of % number of SU Total budget % of SU budget to

Allotment Spending to total allotment the total Budget
Range (IDR) Unit (SU) (in Billions of IDR) allotment
50 - 100 billion 829 3.39% 57,705,26 3.55%
100 - 1 trillion 818 3.34% 205,860.91 12.66%
1 - 5 trillion 68 0.28% 134,398.71 8.27%
Sub-Total 1,715 7.01% 397,964.89 24.48%
5 - 10 trillion 5 0.02% 31,824.58 1.96%
10 - 100 trillion 7 0.03% 315,423.70 19.40%
>100 trillion 3 0.01% 730,823.23 44.96%
Sub-Total 15 0.06% 1,078,071.51 66.32%
Total 24,471 100.00% 1,625,614.53 100.00%
It can be seen from the table above that 75% (18,298 out of 24,471) of the
spending units have a budget allotment of less than IDR 10 billion each, and yet
have received only 3.25% out of the total budget allotment for the country. Based
on these findings, the Directorate of Cash Management is planning to apply a
simpler procedure by using the “80/20” rule, in which only the few spending
units with large expenditure budget allocations will be required to submit their
regular updated cash flow projections. An incentive scheme is to be considered
rather than applying a sanction to defer disbursement, as that would cause delays
in budget execution.
The current cash flow projection suffers from inaccuracies due to significant
unexpected flows related to both revenues and expenditures. These stem from
uncertainty regarding the size and timing for which funds are drawn down from
the TSA sometime before final payment is due. The DG Treasury is planning
to improve the accuracy of cash flow projections from the spending units/
line ministries through the incentive and sanction mechanism (see chapter 1).
This should be supplemented by a more active follow-up by Treasury on major
variances in line with the plan to reinforce to the spending units the importance
of accurate projections.
3.3.4. Commitments in Indonesia
Once SPAN and SAKTI are implemented, commitment management will be used
as the basis for controlling budget allocations and as an input for forward cash
planning. The proposed data flows pertaining to the recording of commitments
through SPAN are shown in the figure below:
Chapter 3 129
Figure 3.6 Commitment Management Process in Indonesia
Spending Unit LTB

Acceptance Invoice Payment:
Purchase Purchase
of Goods (verifying Billing acceptance,
Requisition Order
(hand over purchase verification to the
Issuance Issuance
minutes) order) purchase order
RFC SPP/SPM SP2D
Commitment* Liability* Expenditure
Part of Commitment Management proccess managed by LTB
List of Suppliers
* : RFC (Request for Commitment) is submitted by SU to LTB to record commitments

**: Liability is based on the valid invoices according to the issuance of SPP or SPM
As can be seen from the figure above, commitments will be registered with the
LTBs by the spending units at the time they issue purchase orders. The approval
of the commitment by the LTB will result in the generation of a commitment
approval number. This number will be used to match and approve subsequent
payment requests made by the spending units for purchases related to the
particular commitment. With the completion of the roll-out of SPAN and SAKTI,
commitment control will be applied across all central government spending units.
This will significantly enhance the timeliness and accuracy of forward cash plans.
Indonesia follows a cash based budgeting system with a strict annual authority
to spend given to the budget users, which establishes a ceiling on their authority
to commit expenditures. Normally, any in-year payment arrears or delays in
settlement of government liabilities should be eliminated by the end of the fiscal
year unless there are delays in submitting claims for payment beyond the end of
a fiscal year.
As mentioned earlier in this section, there are certain procedural inefficiencies

which have resulted in delays in the actual availability of budget allocations
for budget execution from the commencement of the new fiscal year (e.g. line
items in budget allocations being blocked due to incomplete documentation and
delays due to the annual reappointment of spending unit officials). While the
budget cannot be expended from the beginning of the year, the spending units
continue to avail of some basic services (such as utilities, fuel consumption, etc.)
during this period. On-going capital works also continue to create liabilities for
which payments cannot be made until the budget allocations are available for
disbursement. These on-going activities create interim cash outflow arrears, which
should be factored into the cash outflow plans for the latter part of the fiscal year.
The commitment management process provides a mechanism for estimating these
cash flow delays and for including them in subsequent disbursement projections.
3.3.5. Invoicing in Indonesia
Smoothing in-year Expenditure Flows
As can be seen from the figure below, for the last six years the expenditures during
the last quarter of the fiscal year have been proportionately much higher than in
the first quarter.
Figure 3.7 Disbursement of Total Expenditure Budget by Quarter
100.7% 99.6% 93.7% 92.5% 98.0% 95.7% 94.0%

100%
14% 11% 17% 15% 16% 11%
90% 17%
80% 26% 18%

22% 23%
70% 23% 26% 26%
60%
23% 26%
50% 24% 24%
30% 23% 25%
40%
30%
41% 40%
20% 36% 38% 35% 38%
33%
10%
0%
2007 2008 2009 2010 2011 2012 2013
Q1 Q2 Q3 Q4 % of Actual Expenditure to Revised Budget
Interestingly, delays and complexities during budget allocation appear to be

the most critical factors constraining smooth budget execution, more so than
constraints related to procurement and payment processes. The performance of
budget execution also depends on (i) the nature of the project, such as project
duration (single or multi-year), source of funds, and project characteristics
(operation and maintenance, or construction), and (ii) influences from both
internal factors within the spending units or the respective line ministry and
external factors such as other line ministries, lower-level governments, parliament,
and other institutions.
Chapter 3 131
There are also instances when increased transaction costs deter suppliers from
presenting periodic invoices for work-in-progress upon completion of interim
stages of construction or maintenance projects. They prefer to submit one
consolidated invoice towards the end of the fiscal year. While these delays in
payments cannot be classified as arrears due to the fact that invoices have not been
presented, it is necessary to keep track of delayed invoices in order to factor the
potential cash outflows into the cash flow plans.
A number of critical issues at each step of budget execution in Indonesia have

been identified as causing delays in the submission of invoices and thus slowing
in-year disbursement. These issues are presented in Figure 3.8.38
Figure 3.8 Critical Issues within Each Step of Budget Execution in Indonesia
I. Budget
II. Procurement II. Implementation Other
Preparation
t%FMBZTBOEBOOVBM t-FOHUIZPCKFDUJPOBOE t$PNQMFYBOEMFOHUIZ t*NQMFNFOUBUJPOPG

BQQPJOUNFOUPG BQQFBMQSPDFTT MBOEBDRVJTJUJPO QPMJDZUIBUBõFDUT
TQFOEJOHVOJUTTUBõ t-BDLVUJMJ[BUJPOPG QSPDFTT CVEHFUFYFDVUJPOBOE
t#JOUBOH CMPDLFE%*1" BEWBODFQSPDVSFNFOU t4LFXFEEJTCVSTFNFOU JNNFEJBUFMZFõFDUJWF
UPXBSEFOEPGmTDBM XJUIJODVSSFOUmTDBM
t-FOHUIZ%*1"SFWJTJPO
ZFBS
QSPDFTT
Optimizing the Timing of Disbursements
As discussed earlier one objective of cash management is to pursue the efficient

timing of cash disbursements. There are two ideas being discussed on the timing
of cash payments in Indonesia:
• Fully utilizing the possibility to settle the payment of invoices up to a

maximum of thirty (30) calendar days after the invoice supported by proof
of delivery is received.39 This can be done provided there are no other
clauses in the agreement with contractors which may attract penalties. This
flexibility to settle the payment in a maximum of 30 calendar days is often
confused with the current service standard for the treasury local offices
(LTBs) to issue a disbursement order (SP2D) after receiving the request
for payment, which is currently one (1) hour. While this standard could be
retained for purposes of judging the performance of the LTB staff, it may
be possible to empower the head of the LTB to prioritize payments to take
advantage of the 30-day float allowed for by government regulations for
making payment to suppliers.
Alternatively, the disbursement order could be released with instructions

to make the cash transfer within the maximum time allowable.
• Staggering transfers to the regions. As required under the decentralization

laws, the budget allocation for regional transfers is more than 30% of total
state spending, confirming the effort to strengthen regional autonomy. For
the purpose of optimizing the timing of disbursement, the Directorate
General of Fiscal Balance (DGFB) recommended a change in the strategy
for intergovernmental transfers from a regular monthly disbursement
of a fixed amount to a staggered disbursement based on the actual sub-
national cash surpluses accumulated by them in their bank accounts. This
would postpone a large amount of fund transfers to the end of the year,
but would not change the total amount to be transferred in a year since the
total amount is set in the law as the right of the sub-national government.
3.3.6. Revenue Collection in Indonesia
The main responsibility for managing the assessment and collection of revenues
lies with DG Tax, which has around 32,000 staff deployed in 363 offices (including
the Head Office, regional offices, 4 Large Tax Payer Offices, 28 Medium Tax Payer
Offices and 299 Small Tax Payer Offices). This section describes the arrangements
made by the Treasury for the in-year concentration and management of
government revenue deposits.
At present, revenue is collected in several ways:
1. Revenue is collected by the branches of accredited collecting banks.40

Individual and corporate tax payers deposit tax in a collecting bank branch
or post office. The headquarters of the collecting banks consolidate daily
tax collections and transfer them to the state treasury account in the BI.
This includes the revenues from various taxes, customs and excises.
2. Some taxes, revenue sharing, profits and dividends are deposited directly
by SOEs in the state treasury account at the BI. This includes the revenues
from revenue sharing (from oil, gas and natural resources), profits and
dividends from SOEs, and repayments of government loans.
Chapter 3 133
3. For cash inflows from grants/loans, the DG Treasury operates special

accounts41 at the BI for better coordination between international donors/
lenders and the beneficiaries (ministries, state institutions or sub-national
governments).
The government has enacted laws42 and issued regulations prescribing time
schedules for depositing advance taxes so as to smooth out revenue inflows during
the year. The State Finance Law and the State Treasury Law provide for the daily
sweeping of government revenues into the TSA. The agreement between the DG
Treasury and revenue collecting banks provides for the payment of fees for banking
services received; obligates the banks to transfer revenue collections to the TSA
within one day; and requires banks to provide appropriate information technology
to support the smooth collection of state receipts. It provides for penalties in the
event of delayed remittances to the TSA; delayed opening of receipt counters;
and for charging the depositors any fee for government collection services. Taxes
withheld by spending units from payments made to employees and suppliers are
recorded as government revenues through the e-pay point facility without the
physical transfer of funds.
The collecting bank network in Indonesia extends to more than 2,300 branches of
81 commercial banks and post offices located in all the regions of the country. The
collecting branch provides revenue collection data to the respective local treasury
branch, which inputs this data into a database. The collecting branch also reports
the collection data to its respective headquarters, which consolidates collection
data from all other branches nation-wide. The data from the headquarters of
collecting branches, combined with the withholding tax data from payments made
by local treasury branches, are sent to the IT department of DG Treasury to be
consolidated as total government collections. A reconciliation and consolidation
of all government collections/deposits is then conducted by both DG Treasury
and the local treasury branches.
The transaction flow diagram below shows the banking arrangements for revenue
collections.
Figure 3.9 TSA for Revenue Processes
Reconciliation
DG TREASURY
7
CENTRAL BANK
Daily report 5
End of day
transfer 2
Daily report
KPPN
4
Receiving Bank Receiving Bank Receiving Bank
Reconciliation
6
1 1 1 Regional
Tax/Non Tax Tax/Non Tax Tax/Non Tax Tax Office

Payers Payers Payers
Custom Office
3 Report
tRevenue through Receiving Bank

tAt the end of the day, all the balances should be transferred to Authorized Treasurer Account in Central Bank
1 Tax and non-tax payers pay through collecting banks

2 At the end of day transfer all revenues to the BI
3 Tax payers deliver tax reports to the tax office and custom office
4 Collecting banks deliver their daily reports to local treasury branches
5 Local treasury branches send daily reports to DG Treasury
6 Local treasury branches do revenue reconciliation with tax and custom offices
7 DG Treasury does revenue reconciliation with the BI
The System for Managing Revenue Collections MPN

(Modul Penerimaan Negara)
Over the last two decades, Indonesia has experimented with different systems of
revenue collection and concentration. Systems have evolved to keep pace with the
evolution of banking and payment systems. The MPN system has emerged as the
core system for the collection and transmittal of government revenue deposits from
collecting banks. State revenues handled through the MPN system significantly
increased from 2008 to 2013, as can be seen from the table below, which gives an
indication of the amounts and volumes of revenue transactions involved.43
Chapter 3 135
Table 3.5 State Revenue Handled through the MPN (Modul Penerimaan Negara)
2008 2009 2010 2011 2012 2013
Value of 622.68 621.03 710.30 833.64 978.36 1,063.03

transactions
(Trillion IDR)
Volume of 32,798,584 36,669,720 39,170,928 40,615,039 42,645,791 44,019,933

Transactions
The concept of MPN was initially established in an effort to create an integrated

state revenue receipt system by using a single database, where previously the
state revenue was managed by different Directorate Generals (DG Tax; DG
Customs and DG Budget) within the Ministry of Finance through stand-alone
systems. MPN was envisaged as a system that would connect the tax and non-tax
obligations set by DG Tax, DG Customs and DG Budget to be paid in cash by
the tax/non-tax payers at the appointed banks/post offices as the collection points,
for eventual deposit in the TSAs managed by DG Treasury.
During the earlier implementation of MPN44 from 2008 to 2011, the quality
of tax data entering into the system at the collection points was not adequately
controlled and reconciled. As a result, substantial numbers of revenue transactions
could not be posted in the ledger accounts of the tax payers even though the
collections were transmitted to the TSA. Consequently, up until 2010 the Supreme
Audit Agency45 issued a disclaimer in its audit report related to the inaccuracy
of data capture and the inadequate reconciliation of state revenue transactions
processed through MPN (G-1).
To resolve this issue, DG Treasury set up a special unit (Project Management

Office-PMO) to review the discrepancies between the revenue flows entering the
TSA and the taxes recorded in the tax payer ledgers with the Tax Department.
The unit worked closely with the commercial banks to examine the source data
related to discrepant transactions and to identify and correct missing or erroneous
tax payer data. Simultaneously, the Treasury also implemented a series of measures
to deal with the systemic issues that had adversely affected the quality of revenue
collection data, including:
• The Finance Minister assigned DG Treasury as the settlement authority

and the key owner of the MPN system.
• DG Tax, DG Customs and Excise, and DG Budget as the administrators
of the tax, customs and excise, and non-tax revenues respectively, became
the billing authorities of the state revenue services and the co-owners of the
MPN system.
• The MOF Central Computer Services Department46 provided support for
IT Systems and Infrastructures.
• A dedicated unit was assigned to be responsible for:
- Improving the overall MPN system (business process, IT system,

infrastructure, and legal basis);
- Evaluating the benefit of Information and Communication Technology
to support the automation of MPN;
- Preparing the legal frameworks to support MPN; and
- Conducting the monitoring, evaluation, and quality assurance of the
system.
As a result of this effort to clean up the tax collection data, the discrepant entries
were almost fully reconciled. This has been confirmed by the Supreme Audit
Agency in their audit of FY2011 and 2012 with an unqualified opinion.
The PEFA indicator for the effectiveness in collection of tax payments in

Indonesia reflects an improvement (between the first assessment in 2007 and
the recent one in 2011) in the quality of tax collection data (see Table 3.6).
With the improvement of the tax remittance system and better governance and
accountability implemented by DG Treasury, the discrepancy between the tax
revenue data reported by the commercial banks,47 and the data recorded at BI
has decreased significantly. In 2006, the Supreme Audit Agency (BPK) reported
that tax revenues as determined by DG Tax were higher than those reported by
the Treasury by IDR 1.9 trillion (approximately 0.5% of aggregate revenues) and
considered this discrepancy a cause for recording a disclaimer. By the end of 2010,
this discrepancy declined to about IDR 236.4 billion (approximately 0.04% of
the aggregate tax revenues) and now it is fully reconciled so that in the audited
financial statement of 2012, BPK reported that the tax revenue data recorded in
MPN is clean with an unqualified opinion.
Chapter 3 137
Table 3.6 PEFA Scores for Indicator on Effectiveness in Tax Collections
Indicator Score Score Performance Change

2007 2011
PI-15. Effectiveness D+ C+
in collection of tax
payments. (M1)
(i) Collection ratio C C The proportion of outstanding tax arrears to

for gross tax arrears, the total non-oil and gas tax revenue declined
being the percentage from 7.5% in 2006 and 8.3% in 2008 to 6.7% in
of tax arrears at the 2010. The average tax collection ratio for tax
beginning of a fiscal arrears for the last 2 years is 52%, down from
year, which was 66% in 2006 (source: DG Tax)
collected during that
fiscal year
(average of the last
two fiscal year)
(ii) Effectiveness A A Taxpayer pay their taxes directly into Treasury

of transfer of bank accounts or at commercial banks that
tax collections are authorized by Treasury to receive such
to the Treasury funds, and which then remit these to Treasury,
by the revenue on a daily basis.
administration.
(iii) Frequency of D C Reconciliation of tax payments is done

complete accounts centrally at the Treasury on a daily basis
reconciliation and reported bi-annually. Payments are
between tax not automatically updated in the taxpayer
assessments, accounts. Differences in the revenue
collections, arrears collections between the treasury and DG Tax
records, and receipts are identified. Old arrears data is maintained
by the Treasury. manually, and it is not linked to the taxpayer
accounts or reported to the Treasury.
The New Revenue Collection System (MPN G-2)
For the purpose of easy, safe, fast, accurate and efficient state revenue (tax and
non-tax) administration and in order to produce timely and comprehensive
revenue collection reports, in 2011 MOF developed the second generation of
MPN (MPN G-2), which was developed and implemented through four closely
related strategies, namely:
i. Integration of the state revenue receipt system using a centrally-

administered single database;
ii. Optimum utilization of information technology; i.e., MPN to be
integrated or interfaced with the SPAN and tax system;
iii. Improvement of human resource capacity in every operational unit along
with e-literacy programs on the benefits and use of the system for tax
payers and other revenue depositors; and
iv. Formulation of clear and firm regulations for the smooth administration,
management, and implementation of the state revenue cash depository
system.
The billing system is a new feature of MPN G-2. The tax payer is issued a billing
code by the system before the revenue payment can be deposited into the bank/
post office persepsi account. It is intended to minimize the data discrepancies
between the collected cash and the tax invoices; hence, it will reduce the time
for reconciliation. The MPN G-2 and the associated billing system have been
implemented on a pilot basis across the country. By the end of 2013, piloting
of MPN G-2 has been completed at eight revenue collecting banks48 and the
switching system development was jointly done with Bank BRI. To date, tax
payers from all over Java have been able to pay their taxes using the MPN G-2.
Full roll-out is planned for 2014.
The flow of revenue payment through the MPN G-2 is shown in the flow chart
below:
Figure 3.10 Flow of Revenue Payment through the MPN G-2
Payment according to billing code 3 Create billing 1
Channel Bank Tax Billing System

Persepsi Payer
(Revenue
Payment according to billing code 4.d Billing Code 2
Collector)
OTC
ATM
2.a 4.a
E-BANKING Passing Confirmation of

billing code received payment
4.c 3.a
Receipt Code Payment

(NTPN) information
Payment information 3.b Payment information 3.c
Core MOF Switcher

MPN
Banking System System
Receipt Code (NTPN) 4.b Receipt Code (NTPN) 4
(1) Tax payer accesses the billing system to create a billing code;
(2) The billing system will provide a billing code that will be used as the basis for payment; the billing code will also be passing to the MPN system (2.a);
(3) Based on the issued billing code, the tax payer pays their tax obligations at the Bank Persepsi through one of the available methods (Over the counter; ATM or E-banking). The Bank Persepsi then informs the core banking
system on the received payment information (3.a). This information will be passed to the MOF switcher system and MPN (3.b and 3.c) which is part of the settlement system;
(4) Once the payment information is received, the MPN will confirm to have received the payment by issuing the receipt code (NTPN-Nomor Transaksi Penerimaan Negara/ state revenue receipt number). This NTPN will be
sent to the Bank Persepsi for issuing the state revenue receipts as the evidence of payment for the tax payer (4.c and 4.d) and to the billing system to close the transaction. (4.a).
Note: Data on tax deducted at source from employees and suppliers is captured through an E-Pay-Point facility in the local treasury branches, and incorporated into MPN-G2.
Chapter 3
139
3.3.7. Payments in Indonesia
Indonesia applies a combination of both centralized TSA procedures for large

payments and decentralized TSA procedures for small payments. The basic
principle of payment of the state expenditure in Indonesia is, as much as
possible, made directly from TSA to the beneficiaries’ account. While most of
the large payments are directly made by Treasury through the local treasury
branches to the bank account of the government’s vendors or beneficiaries, the
MOF additionally permits each of the spending units to have imprest accounts
to manage petty cash.49
Payments Made Through the TSA
The figure below brings out the process flows related to payments made by the
Treasury through the TSA.
Figure 3.11 Payment Made through the TSA
5 FUND TRANSFER
4
DG Treasury
BO-I Head
9
3 Office (4 Banks)
- Estimate fund request 8 6
- Additional up to 14.00
2
BO-I
7
KPPN
7
1 Spending Vendor/
Unit Beneficiary
Each afternoon (at 4pm local time) the local treasury branch conveys its estimated fund needs based on the cash forecast
and payments requested (SPM) by spending units, to the DG Treasury for the following day’s needs. Then, during the
working day DG Treasury in each morning (at around 7am) asks the BI to transfer funds from the TSA to the government
expenditure account with the head offices of the disbursing commercial bank branch (BO I) to be used for disbursement of
expenditure requested by the spending unit on that day. The payment process during the day is described in the above
figure and explained as follow:
1. Spending unit submits the request for payment (SPM) document to LTB:
2. Local treasury branch sends disbursement order (SP2D) to its disbursing bank branch (BO I).
3. Local treasury branch sends fund requests to DG Treasury
4. DG Treasury sends transfer order to BI through Government electronic Banking (BIG eB)
5. BI transfers funds to 4 head offices of the disbursing banks (BO I)
6. Disbursing branches (BO I) overbook the funds from its head office
7. Disbursing banks disburse large payment directly to the vendor/beneficiary and or small amount of petty cash to the
spending unit treasurer accounts for payment of the small expenditure that might not be directly paid by the treasury
to the beneficiary accounts.
8. If there is an excess of funds, disbursing banks should transfer it back to their operational head office
9. Operational head office transfers the excess of funds back to the TSA in BI at the end of the day.
Chapter 3 141
The current process flows for payments facilitate the actual transfer of cash for
payments at the time when payments are due. Cash is transferred out of the TSA
in BI to the bank accounts of the local treasury branches by DG Treasury on the
basis of the payment requests approved by the treasury branches for the following
day. Residual balances remaining in the bank accounts of the local treasury
branches at the end of each day are returned to the TSA in BI. Payments from
the bank accounts of the local treasury branches to the beneficiaries are made
electronically either through the RTGS when the transaction involves different
banks or through intra-bank transfers whenever funds are transferred between
branches of the same bank.
The reconciliation of payment transactions is fully automated ensuring the

quality of the data on cash flows. Transactions between DG Treasury and the BI
for cash flows out of the TSA and refunds into the TSA related to the funding
of expenditure accounts of local treasury branches are reconciled automatically
through an IT application provided by the BI. Payment orders issued by the local
treasury branches on their own banks are automatically reconciled with the daily
bank statements issued their banks through a legacy software provided by DG
Treasury to the LTBs.
Payments Made Through the Imprest Accounts
Decentralized payments for urgent small value transactions are made from
the imprest accounts held by spending units of the line ministry in accredited
commercial banks approved by the MOF. The Treasury monitors the imprest
accounts by: (i) setting the cash limits, without controlling individual transactions;
(ii) consolidating the daily balances in a Notional Pooling Account for purposes
of determining the daily cash balances held in these bank accounts without
zero balancing them; and (iii) negotiating for a better remuneration of the idle
balances held in the imprest accounts with the commercial bank. The banking
arrangements for imprest accounts held by the spending units are explained in
Chapter 2.
3.4. CONCLUSIONS
This chapter focuses on how cash plans are dependent on the quality of processes at
different stages of the expenditure and revenue cycle, bringing out the importance
of the credibility of the annual budget, and procedures for identifying the timing
of cash flows during the year. It then discusses the mechanisms for consolidating
revenues and executing expenditures. Although there are procedures in place to
support cash planning in Indonesia, the current quality of cash plans is poor.
DG Treasury has decided on a number of strategies to improve the quality of the
cash projections coming from spending units. Making progress in this area will
be critical to the adoption of a more active approach to cash management. In
contrast, good progress has been made on mechanisms for consolidating revenues
and executing expenditures.
The starting point for the cash plans are the budget projections. In Indonesia, the
budget process provides for the approval of the budget by the end of October for
the financial year starting in January, although parliamentary review may continue
after appropriation. Line ministries have sufficient time to finalize their annual
cash flow plans for submission to the Treasury well before the start of the fiscal
year in January. However, parliament’s review sometimes goes beyond the end of
October, which needs to be taken into account in preparing annual cash plans.
One weakness in the current budget process that affects cash planning is the lack
of a mechanism for the quality assurance of forecasts used in the budget. The
actual revenues collected over the last four years have been consistently below
the target, while the budget outcome on subsidies is significantly higher than the
budget. A cash shortage has only been avoided because of under spending in some
other expenditure categories – especially capital. The credibility of the budget
could be improved if independent reviews were commissioned by the government
through think tanks (or possibly by establishing an independent fiscal council).
The improved quality of forecasts would provide a sounder base for in-year cash
planning, particularly with reference to the volatility of mineral revenues.
For in-year cash plans, the procedures provide for the preparation of quarterly,
monthly and daily cash flow projections. However, despite measures taken to
impose discipline on the spending units to update their cash flow projections
during the year, a review of the implementation by DG Treasury concluded that
the quality of the bottom-up cash plans was poor. This could be attributed, in part,
Chapter 3 143
to the onerous requirements of the new reporting procedures for in-year updates
to the cash plans. Based on these findings, the Directorate of Cash Management
is planning to apply a simpler procedure by using the “80/20” rule, in which
only spending units with a large expenditure budget allocation will be required to
submit their regular updated cash flow projections. Capacity building to improve
the ability of cash planners in spending units is also underway and is currently
scheduled to cover most of the major spending units. These efforts should be
supplemented by a more active follow-up on major variances in line with the plan
by Treasury to reinforce to spending units the importance of accurate projections.
Alongside measures to improve the quality of cash plans from spending units,
the coordination needs to be addressed. An option would be to interface the
Human Resources Planning system operated in GEAA with SPAN. Meanwhile,
the Treasury should consider setting up a task force to meet once a quarter and
review outstanding personnel payment issues with GEAA and the relevant line
ministries. The MOF should also consider ways in which more reliable data can
be gathered on the in-year cash flows related to natural resources. Between the
Treasury, line ministries and GEAA for synchronizing payroll data also With the
implementation of IFMIS (SPAN), SAKTI, and MPN-G2, the IT environment
for budget execution will be in line with international practices as mentioned in
chapter 1. The data entry and data validation of cash flow plans will be done at
source by the spending units using the application software SAKTI. Thereafter, the
data will be piped to the SPAN database through a portal. Further consolidation
and processing of cash flows will be done through the cash management module
of SPAN. The module will generate forward cash flow forecasts and automatically
update them with respect to the actual expenditure data already available in the
central database. These bottom up projections will be an input to the Treasury
cash planning process. The implementation of MPN G2, which is just being
launched, will ensure the ex-ante reconciliation of all revenue collections and their
straight-through posting in the tax ledgers maintained by the revenue collecting
authorities.
Notes
¹ IMF Government Financial Statistics Manual 2001

² Public Financial Management and Its Emerging Architecture, International Monetary Fund,
2013.
³ Carry-over of Budget Authority Public Financial Management, Technical Guidance Note, Ian
Lienert and Gösta Ljungman, January 2009.
4 Emerging PFM Architecture
5 Graham Glenday in “The International Handbook of Public Financial Management”
6 Kyobe, Annette and Stephan Danninger, 2005, Revenue Forecasting—How is it done? Results
from a Survey of Low-Income Countries, IMF Working Paper 05/24.
7 Managing Public Expenditures, A Reference Book for Transition Countries, OECD 2001
8 Public Financial Management and Its Emerging Architecture
9 Graham Glenday : The International Handbook of Public Financial Management
¹0 Government Cash Management, United Kingdom’s National Audit Office, NAO HC 546, 16th
October 2009
¹¹ IMF PFM Technical Guidance Note No. 4 of July 2006
¹² Managing Public Expenditures- A Reference Book for Transition Countries, Edited by Richard
Allen and Daniel Tommasi, 2001
¹³ Blöndal, Jón R., Ian Hawkesworth and Hyun-Deok Choi, 2009, Budgeting in Indonesia, OECD
Jurnal on Budgeting, Vol 2009/2
¹4 The amounts on “hold” are marked in the final budget appropriation document by “*” or
“bintang”.
¹5 Usually these concerns relate to incomplete or inaccurate supporting documents included with the
budget submissions.
¹6 An OECD review of the budget process in Indonesia carried out in 2007 also mentions that “The
result (of the “hold” on the annual budget) has sometimes been that – even with the two-month
period to finalize the details – budget disbursement has not been authorized until several months into
the next fiscal year. In 2007, for example, about 45% of total expenditures were delayed up to the end
of 1st semester.”
¹7 Finance Minister Regulation (PMK) No. 44/2007 on synergized responsibilities and business
processes in fiscal policy and draft annual budget law preparation
¹8 Finance Ministry regulation No. 133/2008
¹9 GPP Spending Unit
²0 Treasury regulation No. 37/2009
²¹ Bendaharawan Gaji
²² GPP Spending Unit
²³ Perpres #7/2013
²4 TEPPA: Tim Evaluasi Percepatan Dan Pengawasan Anggaran (Evaluation and Supervisory Team
for Budget Absorption), chaired by the Head of UKP4 (the President’s Unit for Development Control
and Monitoring), and jointly co-chaired by the head of BPKP and Deputy Finance Minister
²5 No. 54/2010 and No. 70/2012
²6 DBH = Dana Bagi Hasil
²7 DAU = Dana Alokasi Umum
Chapter 3 145
²8 DAK = Dana Alokasi Khusus

²9 Article 27 (1) of Law No. 33/ 2004 on Fiscal Balance between the Central and the Regional
Governments
³0 Minister of Finance Regulation (PMK) No.44 Year 2007 on Synergized Responsibilities and
Business Process in Fiscal Policy and Draft Annual Budget Law Preparation
³¹ KMK 293/2012
³² MenPAN and RB: State Ministry for State Apparatus Empowerment and Bureaucratic Reform
³³ Badan Kepegawaian Negara or BKN
³4 The role of the PFBs and their operating procedures are not uniform across ministries. The roles
and processes described above are based on an interview with the head of the PFB of MOF.
³5 In the case of the MOF, those with appropriations of IDR 1 billion or more
³6 MONIKA
³7 Page III of DIPA (‘halaman 3 dari DIPA’)
³8 DIPA tracking study, World Bank and MOF, 2011
³9 Article 75 (1) of the PP 45/2013
40 (Bank Persepsi or BP)
4¹ Imprest Account or “Rekening Khusus”
4² Law # 16/ 2009 on general policies on tax and Finance Minister Regulations No. 80/2010 and
187/2007
4³ However, there is still a limitation in the MPN system in that the foreign currency (tax, customs,
non-tax) revenue can only be made in USD at one collecting bank (Bank BNI).
44 MPN Generation 1
45 BPK
46 PUSINTEK
47 Through MPN, daily Cash Position Report (aggregate transfers) submitted by the commercial
banks.
48 BNI, BRI, BCA, BJB, Bank Permata, Rabobank, Citibank, dan CIMB Niaga
49 Uang Persediaan-UP
Chapter 4
Financing the Budget
Chapter 4 149
4.1. INTRODUCTION
While the reforms described in earlier chapters set the stage for efficient cash
management, this chapter looks at the way cash management needs to be
coordinated with budget deficit financing and the investment of surplus cash
balances.
Improved coordination between planning, budgeting, cash management, debt

management and monetary policy is crucial for optimizing the short-term financial
borrowing and investment of the government. International good practice in this
regard and the Indonesian practice are discussed in this chapter.
The planning of cash flows related to debt and debt servicing is critical to ensure
the credibility of governments among investors, donors and rating agencies.
Defaults in debt servicing could have serious implications for future external
and domestic financing in terms of both the availability of financing sources and
the increased costs of financing. This chapter discusses international experiences
in planning and managing cash flows related to debt and describes the practical
solutions adopted by Indonesia.
Options for the investment of surplus cash balances and some international
practices are discussed. The challenges faced by Indonesia in investing their
surplus cash balances are examined in the context of international experiences.
The last part of this chapter concludes with a summary of the strengths of the
Indonesian practices related to budget financing and suggests some improvements.
4.2. FINANCING THE BUDGET – INTERNATIONAL EXPERIENCES
4.2.1. Objectives of Cash and Debt Management
As mentioned in chapter 1, the key objective of cash management is to have the

right amount of money in the right place and at the right time to meet obligations
in the most effective way. The main objective of debt management, on the other
hand, is to ensure that the government’s budget deficit financing needs and its
debt servicing obligations are met at the lowest possible cost over the medium to
long term, consistent with a prudent degree of risk (IMF and World Bank,April
2014). Cash management has a short-term focus limited to the fiscal year, whereas
debt management has a medium- to long- term horizon.
Once the medium-term fiscal framework and the debt sustainability dynamic has
been analyzed1 and confirmed, the government can select its requisite medium-
term budget framework. This will lay out the budget balance—deficits and/or
surpluses—over the coming three or four years. Given this framework, the debt
managers will devise an optimal medium-term debt management strategy. This
strategy should comprise the currency breakdown and instruments to be used for
financing the budget, with a view to optimizing the associated cost-risk trade-off
in conjunction with the existing public debt portfolio. For example, it may appear
to be efficient to make all necessary borrowings externally where interest rates are
lower, but the extra currency risk must be taken into account in order to justify
such a rebalancing of the debt portfolio.
Whilst the strategy for the subsequent two or three years may only be based on the
aggregate portfolio parameters, the coming fiscal year strategy should give a fully
detailed Annual Borrowing Plan (ABP). This should specify the exact instruments
to be issued in the particular markets and the currencies. Where possible, it
should provide expected issuance dates and amounts. Clearly, the medium-term
debt strategy and the ABP will also take account of debt servicing requirements
such as redemptions; liability management operations such as buy-backs; and
loan amortization. Efficient debt market development procedures also affect the
borrowing plan and these can entail the need for large benchmark bond issues;
a smooth issuance calendar throughout the year – particularly for the domestic
market; and the possible need to pre-fund future maturities. These plans are a vital
input to cash planning for the fiscal year since they can cause tension between
debt management and cash management policies – for example, pre-funding can
create additional cash surpluses at a time when can plans predict an excess of cash.
Effective government cash management should ensure that budget execution can
take place efficiently within the fiscal year. It assumes that government ministries
and agencies have the best understanding of their services and how to provide
them and that they use this knowledge when procuring goods and services. If
this procurement conforms to budget commitment rules, payment should be
Chapter 4 151
effected as and when necessary. Expenditure arrears (entailing delayed payment of

valid invoices) and cash rationing (entailing spending units being forced to delay
procurement until cash is available) can and should be avoided through good cash
management.
While coordination between cash and debt management is necessary and discussed
further below, it is important that they are not considered as having the same
function. While the debt manager focuses on financing the budget deficit and
managing the public debt portfolio, the cash manager should only be concerned
with short-term in-year variations of the overall government cash position. This
will ensure that payments can be made and that any temporary cash surpluses are
handled efficiently. The cash manager operates on the premise that its operations
are a zero-sum game. That is: if the budget is credible and the debt manager has
financed any planned deficit through the year, the cash balance at year-end is the
same as at the start of the year. Supplementary budgets within the year are handled
in the same manner.
In many cases, budgets are not planned credibly and realistic supplementary
budgets are not produced during the year when the original budget and its planned
financing become unbalanced. In such cases, the cash and debt management roles
become confused. The cash manager may be expected to provide deficit financing
additional to that sourced by the debt manager. This blurring of respective roles
and objectives should be avoided if possible through formal in-year budget
planning revisions which explicitly provide the debt manager with projections of
the required extra deficit financing. This will allow such funding to be consistent
with the medium-term debt strategy—which the cash manager could not ensure.
4.2.2. Coordination between Cash Management, Debt Management, and

the Central Bank
Close coordination between the cash and debt managers is necessary on two
levels. Firstly, as described in the previous chapter, the cash manager must produce
accurate cash flow plans for the fiscal year. Major factors in any government cash
flow are inflows from borrowing and aid, and outflows related to the cost of
debt servicing. Secondly, active cash management operations required to meet
its principal goals of ensuring budget execution payments and managing cash
surpluses will have an impact on debt markets. Both of these levels affect the
operation of monetary policy and domestic financial markets, and thereby also
place an obligation on the cash manager and the central bank to coordinate
transactions and information flows.
A Liquidity Management Committee can play a crucial role in coordinating cash

management with the budget, debt management and monetary policy. Its functions
include (i) monitoring the macro-fiscal, macro-economic and monetary situation
and taking corrective actions in a timely manner; (ii) ensuring coordination and
sharing of information between the key stakeholders; (iii) facilitating policy
decisions on government debt and short-term investments; and (iv) conducting
oversight of the timely and orderly financing of the budget. Usually, the Liquidity
Committee is chaired by the Minister of Finance or the Permanent Secretary of
Finance and comprises (i) the Ministry of Finance represented by the Accountant
General, the Budget Director, and the Head of the Macro-fiscal Department; (ii)
the tax and customs revenue stream represented by the Director General of the Tax
Department; (iii) any major non-tax revenue streams represented by the relevant
parent ministries; (iv) the Central Bank represented at an appropriate level; and
(v) major spending ministries represented by their Permanent Secretaries.
At the operational level, there is a need to coordinate debt and cash management
with monetary policy objectives and the budget and planning functions. This is
to ensure that there is appropriate sharing of information on the government’s
liquidity flows between debt managers and fiscal and monetary policy authorities
and a common position of the government in dealing with financial markets.2
4.2.3. Planning Cash Flows for Financing the Budget
Ways of Financing the Budget
Budgets are financed through domestic and external borrowing. Domestic debt
includes direct loans and market securities in the domestic currency. External debt
includes loans from, and securities issued to, foreign governments, multilateral
institutions and other investors, denominated in foreign currency.
Loan disbursement methods are direct, reimbursement, or replenishment. Direct

disbursements involve the release of funds by the creditor directly to the beneficiary.
Reimbursable disbursements relate to agreements which require the government
Chapter 4 153
to undertake expenditure from its own resources before reimbursement.

Replenishment disbursements are made on an installment basis by creditors
through project accounts opened by the Treasury either in commercial banks or
in the central bank in accordance with the loan agreement.
Cash outflows related to debt transactions include repayment of principal,

interest payments, and payment of commitment fees and other charges (such as
penalty, management fees, and legal fees). Interest terms, available from the loan
agreements registered in the Debt Management Office (DMO), include interest
rates, applicable day convention, and interest period. Cash outflows for interest
payments will vary depending on the type of interest payments, which could be
annuity (or interest included in the principal); fixed interest rate; variable interest
rates (including inflation-indexed); or penal rates of interest.
Cash inflows and outflows are also affected by other loan cycle events such as
cancellation of undisbursed loans, face value adjustments, restructuring, and debt
swaps. The effect on cash flows would depend on the option chosen to implement
the loan cycle event. For instance, cash outflows would depend on whether debt
swaps resulted in debt forgiveness, on the accumulation of arrears, and on the
staggering of the payment of arrears or penalty accumulation and payment.
The DMO is the main provider of information on cash flows related to debt.
Information registered from loan agreements includes cash flow parameters such
as the date of activation of the loan, the grace period of the loan, applicable
currency, date when principal payments begin, dates and amounts of principal
payments, dates and amounts of interest payments, date when principal payments
end, and date when the interest payments end.
Owing to the importance of ensuring that debt servicing payments are made
correctly and on time, a DMO will record all debt obligations in a database
specifically designed for this purpose. The software is installed in the ministry of
finance and/ or central bank and will provide the functions listed in the box below.
Box 4.1 Functionality of DRMS 2000+ and DMFAS 6
• Record bids on government securities auctions, as well as notes and bonds on a single
price or multi-price basis
• Maintain an inventory of all external and domestic instruments including: public debt
and grants; short-term and private sector debt; restructuring agreements including
rescheduling.
• Record all information concerning loans, grants and debt securities including their
possible relationship to projects and to different national budget accounts
• Record other relevant debt related information such as exchange rates, interest rates,
and macro-economic data.
• Forecast debt-service payments, both by instrument and in aggregate terms with future
disbursements.
• Record actual transactions of debt service and disbursements on a transaction-by-
transaction basis.
• Identify loans in arrears and calculate penalty payments.
• Monitor loan and grant utilization and disbursements.
• Monitor government lending including on-lending.
The information recorded from loan agreements might include the types of credit,3
types of creditor,4 payment dates, payment amounts, and currency of payment.
Information on domestic debt includes outstanding government securities; loans
from local banks, arrears (pension payments, pending bills), and guarantees.
The debt database will be a vital source of debt servicing information for the cash
manager. Cash flow models will need regular access to this database to ensure that
cash requirements are updated as necessary. The cash manager must also maintain
a direct relationship with the debt manager in order to be able to include in the
cash flow model all information relating to planned debt issuance—both domestic
and external. Although the ABP will contain details about planned issuance, these
plans are strongly affected by market and investor conditions and can change
quickly. Such changes must be incorporated in the cash flow plans whenever they
occur.
Managing Cash Flows Related to Budget Financing
Debt-related cash flows are often very large and have an undue influence on
the smoothing operations of active cash management operations. Following
the production of a cash flow model that describes the projected level of cash
resources available to the government over the current budget execution year, the
cash manager will use active cash management operations to smooth anticipated
Chapter 4 155
fluctuations in the TSA. An optimal cash buffer level in the TSA should be
determined from the expected volatility in cash flow projections and errors in
forecasts. Projected periods of cash shortage will be handled by short-term
borrowing, usually using T-bills. Periods of anticipated cash surpluses will entail
placing short-term deposits using the central bank, commercial banks, or the repo
market. If forecasts are accurate and the T-bill market is deep and liquid, this
buffer level can be very low5 and, therefore, less costly.
Coordination between the cash and debt managers can assist in smoothing the
TSA balance, thereby making the cash manager’s task more efficient and reducing
costs . It is clearly important for the debt manager to arrange for settlement of
government securities redemptions to coincide with new issuance and auction
payment dates, i.e. rollovers. In addition, the debt manager can coordinate issuance
with projected times of cash shortage if he knows the cash manager’s projections.
Conversely, where debt issuance is fixed in advance without the option to alter its
size, provision of this information by the debt manager as far ahead as possible
will allow any cash surpluses to be managed efficiently. The debt manager often
is tasked with monitoring contingent liabilities such as government guarantees.
It is vital that, if the debt manager considers that it is likely that any contingent
liability will materialize during the year, the cash manager is informed and can
adjust the cash buffer level accordingly.
It is important that the issuance of T-bills or other short-term borrowing operations

is coordinated with the DMO. Often, either the cash manager will request the
DMO to manage all its cash management borrowings and its market relations, or
the cash manager will retain a specific part of the short-term yield curve in which
to perform cash management transactions; for example, the maturity of all cash
management T-bill issuances will be six months or less and any greater maturity
issuance will be for debt management purposes. In this way, market participants
will be fully aware and informed of the purposes of government borrowing,
leading to a more efficient market environment and lower borrowing costs.
A primary role of the debt manager is to develop the markets—both domestic and
external—in which the government borrows. This role can often be at odds with
the role of the cash manager. Tensions can be created between them when the debt
manager borrows in order to maintain a presence in a market, without the specific
need for funding, or when the market demands very large ‘benchmark’ issues to
enhance market liquidity and reduce funding costs. In the former case, the tension
is due to the fact that borrowing is occurring at the same time as the cash manager
is trying to place surplus resources on deposit, and almost by definition at a lower
return than the cost of borrowing. In the latter case, redemptions can be far larger
than necessary from a purely cash needs perspective and may create short-term
borrowing problems for the cash manager.
These tensions must be managed well since they can cause a breakdown in this
important relationship if allowed to get out of hand. Where cash surpluses would
clearly eventuate, it may be necessary for the debt manager to adopt a pragmatic
approach and avoid over-issuance for the purpose of market development. Careful
design of pre-funding plans for large redemptions within the cash flow plan can
allow benchmark issues to be redeemed without difficulty if prepared well in
advance. Resolution of such problems highlights the importance of maintaining
excellent coordination and relationships between the debt and cash managers.
The central bank and the cash manager can often provide mutual assistance in
performing their respective tasks. Since the government is often the largest operator
of cash flowing through the banking system at any one time, knowledge of its cash
flow projections can assist in the management of banking system liquidity for
monetary policy purposes. It should be incumbent on the cash manager to make
its forecasts known to the central bank on a regular and updated basis. Smoothing
the cash buffer level in the TSA also assists the central bank in implementing
monetary policy..
4.2.4. Short-Term Investment of Surplus Government Cash Balances
Surplus balances are those held in excess of the targeted cash buffer level. Countries
invest their surplus cash through various mechanisms related to the degree of risk
for the expected returns. Gardner and Olden suggest that “times of expected cash
surpluses (greater than the requisite buffer) are often more difficult for the cash
manager than shortages.”6 This can be due to the reluctance of the central bank to
pay deposit interest to the government; the problems of credit risk associated with
making deposits at commercial banks, the lack of liquid money and repo markets;
and lack of coordination with the DMO regarding prepayment or buy-backs of
existing debt instruments.
In many countries, the MOF negotiates with the central bank for interest to be
paid on deposits of its surplus cash resources. These negotiations consider: (i) the
Chapter 4 157
advantages to the central bank of not having to sterilize government balances

held in commercial banks for purposes of monetary policy; (ii) the credit risk
taken by the government when depositing with commercial banks; (iii) the costs
to the central bank of providing retail banking services to the government for its
receipts and payment transactions; and (iv) the likely effect on the dividend paid
by the central bank to the government. Usually, this rate is lower than the actual
market rate available from commercial banks, but this arrangement facilitates
implementation of monetary policy and eliminates credit exposure risk. A rough
desk review of 54 countries7 suggests that around 25% of the sample, most of
them developed economies, have an explicit agreement with their central bank
for remuneration of surplus balances. In most cases it is pegged to the interbank
lending rates; in some cases the interest rates apply only to term deposits; and in
others the interest rate applies only to targeted balances.
Point (i) above often provides the most effective argument for the central bank
to pay interest on surplus government cash balances. Governments can hold
excess cash either temporarily, due to large imbalances between in-year revenue
and expenditure flows, or continuously, due to structural budget factors such as
increasing natural resource revenues. In the latter case, specific long-term solutions
should be found to deal with structural surpluses including the formation and use
of offshore budget stabilization and inter-generational savings funds conforming
to legally-binding medium-term countercyclical fiscal rules. If these solutions are
not in place, or where cash surpluses are temporary, the cash manager will need
to manage the surpluses efficiently. This entails placing them on term deposit at
interest rates which are the highest available within prudent risk characteristics.
If the central bank does not pay market-related interest on government surplus
balances, the cash manager will need to place excess resources in the domestic
commercial banking system. This will often lead to the central bank needing to
drain this extra liquidity from the system in order to maintain its requisite stable
monetary policy. The cost of open market operations (OMOs) to drain liquidity
should be borne by the central bank and, where government surpluses are large,
these costs can be very significant - and have even been known to compromise the
capital structure of the central bank itself. In order to avoid such problems, the
government should negotiate with the central bank for it to pay market-related
term deposit rates – recognizing that by using the central bank commercial bank
credit risk is avoided – and thereby maintain its excess cash within the central
bank and outside the commercial banking system.
An advanced cash management function should lead to the maintenance of a

stable, known buffer level in the TSA and this can assist the operation of monetary
policy by ensuring that flows between the government and the banking sector are
balanced. For this reason, and since developed countries have more options for
secure short-term investments, they may place surpluses outside the central bank.
Credit risks from placing surpluses in commercial banks are minimized by using
repo markets. In many developed countries, repo markets are able to absorb large
amounts of cash without affecting interest rates while involving little or no credit
risk during the term of the deposit. France invests in very short-term unsecured
deposits with euro-zone treasuries. Sweden resorts to reverse repos in government
securities or mortgage bonds. The Australian Office of Financial Management
invests in term deposits with the Reserve Bank of Australia or in money market
instruments such as bank certificates of deposit.
Normally, the investments of surplus balances are made in domestic currency

since they will be of a short-term nature associated with the least risk. If, however,
foreign currency is maintained by the MOF for specific purposes while still
considered as part of the overall government cash position, other securities might
be available for short-term investment. If the government holds surplus balances
of certain liquid currencies (U.S. dollars, yen, euros, pounds sterling), short-
term high-credit securities are available for attracting a market return without
the ensuing challenges of credit risks or impediments to monetary policy. Many
commodity-producing countries use this method of obtaining an adequate return
on their surplus cash while maintaining sufficient liquidity for budgetary needs.8
4.3. ACTIVE CASH MANAGEMENT AND BUDGET FINANCING IN INDONESIA
4.3.1. Background
The Government of Indonesia uses debt and non-debt sources of funding to

finance the budget deficit. Non-debt financing sources are the accumulated
surplus of excess cash from unrealized annual budget (SAL), the repayment of
on-lending and Subsidiary Loan Agreement (SLA) installments, and sold asset or
privatization proceeds (HPA). The non-debt financing also includes inflows from
the Government’s investment fund and equity participation (PMN), national
education endowment fund, and contingent liability fund. Cash inflows to the
budget from non-debt financing in nominal terms has shown a steady increase
from year to year. In 2007, the inflow was IDR 11.2 trillion and in 2012 it rose
Chapter 4 159
to IDR 63.9 trillion. However, the major source of budget deficit financing
continues to be debts, which include Government securities (SBN), foreign loans
and domestic loans.
From 2007 to 2012, the actual budget deficit financing required was a little lower
than the target due to a combination of the revenue realization being above the
budget and the low absorption of the expenditure budget. In percentage terms,
the ratio of realization to target of budget financing during 2009 to 2012 was
86.7, 68.8, 86.8 and 81.1, respectively, as shown in the table below.
Table 4.1 Budget Deficit and Financing in Indonesia
Trillion FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

IDR
Budget Realiza- Budget Realiza- Budget Realiza- Budget Realiza- Budget Realiza-
tion tion tion tion tion
State 871.0 848.8 992.4 995.3 1,169.9 1,210.6 1,358.2 1,338.1 1,502.0 1436.9
Revenue
State Ex- 1,000.8 937.4 1,126.1 1,042.1 1,320.8 1,295.0 1,548.3 1,491.4 1,726.2 1,638.0
penditure
Deficit to (2.4) (1.6) (2.1) (0.7) (2.1) (1.1) (1.5) (1.3) (2.0) (2.2)
GDP (%)
Financing 129.8 112.6 133.7 91.6 150.8 130.9 190.1 153.3 224.2 227.2
Budget (86.7%) (68.8%) (86.8%) (81.1%) (101%)
Financing 24.0 44.8 46.5 153.3 26.0

in excess of
deficit
The table above illustrates the Indonesian practice of accumulating cash surpluses
by over-financing the budget deficit. The SAL is created because of the policy of
pursuing the borrowing amount set by the Parliament in the budget. The objective
of the Key Performance Indicator (KPI) of the DG Debt Management is defined
as meeting the financing target through borrowing. Consequently, if DG DM
did not meet the financing target through debt as set in the law, its performance
would be considered weak. This behavior, coupled with deficits that are regularly
lower than the budget projections, led to an unnecessary buildup of cash in the
form of SAL that could not be used by the government without further approval
by the Parliament.
In terms of instruments, non-debt financing was closer to the targets set in the
budget than debt financing. This is consistent with the policy of optimizing the
use of the budget to meet financing needs from non-debt sources. Despite the
policy of optimizing the use of non-debt sources, the contribution of the non-
debt financing is still small compared to the SBN financing, as shown in the table
and graph below on the proportion of non-debt to debt financing.
Table 4.2 Debt Financing
Trillion IDR 2008 2009 2010 2011 2012
Non-Debt sources 16.6 28.7 4.6 28.3 38.1
Debt Financing 67.5 87.1 86.9 102.7 142.0
Non-Debt-to-Debt 25% 33% 6% 28% 27%

Financing
Figure 4.1 Budget Financing
Trillion IDR
250
224.2 231.8
200
159.7
153.3
150
119.9
99.5 91.1
100 85.9 88.6 84.4
46.8 38.1
50
25.5 28.3
16.6 8.8
4.1 4.6
0
-4.2
-12.4
-18.4 -17.2 -16.4
-22.7
-50
2008 2009 2010 2011 2012 2013
Deficit (Surplus) Govt Securities, nett Loans, nett Non Debt, nett
Since 1998, the government budget has been in deficit with a peak of 2.5 per cent
of GDP in 1999.
Chapter 4 161
Figure 4.2 Indonesia Budget Deficit (Percentage of GDP) in 1998-2013
0.0
-0.08
-0.51
-0.5 -0.7
-0.87
-1.07 -1.03
-1.0 -1.26
-1.51
-1.6 -1.6
-1.5 -1.69 -1.72
-2.0 -2.15
-2.49 -2.45
-2.5
1998 2001 2004 2008 2010
During the fiscal reforms in early 2000, the State Finance Law introduced a
conservative budget deficit policy aimed at stimulating economic growth, and
maintaining fiscal sustainability.
The actual budget deficit between 2007 and 2012 has always been lower than the
deficit set in the annual budget law. Some contributing factors were:
• The realization of government revenues and grants exceeded specified

targets.
• The realization of government expenditure was lower than the budget
allocation, particularly as a result of lower budget absorption by ministries/
agencies including expenditures on projects financed under foreign loans.
Budget deficit financing can be from either foreign or domestic sources consistent
with the Government’s financing capacity and the debt management policy. In
its implementation, the Government aims to prioritize financing from domestic
borrowing because of the relatively lower risks . In addition, domestic borrowing
supports financial market development.
4.3.2. Coordination between Debt and Cash Management in Indonesia
Medium-Term Debt Management Strategy
The Government’s Medium-Term Debt Management Strategy 2013-20169 sets

the guidelines on the management of government debt in the medium term and on
the formulation of the annual debt financing strategy. It covers the Government’s
strategies on the management of government debt which will directly impact the
annual budget. Such debt consists of loans and securities that will be managed
by the Directorate General of Debt Management (DGDM) of the Ministry
of Finance. The box below highlights the main goals of the debt management
strategy.
Box 4.2 General Strategies for the Management of Debt and Contingent Liabilities
for 2013 - 2016 are:
a. To optimize the potential debt funding from domestic sources, while complementing
this using foreign sources.
b. To develop debt instruments and widen the debt investor base to increase flexibility in
the selection of funding sources that are in line with the financing of budget needs and
can be obtained at minimal cost and tolerable risk.
c. To utilize flexibility in debt in order to ensure the fulfillment of state budget financing
with optimal cost and risk.
d. To maximize the utilization of debt for capital expenditures, especially for infrastructure
development.
e. To perform active debt management within the Asset Liability Management
framework.
f. To discontinue the provision of blanket guarantees, such as the issuance of support
letters for Independent Power Producer projects of PT PLN.
g. To increase the capital of the companies established by the government to provide
infrastructure guarantees, in order to enable them to provide guarantees without
seeking government support.
h. To increase the transparency of the management of debt and contingent liabilities
through regular publication about debt information.
i. To improve coordination with related stakeholders in order to enhance the efficiency
of the State Budget, to support the development of financial markets, to upgrade the
sovereign credit rating, and to identify potential risks from guarantees and recommend
mitigation actions.
Chapter 4 163
Based on the selected strategy, the cost and risk targets of the government debt
portfolio at the end of each year from 2014 to 2016 are then determined, as
shown below.
Table 4.3 Cost and Risk Targets for Government Financing in 2014 – 2016
Sep- Target
Risk Indicator
12 2014 2015 2016 Notes
Nominal debt as % of GDP 25.1 21.8 20.8 18.7 Maximum
Interest Interest to GDP (%) 1.3 1.2 1.1 1.1 Maximum

Cost *) Interest to Outstanding (%) 5.2 5.5 5.5 5.7 Maximum
ATM Total Portfolio (yr) 9.8 9.4 9.1 8.8 Maximum

Refinancing
Risk Debt matures in 3 yrs
22.3 25.0 24.5 22.6 Maximum
(% Outs)
ATR (yr) 8.8 8.7 8.4 8.2 Maximum
Interest Rate Refixing rate (% total) 23.3 21.5 19.5 17.6 Maximum
Risk
Maximum
Fixed rate debt (% total) 83.9 86.8 88.2 89.2
80%
FX debt as % of total 44.8 40.0 38.0 37.3 Maximum

FX Risk Sort Term FX debt
5.6 6.6 6.2 5.7
as % of reserves **)
Notes
*) Cost Indicator per September 2012 are the targets for the end of 2012
**) Reserves are assumed to remain constant at USD 110 billion
The Medium-Term Debt Management Strategy is eventually used as an input in

formulating the annual state budget and annual borrowing plan, as seen in the
Debt Management Cycle below.
Figure 4.3 Debt Management Cycle

DEBT MANAGEMENT CYCLE
t'PSNVMBUFERVBSUFSMZCBTFEPO t(FOFSBMQPMJDZPOEFCUNBOBHFNFOU
"OOVBM4USBUFHZ t.FEJVNUFSNQPSUGPMJPUBSHFU
t'JWFZFBSUFSN SFWJFXBOOVBMMZ
Risk & Porfolio Medium Term
Performance Strategy
Monitoring
Annual State
Strategy Budget
t"OOVBMUBSHFU QPSUGPMJPDPNQPOFOUT t"OOVBMUBSHFU SFWFOVF FYQFOEJUVSF
JOTUSVNFOUT TUSVDUVSF SJTLT EFöDJU öOBODJOH
t(VJEBODFGPSNFBTVSJOHLFZQFSGPSNBODF t"OOVBMHVJEBODFGPSEFCUNBOBHFNFOU
JOEJDBUPS PQFSBUJPOT
t0OFZFBSQFSJPE DBOCFSFWJTFEJONJEEMFPG t0OFZFBSQFSJPE TVCKFDUFEUPSFWJTJPO
ZFBSEVFUPNBSLFUDPOEJUJPOTPSCVEHFU JOUIBUQBSUJDVMBSZFBS
BEKVTUNFOU
Annual Borrowing Plan (ABP)
Before the beginning of the fiscal year, DGDM prepares an ABP for financing the
projected government deficit, refinancing requirements, and planned investments.
Market participants are consulted during the preparation of the ABP, which
must be in line with the annual state budget approved by parliament. The ABP
determines the schedule for issuance of debt. The schedule is announced before
the beginning of the year and coordinated with DCM during the year. The ABP is
adjusted in response to the revised state budget (APBN-P), which is usually done
in the middle of the year to capture the difference between initial assumptions and
the on-going realization.
Chapter 4 165
The various inputs that are used while developing the ABP are shown in the chart
below.
Figure 4.4 Formulation of Annual Borrowing Program

FORMULATION OF ANNUAL BORROWING PROGRAM
Government Securities
Market Development:
One year t Demand & Supply
Risk Limit t Market Infrastructure
One year projection Recent market Government Securities

of market condition condition Issuance Compositions:
t Tenor
t Currency
Annual t Interest Rate Type
Debt Management
Borrowing
Strategy Government Securities
Program Buyback and Debt Switch
Program
Lender capacity Market demand

Loan Compositions:
assessment assessment t Tenor
t Currency
Instrument t Interest Rate Type
development
Annual Hedging Strategy
Coordination at the Policy Level through the ALM Committee

(ALMC)
Typically, the ALMC reviews:
i. the economic and market outlook (presented by FPO, DG Treasury and

DG Debt Management);
ii. the revenue projections (presented by FPO, DG Tax, DG Custom and
Excise, and DG Budget);
iii. the expenditure projections (presented by DG Budget and DG Fiscal
Balance);
iv. the cash projections and financing (presented by DG Treasury and DG
Debt Management); and
v. the assessment of risk to the balance sheet and budget activities, assessment
of the future cash requirements and new financing, and recommendations
on changes in policy if required.
Currently, the membership of this ALMC is limited to representatives from

the different units within MOF. The role of each DG as a member of ALMC is
prescribed in a Finance Ministry Decree.10 Their roles are as follows:
i. DG Tax is responsible for the monthly projection on tax revenue and

return;
ii. DG Customs and Excise is responsible for the monthly projection on
customs and excise revenue;
iii. DG Budget is responsible for the monthly projection on Non-Tax
Revenues (PNBP), state expenditures, and grant revenues;
iv. DG Fiscal Balance is responsible for the monthly projection on fiscal
transfers to regional governments;
v. DG Treasury is responsible for providing money market updates and
for preparing a weekly and monthly projection on the cash deficit/
surplus based on the revenue and expenditure projections. It also has a
responsibility to set the cash management policy;
vi. DG Debt Management is responsible for the weekly projection on
issuances, buy-backs, debt switching, and debt service obligations; and for
preparing a monthly securities market outlook. Knowing the projection
on the cash deficit/surplus from DG Treasury, the DG DM will then be
able to set the monthly Debt Issuance policy;
vii. DG State Asset Management is responsible for the monthly projection on
government investment in state owned enterprises (SOEs);
viii. FPO is responsible for the monthly macro-economic outlook and revenue
simulation model;
ix. Secretary General of MOF supervises the daily maintenance database,
application, and IT network; and finally
x. The Expert Staff of the MOF is responsible for coordination among all
units.
Coordination at the Operational Level through the Cash Planning

Information Network (CPIN)
During the fiscal year, an inter-directorate committee called CPIN (Cash

Planning Information Network) represented by technical staff from various
DGs and directorates (DG Budget, DG Treasury, DG Debt Management, Fiscal
Policy Office, and others) holds periodic discussions to update the monthly cash
forecasting report for the MOF. The committee uses historical data of revenues,
Chapter 4 167
as well as recent data and assumptions of key macroeconomic and monetary

indicators. This committee meets at least once every month and more frequently
if required.
The DCM of DG Treasury proposes to subsume the CPIN functions within the
ALMC. Once this happens, the focus of the in-year ALMC meetings will shift
more towards active cash management rather than limiting the discussions to the
macro-economic situation and fiscal policy issues. The annual strategic ALMC
meetings would continue to review the annual targets for cash balances, the annual
debt strategy, and the annual investment strategy; however, the CPIN data sharing
mechanism would continue to compile and circulate the cash position outlook for
the rest of the year. Hence, although the regular ALMC is in place, it would still
be worthwhile for CPIN to continue to meet provided the discussions focus on
cash management and short-term cash planning (daily and/or weekly forecasts).
Coordinating the Information Flow between DG Debt Management

and DG Treasury.
The coordination of information flows related to debt and cash management is

brought out in the diagram below.
Figure 4.5 Information Flow
INFORMATION FLOW
Annual Cash Debt Manager’s

Annual Budget
Flow Forecast Forecast
Line Ministries
Monthly Cash Debt Issuance
Monthly Spending
Flow Forecast Calendar
Forecast
Weekly/Daily Debt Manager’s

Cash Forecast Monthly/Weekly
Issuance Plan
Note: Green boxes refer to the information in DIPA documents managed by DGB, red boxes refer to
processes managed by DG Treasury, and blue boxes refer to processes managed by DGDM.
There is frequent exchange of information between DG Debt Management and

DG Treasury. DGDM always informs DG Treasury when it plans to conduct an
SBN auction. In addition to the synchronization of the annual budget targets
on debt issuance, information is exchanged monthly, weekly and daily through
coordinating arrangements such as the ALMC and CPIN. The implementation of
SPAN and the proposed interface of DMFAS with SPAN will provide real-time
on-line access to both organizations on the status of government cash requirements
and the debt portfolio.
4.3.3. Planning and Managing Cash Flows for Financing the Budget
Financing Instruments
Law no. 24/2002 regulates SBN.11 Article 5, paragraph 1 of the law authorizes the
Finance Minister to issue SBN after receiving the parliament’s approval, which is
reflected in the annual state budget law. The types of SBN consist of:
• Treasury Notes (SPN/T-Bills) with a tenor of up to 12 months and a

principal discounted interest cost payment;
• Treasury bonds with a tenor of more than 12 months and with a coupon
and/or principal discounted interest cost payment;
• Islamic/Sharia securities in Rupiah or foreign currency, including Ijarah,
Musyarakah, Istisna;
• SBN can be issued in:
- Rupiah or foreign currency;
- tradable or non-tradable form, fixed, variable or zero coupon.
The characteristics of the debt instruments currently used in Indonesia are shown
in the chart below:
Chapter 4 169
Figure 4.6 Debt Instrument Characteristics
DEBT INSTRUMENT CHARACTERISTICS
Govt. Securities Government Debt t*TTVBODFNFUIPEBVDUJPO CPPLCVJMEJOH

(SBNs) Securities (Conventional) - QSJWBUFQMBDFNFOU
t5FOPSTTIPSU NFEJVN MPOHUFSNT
SUNs
ZFBST
t1SJODJQBMSFEFNQUJPONPTUMZCVMMFUQBZNFOU
Government Sharia t*NQMFNFOUJOHTIBSJBQSJODJQMFTBOE

Securities (Sharia) - VOEFSMZJOHBTTFUTPGQSPKFDUTCBTFE
t*TTVBODFNFUIPEBVDUJPO CPPLCVJMEJOH
SBSNs
QSJWBUFQMBDFNFOU
t5FOPSTTIPSU NFEJVN MPOHUFSNT
ZFBST
t1SJODJQBMSFEFNQUJPONPTUMZCVMMFUQBZNFOU
Loans t'PSmOBODJOHCVEHFUEFmDJU
(Borrowing) Program Loans t1SFSFRVJTJUFGPSEJTCVSTFNFOUQPMJDZNBUSJY
t-FOEFST8PSME#BOL "%# "'%+*$"
t-JNJUFECZTJOHMFDPVOUFSQBSUZDFJMJOHGSPN
FBDIMFOEFS
t$PVOUSZPGPSJHJOFYUFSOBMBOEEPNFTUJD
Projects Loans t'PSmOBODJOHDFSUBJOQSPKFDUT
t$BOCFPOMFOU 4-" UPNVOJDJQBMTBOE40&T
t4PVSDFTCJMBUFSBM NVMUJMBUFSBMDPNNFSDJBM
JODM&$"
Managing Cash Flows related to Financing
DG Debt Management prepares information on debt payments falling due in a

financial year for inclusion in the government budget for both government direct
and guaranteed debt. The State General Cash Account (SGCA/RKUN) held by
DG Treasury is used to defray expenses related to debt servicing. Foreign Loan
transactions are routed through a separate LTB12 so as to ensure accountability and
ease of reconciliation of cash flows related to foreign loan. DG Treasury maintains
separate accounts for debt servicing of external and domestic transactions.
DGDM manages several IT applications such as (i) Debt Management Financial

Analysis System (DMFAS) and its interface application; (ii) BI-SSSS for
settlement; (iii) MOFID for debt switching/buy-back; (iv) DSS as the decision
support system; and (v) the MTDS application. The latest version of DMFAS
6, which was originally limited to administer external loans/grants, has been
interfaced with an in-house developed application to also record the domestic
debt. Indonesia is the first country to implement “DMFAS plus,” which integrates
the external and domestic debt databases.
As part of its efforts to consolidate general government information, DG Fiscal

Balance is collecting the sub-national debt information. However, there is no
established plan yet with regard to the integration of the central government
debt database with the sub-national debt database. The reason is that, under the
decentralization law, there is no mandate for DGDM to manage the sub-national
debt information. The future plan is to have an integrated database of central and
sub-national government debts.
4.3.4. Short-Term Placement of Surplus Government Cash Balances
The DGDM usually tries to ensure the availability of cash by mobilizing funds
to cover the bulk of the budgeted deficit in the early part of the fiscal year (front
loading policy) soon after the Appropriation Act is passed. The expenditure
pattern, however, is invariably back-loaded, with as much as 40% of the budget
appropriations being expended in the last quarter of the year. Moreover, the
mobilization of debt at the beginning of the year has insulated government funds
from market risks such as exchange rate fluctuations. This was highlighted in 2013
when a departure from this strategy was tried and a lower IDR exchange rate from
the middle of the year reduced investor confidence and caused a sharp rise in the
yield on Government bonds. However, the conservative policy of front loading
has resulted in a high carrying cost of money for the government, because the
excess funds remained unutilized until the last quarter. The table below shows that
in FY 2014 more than one-third of the debt issuance target for the year has been
completed in less than two months (19 February 2014), as opposed to the slower
issuance in FY 2013 when only 10.7% of the debt was issued within the first two
months of the fiscal year.
Table 4.4 Debt Issuance in Indonesia by Quarter in 2012-2014

Year Issuance Need Issuance Issuance by Issuance by Issuance by
(in Revised by end of end of Q2 end of Q3 end of Q4
Budget) February (% to total) (% to total) (% to total)
Million IDR (% to total)
2014 430,182,745 33.7% by Feb 68.5% by July n.a n.a

19, 2014 25, 2014
2013 323,234,377 10.7% by Feb 53.2% by July 75.8% by Oct 100%

25, 2013 16, 2013 3, 2013
2012 268,547,858 18.5% by Feb 65.2% by July 86.3% by Oct 100%

23. 2012 16, 2012 17, 2012
Chapter 4 171
With the implementation of cash management reforms, it is expected that

government cash resources in BI will be targeted to cover immediate expenditures
and any surpluses will be invested at market rates of return. There are two
advantages to targeting cash balances and investing surpluses. First, there is interest
income if the funds are invested; second, there is a profit from the reduction in the
interest burden which comes from interim SBN purchases made in the context of
cash management.
The Government has issued a comprehensive regulation for dealing with any cash
surplus and deficit.13 The regulation defines the objectives of the management of
any surplus/deficit in state cash, the types of investment in case of a cash surplus,
the procedures for the selection of commercial banks to place state money, the
types of deposit in commercial banks, the mechanism to purchase bonds and
implement reverse repo, management of the cash deficit, and finally the provisions
for risk management and accountability.
The recently issued MOF regulation14 further elaborates the rules and procedures
for the placement of surplus government funds in commercial banks. The
regulation sets out the stringent requirements for commercial banks to be selected
as the government’s partner banks for the placement of state cash,15 the placement
procedures and types of deposit, the maximum amount that can be placed in one
particular bank, the minimum remuneration/interest rate, which is at least 70%
of the BI rate, and the conditions for withdrawal.
Currently, the minimum daily reserve balance target is set at IDR 2 trillion so
as to optimize the cash holding while ensuring liquidity for payments. There
is no overall calculated optimal cash buffer level. A cash excess consists of any
currency in excess of the cash balance target. Those funds can be used for short-
term investments (including placement in the commercial banks) by taking into
account the principles of safety and caution in the effective allocation of state
funds. The instruments available for placement of surplus funds comprise:
• Placement of state cash in the central bank;

• Placement of state cash in the commercial banks:
- in the overnight deposit (1–3 days);
- in the Deposit on Call that can be withdrawn by early notification;
- in the Time Deposit that can be withdrawn at maturity date.
• Purchase of Government bonds from the secondary market; and/or
• Repo/Reverse Repo
Although the comprehensive technical regulation is in place, surplus government

cash continues to be held in BI and is remunerated at interest rates below market
rates. There are differences of interpretation between BI and the MOF with regard
to the authorization of the Minister of Finance to invest state money and manage/
administer placements. BI interprets the law16 as requiring the Minister of Finance
to deposit all government funds and invest surpluses in the TSA with the central
bank only. The view of the MOF is that, while the Treasury Law mandates the
deposit of government money in the central bank, it is silent about the investment
of surplus cash outside of the State General Cash Account in BI.
Should DG Treasury begin to place idle cash outside of BI, then accurate forecasts
of the daily cash balance are needed by DG Treasury to make informed decisions
regarding the term of placement for surplus cash, in order to maximize returns
with minimum risk. Investing state cash outside of BI would offer the potential for
higher returns to the government. Greater investment activity by the MOF could
also contribute to the development of the domestic money market, by providing a
catalyst for greater activity by other players. However, before the placement of the
state cash balance outside of central bank can be implemented, the MOF should
coordinate with BI since this proposal has significant implications for monetary
policy.
DG Treasury is establishing the infrastructure for active cash management, and

is actively pursuing a proposal to set up a Dealing Room. The highlights of the
proposal are described in the box below:
Box 4.3 The Treasury Dealing Room (TDR)
DG Treasury is currently in discussions with BI and DG Debt Management regarding the

setting up of a dealing room within DCM for handling the asset side of cash management.
Regulations have been developed for underpinning the TDR activities. Funds have been
allocated to meet the operational costs of the TDR. Sufficient capacity has been created
within the Treasury through the training by external experts of 36 DCM staff to be the
market dealers. The infrastructure for TDR operations includes: (i) Direct Dealing System and
Communication System; (ii) Money Market Information System (Reuters and Bloomberg);
and (iii) Treasury Application Software. The TDR is expected to be in operation by early 2014.
It is proposed that the TDR’s initial operations would be restricted to the placement of
short-term surplus cash balances in an appropriate amount either with the BI or with
selected commercial banks.
The Treasury is currently in the process of addressing BI concerns that large placements
by the government with financial institutions would adversely affect monetary policy
implementation. The plan of the Treasury is to start by making small placements outside of
BI so as to minimize any risks to monetary policy operations.
Chapter 4 173
The Treasury is also in discussions with DG Debt Management to find ways to ensure that
financial markets see the financing operations of both organizations as complementary.
The table below describes the differences in the operations of the TDR and the DG DM
Dealing room.
DG DM Dealing Room Treasury Dealing Room
Aim Issuance and redemption Manage cash liquidity

of the Government through money market
securities instruments
Instruments to be traded Debt instruments; Money market

T-Bonds; T-Bills; State instruments; cash
Sharia Securities placement in commercial
banks, foreign currency
management; and Repo/
Reverse Repo
Horizon Long term (90 days or Short term (maximum 90

more) days)
4.4. CONCLUSION
With improved coordination and communication between cash and debt managers
through regular ALMC meetings, Indonesia is gradually becoming better placed
to move to active daily cash management. Information on idle cash balances that
could be used to fund the financing requirement are starting to be factored into
the government’s borrowing strategy. The Treasury continues to refine cash flow
projections to improve the accuracy of forecasts, the period of projections and the
exact timing of large-value transactions. However, coordination between the cash
manager, the government debt manager, and the monetary authorities needs to
be further strengthened by including central bank representatives in the ALMC
and CPIN.
The preparation of the Treasury Dealing Room (TDR) is underway. Once

the TDR is established and adequately staffed, the Treasury would be able to
participate in the money markets to secure financing and placement of funds at
competitive market rates. The operation of two front offices by MOF (i.e., DGDM
and DG Treasury) raises some risks that need to be addressed. In particular, it
is important to ensure that financial markets see the operations of both dealing
rooms as complementary and not conflicting, as that would confuse the market.
Furthermore, the Treasury is in discussion with BI to clarify individual roles and
responsibilities. These need to be formalized through an appropriate service level

agreement and/or decrees. At the initial stages, it would be advisable to limit the
operations of the TDR to the placement of short-term surplus cash balances for
appropriate periods and amounts with financial institutions, other than BI.
The implementation of SPAN and the proposed interface of DMFAS with SPAN
will provide real-time access to both organizations on the status of government
cash requirements and the debt portfolio. As already mentioned, a number of
countries are now configuring their debt management systems to interface with
their IFMIS. Indonesia also proposes to interface its IFMIS (SPAN) with DMFAS,
which has already been configured to record both domestic and external debt. The
electronic interface between these two systems and giving BI on-line access to the
integrated database will greatly facilitate coordination between cash management,
debt management and monetary policy.
In-year cash management should be more coordinated with debt management

borrowing patterns. The previous practice has been to front load the debt
financing to meet the fiscal deficit approved in the budget for the year, but this
conservative strategy incurs a high carrying cost. Starting in 2013, the government
decided to refine the strategy so as to borrow more during the year. This should
provide greater certainty about the effects of debt management activities on the
cash flow forecasts. Enhanced cash and debt management coordination would
ensure that debt market dynamics used in determining the domestic borrowing
strategy integrate better with cash management objectives during the year.
It would also be useful to provide greater certainty in the ABP for financing
the budget, especially with respect to the use of the Budget Surplus Balance
(SAL). The rigidities associated with the use of the SAL are an unusual feature of
Indonesia’s financing practices and are an impediment to good cash management.
The practice relates to requirements introduced by the parliament and it would
be useful to explore with the budget committee of the parliament, options for
relaxing the constraints to provide more flexibility in the financing.
The rate of remuneration for surplus government cash balances held in BI

continues to be well below market rates. While the MOF is keen to obtain
interest rates that are closer to market rates, it would be beneficial for the MOF
and BI to review the prevailing remuneration rates based on mutual interest in
maintaining the stability and reducing the cost of fiscal and monetary policy. If
Chapter 4 175
the MOF decided to invest its balances in government owned commercial banks,
this proposal would have additional cost for BI in implementing monetary policy
that would reduce the overall beneficial effects of placement funds in the market.
The modalities for investment should also ensure that government balances held
outside the BI are fully securitized. While the proposal to invest government
balances at interest rates closer to those prevailing in the market is desirable for
the purpose of securing optimal returns on idle balances, it should be approached
with a prudent regard to the associated credit and liquidity risk.
Notes
¹ A task of the macroeconomic department – not the cash or debt managers

² Guidelines for Public Debt Management –World Bank and IMF
³ Credit can be from suppliers; loans from financial institutions; government securities; loans from
governments (bilateral sources); loans from multilateral agencies.
4 Creditors can be: central government; central bank; local government; mixed enterprise; official
development bank; and private borrower.
5 For this reason, some countries such as Sweden have a target of zero for their cash buffer level.
6 Public Financial Management and Its Emerging Architecture- IMF
7 By Mike Williams in 2011
8 PFM and its emerging architecture
9 Finance Minister regulation No. 37/2013
¹0 Finance Minister Decree No. 335/2012
¹¹ The legal basis for debt management also comes from: Law #19/2008 on Islamic Sharia securities;
Government Regulation No 10/2011 on the procedures in obtaining foreign loans and grants;
Government Regulation No 54/2008 on the procedures for obtaining and on-lending domestic loans.
¹² KPPN for Loan and Grant
¹³ PP No. 39 of 2007 and Finance Minister Regulation No. 05/2010
¹4 Finance Minister Regulation No. 03/2014
¹5 BUMPUN= Bank Umum Mitra PenempatanUang Negara = the government’s partner bank for the
placement of state cash
¹6 Law 1/2004 on state treasury
Appendices
Appendices 179
APPENDIX 1
Comparison with IMF Generic Milestones for Implementing Cash

Management
The International Monetary Fund’s Public Financial Management (PFM)

technical guidance note on cash management of February 2008 outlines four
phases involved in moving from primitive cash management to active daily cash
management. The stages from the note are reproduced below along with the
current status of implementation in Indonesia:1
Indicators Status Remarks
Phase 1: Addressing Fundamentals
Establishing a cash Done Directorate of Cash Management (DCM) under

management unit (CMU) DG Treasury, Ministry of Finance
that normally is located in
the Treasury Department.
Establishing a policy- Done Asset and Liability Management Committee

making cash management (ALMC) chaired by the Minister of Finance
body. launched its first meeting in early 2013.
Highlighting the Done Finance Minister Decree (KMK) 335/2012 on

importance of effective ALMC technical meetings and Finance Minister
cash management Regulation (PMK) 169/2012 on the role of DG
Treasury regional branches (RTB/Kanwil) and
local branches (LTB/KPPN) to assist 24,000
spending units in preparing their cash plans
Ensuring realistic annual Done Regular ALMC meetings to update monthly

budget projections. budget projections
Establishing an operational Done Implementation of TSA with the

Treasury Single Account implementation of (i) zero balance accounts
(TSA). for expenditure at LTBs/KPPNs; (ii) daily sweep
of the commercial partner banks that collect
revenue from tax payers; and (iii) Notional
Pooling Account to virtually consolidate 24,000
spending units’ petty cash accounts.
¹ The IMF Guidance note indicates that “The speed at which cash management can be improved depends on: (1)
the starting point, especially the extent to which basic conditions for effective cash management are in place; (2)
the willingness of national authorities to reform cash management practices, to confront resistance to full treasury
oversight of all government bank accounts, and to enhance the transparency of government operations at transaction
level; (3) the infrastructure available for rapid transfer of funds by electronic means; (4) the degree to which financial
markets have developed, including end-of-day bank account “sweeping” and financial market instruments available
for daily cash management; and (5) human capacity and organizational arrangements.”
Avoiding use of physical Done Applying direct payment using real time gross
cash. settlement transfer from the TSA account in the
central bank to the end beneficiary account in a
commercial bank
Limiting cash advances. Done Strict regulation to limit the petty cash amount
that can be held by each of the 24,000 spending
units
Improving government Done Government regulation No. 70/2010 on

accounting. government accounting standard and PMK
No. 238/2011 on the General Guidance of
the Central Government Accounting System
(PUSAP)
Modifying the legal Done Issuance of Law 1/2004 on State Treasury, GOI
framework. regulations No 39/2007 and 45/2013; and
Finance Minister regulation 192/2009
Phase 2: Preparing cash plans and developing cash management skills
Preparing short-term Done Cash Management directorate staff do regular

projections of cash flows. updates on short-term cash flow projections,
although the accuracy can still be further
improved through an increase in the submission
rate of the updated cash flow projections by the
large spending units.
Establishing information- Done DG Treasury holds regular meetings with line

sharing arrangements ministries. This mechanism can be further
improved by having a fixed agenda and
schedule of meetings.
Ensuring information Mostly Regular monthly reconciliation meeting

exchanges for cash Done between Treasury regional office and spending
projections take place. units to discuss the updated cash plan. The
implementation of a new IFMIS (SPAN) will
further improve the information exchange
through the provision of on-line and real time
data.
Preparing cash plans. Mostly Distribution of Spending Unit Forecasting

Monthly, bi-monthly, or Done Application (AFS) to all 24,000 spending units
weekly cash plans should in 2010. This application will soon be upgraded
be prepared in the first and replaced by SAKTI, which will be interfaced
instance. with SPAN. However, the compliance rate of
cash plan submission is still low. It needs to be
supported by a policy on sanctions or penalties
for those who are not submitting updated cash
plans.
Appendices 181
Developing cash projection Mostly Training of spending unit staff members that
skills. Done manage 70% of the budget to familiarize them
with Finance Minister regulation No. 192/2009.
The training must be regularly and continuously
held and supported by sufficient budget.
Phase 3: Going beyond prerequisites and basic cash planning
Shortening revenue Done Signing an agreement with all commercial

transmittal delays banks as persepsi (partner) to deposit tax
revenue paid by tax payers and carry out a daily
sweep to the TSA account in the central bank,
with a penalty being imposed for any floating
funds
Coping with seasonality Done Regular ALMC meetings to update monthly

and “lumpiness” in cash revenue projections
inflows.
Assessing the impact Done Implementing budget commitment module

on cash projections of in SPAN to perform automated registration of
expenditure commitments payment schedule based on the committed
in the pipeline. contract
Processing expenditure Done PMK 190/2012 requiring DG Treasury to

approvals and payments process any request for payment in one day at
efficiently. maximum
Computerizing expenditure Done Legacy and SPAN

processes.
Maintaining minimum cash Done IDR 2 trillion and equivalent of USD 1 million for
balances. daily cash requirement
Remunerating idle cash Done MOU with central bank for remunerating cash
balances. above IDR 2 trillion and equivalent of USD 1
million kept in central bank
Extending TSA coverage. Partially TSA has covered expenditure accounts; revenue
Done accounts and petty cash at spending units.
However, there is a need to also consolidate the
other government owned accounts, such as
Public Service Agency accounts, and to report
on the government managed accounts, such as:
the bail-out funds; haj funds; endowment funds
Coordinating cash and debt Partially Through regular CPIN and ALMC meetings
management. Done
Using banking facilities. Done Central Bank RTGS (Real Time Gross Settlement)
system for fund transfer; Central Bank BIG-
eB (Bank Indonesia Government electronic
banking) for closed internet banking with
government
Formalizing relations with Done Signing an agreement with the appointed

banks for treasury services. commercial banks as the partner for paying
expenditure (bank operational) and collecting
revenue (bank persepsi)
Clarifying the relationship Done MOU and regulations

between the treasury and
the central bank.
Phase 4: Introducing active daily cash management:
Becoming more active in Partially The preparation of Treasury Dealing Room (TDR)
daily management of cash Done is underway
balances.
Introducing daily bank Done Daily sweeping for tax revenue payment to TSA
account “sweeping”
arrangements.
Ensuring the security of Not Yet

short-term placements by started
the treasury.
Refining cash flow Partially PMK 192/2009 to be further improved by

projections to improve Done applying “80-20” rules focusing more on large
accuracy of projections, spending units’ budget and imposing a penalty
period of projection and without delaying budget expenditure
the exact timing of large-
value transactions.
Strengthening coordination Partially ALMC is held by MOF internally. The inclusion

between the cash manager, Done of the central bank as a participant would be
the government debt beneficial.
manager, and the monetary
authorities.
Appendices 183
APPENDIX 2
The Structure of Government Bank Accounts Held in BI and its

Balance at End of 2012
Type of Account Account # Balance at end Remuneration Legal
2012 (IDR) basis
I. MOF/Central Treasury’s Main Account held in Central Bank of Indonesia (BI)
1 SGCA (state general 502.000000980 2,199,992,464,994 0.1%p.a x avg. MOU

cash account) or RKUN daily balance MOF-BI
in Rupiah
2 SGCA (state general

cash acct) or RKUN in
foreign currency
a. USD 600.502411980 6,339,139,103 0.1% p.a x avg. MOU

daily balance MOF-BI
b. YEN 600.502111980 680,372,438,864
c. EURO 600.502991980 n.a
3 Placement account in 518.000122980 940,127,275,397 65% x SBI rate MoU

Rupiah
4 Placement acc. in
Foreign Currency
a. USD 608.001411980 4,985,649,807,746 65% x Fed rate MoU

MOF-BI
b. YEN 608.000111980 n.a 65% x BOJ cash
rate
c. EURO 608.000991980 564,701,567,195 65% x ECB

reference rate
II. MOF/Central Tresury’s Revenue Accounts held in Central Bank of Indonesia (BI)
1 Special (Imprest) 1 account for 1 1,907,213,434,609 65% x home PMK

Account: to loan/grant currency rate 206/2010
temporarily place the
foreign loan/grant
revenue in Rupiah/
other currency from
donors
2 Income Tax Revenue 600.500411980 n.a N.A (directly to DGT Kep

(PPh) account in USD RKUN) 169/2009
3 RDI/RPD (repayment 513000000980 65% x BI rate DGT Kep

revenue) account in 607.000.xxx 65% x home 5/2011;
Rupiah/ YEN/ AUD/ 519000102980 currency rate 244/2010
USD/ GBP/ SDR/ EUR
Type of Account Account # Balance at end Remuneration Legal

2012 (IDR) basis
4 Grant revenue (natural 519.000124980 8,492,000,735 65% x BI rate PMK

disaster in Sumatera) 173/2010
account in Rupiah
5 Finance Minister 500.000003980 n.a 65% x BI rate Law

account to deposit 19/2008
revenue from the
T-bonds issuances
III. Other MOF accounts held in Central Bank of Indonesia (BI)
1 Account to deposit the 500.000002980 25,755,966,698,308 65% x BI rate DGT kep

accumulated annual 48/2010
budget surplus (SAL)
2 Account to deposit 500.000001980 n.a 65% x BI rate Law

bridging funds to 19/2008
pay the “backlog” of
imprest accounts
waiting for
replenishment from
the Lenders/donors
3 Account for expense of 502.000001980 n.a 65% x BI rate SKB

SBN issuance
4 Account on bonds for 502.00002980 n.a 65% x BI rate SR 176/99

guarantee
5 Oil production sharing 600.000411980 13,005,460,815,909 65% x BI rate PMK

contract agreement 113/2009;
(KPS) revenue 114/2009
6 Mining and Fishery 508.000071980 n.a 65% x BI rate

revenue
7 Geo Thermal revenue 508.000084980 347,992,721,305 65% x BI rate

Appendices 185
APPENDIX 3
MOU between the Minister of Finance and the Governor of Bank

Indonesia on Coordination of Government Cash Management
The detailed arrangements stated in the memorandum of understanding (MOU)

are as follows:
JOINT DECREE OF MINISTER OF FINANCE AND GOVERNOR OF BANK INDONESIA

NUMBER 17/KMK.05/2009 AND NUMBER 11/3/KEP.GBI/2009
CONCERNING: COORDINATION OF GOVERNMENT CASH MANAGEMENT
THE MINISTER OF FINANCE AND THE GOVERNOR OF BANK INDONESIA
FIRST : To stipulate the amount of average daily minimum cash balance including holidays
in State Treasury Account with Bank Indonesia at IDR 2,000,000,000,000.00 (two trillion
rupiah) for rupiah account and equivalence of USD1,000,000.00 (one million United States
dollars) for foreign exchange USD and non-USD accounts.
SECOND: The State Treasury may invest any excess balance of the State Treasury Account
in Investment Spending Account with Bank Indonesia comprising Rupiah Investment
Spending Account, USD Foreign Exchange Investment Spending Account, and Non-USD
Foreign Exchange Investment Spending Account.
THIRD : The interest rate on Government Cash (rupiah and foreign exchange) in the State
Treasury Account is 0.1% (zero point one per one hundred) per annum and the interest rate
on each Investment Spending Account per annum is : a. For Rupiah Investment Spending
Account, at 65% (sixty five per one hundred) of Bank Indonesia policy rate (BI Rate); b. For
Foreign Exchange USD Investment Spending Account, at 65% (sixty five per one hundred)
of Fed Fund Rate; c. For Non-USD Foreign Exchange Investment Spending Account, at 65%
(sixty five per one hundred) of the foreign exchange home currency policy rate.
FOURTH: Calculation of interest shall be based on end of day average balance in one
month for each account either State Treasury Account or Investment Spending Account.
FIFTH: By the enactment of this Joint Decree of Minister of Finance and Governor of
Bank Indonesia: a. Bank Indonesia shall conduct calculation and payment of interest on
Government Cash in the State Treasury Account and Investment Spending Account with
Bank Indonesia which the interest shall be calculated as of January 2009 and the payment
of interest on end of day average balance for the current one month shall be calculated at
the end of the current month. b. Especially for the interest for January 2009, the payment
shall be carried out together with the payment of the interest for March 2009 because the
interest for January 2009 shall be calculated manually while automatic calculation shall
be implemented as of February 2009. c. The Government shall implement a full Revenue
Treasury Single Account (TSA) no later than January 1, 2009, as the schedule agreed by the
Ministry of Finance and Bank Indonesia and becoming an inseparable Appendix of this
Joint Decree of Minister of Finance and Governor of Bank Indonesia.
SIXTH: Any other Government Account may be treated as Investment Spending Account
as far as it complies with provisions in Article 15 and Article 36 of Government Regulation
Number 39 of 2007 concerning Central/Regional Government Cash Management and after
the Government notifies Bank Indonesia that the other Government Account has been
categorized as Investment Spending Account.
SEVENTH: In the implementation of the full TSA the balance of any State Treasury Account
with commercial banks functioning as Revenue Account and Spending Account shall be
made null at end of day to be deposited to the State Treasury Account with Bank Indonesia.
EIGHTH : The minimum cash balance in the State Treasury Account and the interest rate
on Government Cash in Investment Spending Account with Bank Indonesia may be revised
every 6 (six) months and in the event of any disagreement with the interest rate, the
applicable interest rate shall be extended up to a new agreement is reached.
NINTH: The Minister of Finance may invest any excess balance in the State Treasury Account
in commercial banks under coordination with the Governor of Bank Indonesia in regard to
the investment amount and time.
TENTH: In case of any failure in the implementation of any matter agreed in this Joint
Decree of Minister of Finance and Governor of Bank Indonesia by any party, one of the
parties may request for a meeting between the Governor of Bank Indonesia and the
Minister of Finance to review the implementation of this Joint Decree of Minister of Finance
and Governor of Bank Indonesia.
ELEVENTH: To implement this Joint Decree of Minister of Finance and Governor of

Bank Indonesia the Ministry of Finance shall issue Minister of Finance Regulation and
Bank Indonesia shall issue Board of Governors Regulation in accordance with respective
authority.
TWELFTH: This Joint Decree of Minister of Finance and Governor of Bank Indonesia shall
come into force as of the date of its enactment and retroactively be effective since January
1, 2009.
Enacted in Jakarta
Dated January 30, 2009
Appendices 187
APPENDIX 4
Illustrative Example of Agreements with Commercial Banks for

Provision of Banking Services for Expenditures
Extracted from:
The Agreement on State Budget Funds Disbursement Cooperative Agreement Through
Commercial Banks (Bank Operation) Between The Directorate General of Treasury and Bank
XXX.
The agreement signed by the DG Treasury (as the first party) and the Management
(Director) of the commercial bank/Bank Operation (as the second party).
THE FIRST PARTY and THE SECOND PARTY, collectively referred to as THE PARTIES, agree to
enter into and sign a State Budget Funds Disbursement Cooperative Agreement through
Commercial Banks, with the following stipulations:
PURPOSE AND OBJECTIVE

The purpose of this Cooperative Agreement is to arrange the work of the fund disbursement
services of 2013 by the Central BO I which are the working partners of the Directorate
General of Treasury and the BO I which are the working partners of KPPNs.
SCOPE OF WORK
- Opening and management of MOF’s account upon the requests of the DG of Treasury;
- Receiving funds from the TSA at Bank Indonesia and entering it in the books at that time
for the benefit of MOF account;
- Distributing/disbursing funds based on the request of DG Treasury;
- Submitting the reports of bank statements of the MOF’s account to the Directorate of
PKN;
- Zeroing out the balances of the MOF’s account at the end of the working day ;
- Cooperating with THE FIRST PARTY in building a data application and communication
system
LIMITATION OF RESPONSIBILITIES
- In implementing the work as referred to in this Cooperative Agreement, THE SECOND
PARTY is obliged to keep confidential all the existing data and information, and may not
use them for any other interest or purpose, or share them with any other parties outside
of the defined scope of work, except with a written consent of THE FIRST PARTY.
IMPLEMENTATION COSTS
- Costs for the formulation of business processes upon the distribution of SP2D funds
become the burden of THE FIRST PARTY.
- Costs for the development of application and communication systems is become the
burden of THE SECOND PARTY.
- Costs for the provision of application at the BO Is which conform to KPPN applications
become the burden of THE SECOND PARTY.
- Costs for the provision of the CMS network and system become the burden of THE
SECOND PARTY.
PROHIBITIONS
- KPPN are prohibited to submit SP2Ds to the BO after 3:00 PM local time in order to
transfer them to the authorized accounts on related working days.
- The BO are prohibited to:
a. Charge any service costs, including costs for BI RTGS /Local Clearance to any
authorized parties.
b. Perform any actions, both directly and indirectly, which may result in:
i. Delayed transfers to the authorized accounts
ii. Delayed crediting of Returned SP2D funds.
iii. Withdraw funds from the MOF’s account before such SP2Ds are received from the
KPPN.
iv. Withdraw funds from the MOF’s account in excess of the total funds listed in the
SP2Ds.
Warning Letters are submitted by THE FIRST PARTY to THE SECOND PARTY when:
1. The Central BO Is submit invalid reports to the Director of State Cash Management.
2. The Central BO Is are late to submit reports to the Directorate General of Treasury with
attention to the Directorate of State Cash Management.
3. The Central BO Is do not pay the penalty charged by the Directorate of State Cash
Management.
4. The Central BO Is do not perform other duties and obligations
PENALTY SANCTIONS
THE FIRST PARTY imposes penalties to THE SECOND PARTY if:

1. The Central BO Is do not zero out and/or do not perform full zeroing out of the balances
of MOF’s account.
2. The Central BO Is are late to distribute funds to the receiving accounts in accordance
with the request received from the MOF.
3. The Central BO Is are late to credit the Returned SP2D funds from the receiving banks to
the MOF’s account.
4. The Central BO Is charge costs to any parties listed in the SP2Ds/R-SP2Ds.
The total amount of penalty is set at 1‰ (one per thousand) per day, including holidays/
days given off from the total amount of funds that were not zeroed out/late to be
distributed/late to be credited, calculated per day including the holiday.
The total amounts of penalties are set at 300% of the total charge cost imposed on any
party listed in the SP2Ds/R-SP2Ds.
Appendices 189
APPENDIX 5
Mechanism of State Receipts and Expenditures Before and After the

Implementation of the TSA (Treasury Single Account)
No Item Before TSA After TSA
A. For Cash Receipts Persepsi Banks are appointed Persepsi Banks are appointed
by the Minister of Finance by the Ministry of Finance and
and are not paid for services are paid for services related
related to state receipts. to state receipts, based on a
working agreement/ contract
(at present IDR 5,000 per
transaction).
1. Persepsi Banks State Receipts in Persepsi Each day the State cash
Banks are sent every Tuesday, Receipts in Persepsi Banks
Friday and last day of the must be sent to the RKUN in
month to BI (funds are idle BI (there are no idle funds in
in Persepsi Banks outside of Persepsi Banks)
those days/times).
B. For Cash Expenditures No payment is given for Payment is given for services
services related to state related to state expenditures,
expenditures the amount of which is
established based on open
bidding.
1. Operational Banks (BO) • BOs as KPPN working The selection of BO as LTB/

partners are directly KPPN working partner is
appointed by the done through a competitive
Directorate General of the bidding process. However,
Treasury. in 2013, direct appointment
was temporarily applied to
• There are three BOs support the development of
according to type/function: new IFMIS (SPAN) in which
BO I = Hold Salary and the appointed banks are
Non-Salary Funds required to establish banking
BO II = Hold salary funds IT connectivity with the SPAN.
(monthly salaries and In the future, the competitive
salary shortages) bidding process will be
BO III = Hold land and applied again when the SPAN
property tax (PBB) and is already stabilized.
transfer of the ownership
of the land and property • Based on their duties/
tax (BPHTB) functions, there are 2 types
of BOs:
 BO I = Hold non-salary
funds
(including salary
shortages)
BO II = Hold salary funds
(monthly)
No Item Before TSA After TSA
2. Fund ceiling/balance • The fund ceiling amounts in • There is no ceiling set for BO
in BOs BO I have been set for both I. BO I funds are provided
salaries and non-salaries. BO based on the KPPN need for
II is given funds for payment each day. BO II, at present,
of salaries 6 days before the is given funds for payment
1st of the month. of salaries 3 calendar days
before the salary payment
• Each day BO I and II have date.
balances as reserves for • Balances in BO I must be
the payment of state zeroed out every day,
expenditures. while for BO II (at present)
balances must be zero after
payment of salaries.
C Others
1. KPPNs In connection with the There is no longer a

process of providing funds difference between KBI (core)
for channeling State Budget KPPN, KBI (non-core) KPPN,
funds, KPPN are divided into: and non-KBI KPPN.
1. (core) KPPN
2. (non-core) KPPN The provision of funds for
3. non-KBI KPPN channeling State Budget
In principle, KPPNs provide funds is done through the
their own funds. central Treasury (HQ) office.
Funds are provided in the

Expenditures Account of
the Central Proxies of the
State General Treasurer
(RPK¬BUN¬P) at the
headquarters of BO I.
The provision of funds for

BO I working partners with
KPPN is done by each BO I
by withdrawing funds from
the RPK¬BUN¬P. Hence, in
essence KPPN does not hold
any cash at all.
Appendices 191
APPENDIX 6
Types of Intergovernmental Fiscal Transfers in Indonesia
DBH (Revenue DBH from income tax (PPh) Share of the region is 20 per cent: 12 per cent
Sharing Fund) Article 21 for district/city (in which 8.4 per cent shall be
distributed to producing region where the tax
payer registered location) and 8 per cent for
province
DBH from PPh Article Share of the region is 20 per cent: 12 per cent
25/29 Domestic Individual for district/city (in which 8.4 per cent shall be
Tax Payer distributed to producing region where the tax
payer registered location) and 8 per cent for
province
PBB, BPHTB PBB and BPHTB are not included in DBH

anymore, because these categories of taxes
have been transferred to Regional Tax
Excise on Tobacco The ratio of 30 per cent for the province and
Products (CHT). 70 per cent for the district/city (in which 40 per
cent for producing district/city and 30 per cent
for the other district/city within the province).
DBH Natural Resources 15.5 per cent for the gas mining and 30.5 per
(SDA) on natural oil mining cent from the oil mining revenue after tax
and natural gas mining component and other collection deduction
will be distributed to the regions.
SDA forestry, general regional sharing from SDA Public Mining,

mining, fishery, and Forestry, Geothermal and Fishery was decided
geothermal. at 80 per cent from its revenue
General Allocation The amount of National According to Law Number 33 Year 2004, the
Fund (DAU) DAU extremely depends total amount of DAU is established no less
on the amount of Net than 26 per cent from PDN net stated in APBN.
Domestic Revenue (PDN)
stated in APBN. However, DAU to be distributed to each province and
in order to sharing the district/city was calculated based on: (1) basic
pain of APBN burden and allocation, calculated based on the amount
taking into consideration of PNSD salary, among others include basic
that some subsidy was salary plus family allowance and professional
also intended for the allowance according to the payroll regulation
region, PDN Net also of civil servants; and (2) fiscal gap, which was
taking into account among the difference between the fiscal need and
others the amount of fuel fiscal capacity. Fiscal needs is reflected by the
(BBM) subsidy, electricity variable of total inhabitants, area, construction
subsidy, fertilizer subsidy expense index, human development index,
and foodstuff subsidy as and PDRB per capita, while fiscal capacity is
reduction factor. represented by PAD variable, Tax DBH, and DBH
SDA, but not included DBH SDA Reforestation
Funds.
ATTACHMENT:
The World Bank “Treasury Single Account Rapid Assessment

Toolkit”1
The World Bank has recently issued a technical note on the TSA rapid assessment
toolkit/ checklist2 which includes 65 questions/statements under five main
components:
1. Legal and regulatory framework of TSA operations (11 questions)

2. TSA processes and interbank systems (25 questions)
3. Capacity and competencies (7 questions)
4. Information security controls (14 questions)
5. Oversight mechanisms (8 questions)
The use and application of this TSA assessment toolkit will require certain
conditions, including that it must be jointly performed by two dedicated teams
from the Ministry of Finance and Bank Indonesia. Other requirements are: an
understanding about the results/gaps on the current status and remaining challenges,
a site inspection, feedback from the relevant officials, and a rigorous assessment for
the rating/scoring of each aspect being reviewed.
This book is not intended to apply the toolkit’s methodology. The objective of this
attachment is solely to provide narrative information on the current status of TSA
operations in Indonesia, based on the questions/statements set in the TSA rapid
assessment toolkit. The information is purely descriptive, with no attempt being
made to draw conclusions and/or make recommendations from the findings. The
methodology used for this assessment was based solely on the self-assessment by
officials of the DG Treasury Ministry of Finance and Central Bank of Indonesia on
the current situation. Other main sources of information were: (i) the responses to
the questionnaire completed by the DG Treasury and Bank Indonesia officials; (ii)
legislation and/or regulations governing the payment systems and TSA; and (iii)
rules and procedures relevant to the operations of payment systems and issued by
both the Ministry of Finance and Bank Indonesia.
¹ This toolkit was originally developed in response to a request from the Public Sector and Institutional Reform
Cluster (ECSP4) of the Europe and Central Asia (ECA) Region for the assessment of Treasury Single Account (TSA)
operations in Kyrgyz Republic in October 2012. Its transformation into a generic TSA rapid assessment toolkit was
supported by the then Governance and Public Sector Management Practice (PRMPS) of the World Bank’s Poverty
Reduction and Economic Management (PREM) Network. The unit is now part of the World Bank Governance
Global Practice. The toolkit was shared with a number of government officials and project teams for field testing, and
has benefited from additional feedback for possible improvements since then.
² Mr. Cem Dener (GGODR, World Bank) is the author of this technical note in October 2013
Treasury Single Account (TSA) Rapid Assessment Toolkit: Indonesia
Ref. TSA Assessment Q Ref. Questions / Statements PIC Comments

Components
1 Legal and regulatory framework of TSA operations
1.1 Central Bank of Indonesia legislation www.bi.go.id
Clear legal and Q.1 Banking law and regulations are BI - Law of Republic of Indonesia (RI), No. 7 year 1992 on
regulatory framework for in place commercial bank; and
interbank systems has - Law of RI, No. 23 of 2009 on the Central Bank of Indonesia
been established with and its amendment of Law of RI, No. 3 year 2004
appropriate and effective
sanctions for non-
compliance.
Q.2 Electronic Signature law / BI - Law of RI, No. 11/2008 on Electronic Transaction and
regulations are in place. Information (ITE); and the Government of Republic
of Indonesia Regulation No. 82 year 2012 on the
management of electronic systems and transactions.
Q.3 RTGS law / regulations are in place. BI - The central bank of Indonesia regulation (PBI) No. 10/2008
on Bank Indonesia Real Time Gross Settlement system;
the circular letter No. 12/1/2010 on the management
of Bank Indonesia Real Time Gross Settlement system;
and the Circular of the Deputy Governor of the Bank of
Indonesia dated 16 August 2007 Number 9/5/DG/DASP
regarding Exemptions from RTGS Costs for State Receipt
and Spending Transactions of Treasury Single Accounts
(TSAs) in KPPNs all over Indonesia.
Attachment
193
194

Components
Q.4 Automated Clearing House (ACH)/ BI - The central Bank of Indonesia regulation (PBI) No.
Bulk Clearing Small (BCS) retail and 7/2005 and its amendment of PBI No. 12/2010 on Bank
regular payments laws / regulations Indonesian National Clearing System (SKNBI); and the
are in place. central bank of Indonesia circular letter No. 12/8/2010
and its amendment No. 12/34/2010 on Bank Indonesia
national clearing system (SKNBI).
Q.5 Laws / regulations for oversight of BI - Law of RI, No. 3 year 2011 on transfer of funds; and the
payment & settlement system are central bank of Indonesia regulation (PBI) No. 14/2012 on
in place. transfer of funds.
1.2 DG Treasury legislation www.depkeu.go.id
Clear legal and regulatory Q.6 Legal and regulatory framework for MOF - The Government of Republic of Indonesia Regulation
framework for Treasury IFMIS (SPAN) operations is in place. No. 45 year 2013 on the State Revenue and Expenditure
Single Account operations Budget Implementation Guidelines; and the Government
has been established of Republic of Indonesia Regulation No. 90/2010 on
with appropriate and the work plan and budget preparation of Ministries/
effective sanctions for Institution (RKA-KL)
non-compliance. - SPAN (IFMIS) related implementing regulations are
expected to be approved late 2013 before the piloting
phase of the system
Components
Q.7 TSA protocol signed between MOF - Memorandum of Understanding (Joint Decree) between
the DG Treasury (CT) and Bank Finance Minister (No. 17/KMK.05/2009) and Governor of
Indonesia (BI)-legally binding. Bank Indonesia (No. 11/3/Kep.GBI/2009) on Coordination
of the Government Cash Management, January 30, 2009
Q.8 TSA instructions describing the MOF - Law Number 1 of 2004 regarding the State Treasury,
details of revenue / expenditure Article 12 Paragraph (2) and Article 22 Paragraphs (2) and
processing are in place. (3) “All state receipts and expenditures are made through
a Single Account –the State General Cash Account
(RKUN)”
- Regulation of the Minister of Finance No.98/PMK.05/2007
Regarding the Implementation of Zero-Balance
Expenditure Bank Accounts at Commercial Bank Working
Partners of KPPNs in the Context of TSA Application at
181 KPPNs
- Regulation of the Minister of Finance No. 61/PMK.05/2009
Regarding the Application of Treasury Notional Pooling
for Expenditure Treasurer Accounts.
- Regulation of the Minister of Finance No. 126/
PMK.05/2009 Regarding the Application of Treasury
Notional Pooling for Receivables Treasurer Accounts.
Attachment
195
196

Components
Clear legal and regulatory Q.9 Legal basis for the operations of MOF - The Government of Republic of Indonesia Regulation
framework for Treasury electronic payment center is in No. 45 year 2013 on the State Revenue and Expenditure
Single Account operations place. Budget Implementation Guideline;
has been established - The Finance Minister Regulation No.190/PMK.05/2012 on
with appropriate and the mechanism of conducting payments for the purpose
effective sanctions for of implementing the State Budget.
non-compliance.
Q.10 Agreement with the BI to maintain CT/BI - Government Regulation Number 39 of 2007 Regarding
DG Treasury TSA bank accounts is the Management of State/Regional Funds, Article 14
in place. Paragraph (2) “All state receipts are deposited in the State
General Cash Account and all state expenditures are
made out of the State General Cash Account”.
Q.11 Agreement with the DG Treasury MOF - Signed Agreement between DG Treasury and 81
and Bank Operational(s) for TSA Commercial Banks and post office on Banking Services
operations is in place. as a Persepsi (collector) Bank/post office for the
implementation of TSA Receipts;
- Signed Agreement between DG Treasury and commercial
banks as a payment bank for the implementation of TSA
expenditure.
Components
2 TSA processes and interbank systems
2.1 Segregation of key TSA functions
Segregation of key Q.12 Payment management functions MOF The payment management (PM) module of Oracle EBS
TSA duties (payment are executed by the DG Treasury (COTS) has full capability to manage payment transactions
management and through automated processes executed by DG Treasury local offices (KPPNs).
control, settlements, supported by IFMIS.
and accounting/
reconciliation) is enforced
through organizational
structures, user access
in the treasury/payment
systems and procedural
documents.
Q.13 Payment control functions to check MOF The commitment module of Oracle EBS (COTS) has full
compliance with approved budget capability to check compliance with the approved budget
limits are performed by CT through limit
automated processes supported by
IFMIS (SPAN)
Attachment
197
198

Components
Q.14 Payment control functions to check BI Bank Indonesia operates BI RTGS (real time gross settlement)
compliance with the banking system to provide real time on-line fund transfer of the
legislation are performed by BI government money to the appointed commercial banks as
through automated processes the government partner banks for revenue collection (bank
supported by BI information persepsi) and expenditure payment (bank operational).
systems.
Q.15 Accounting functions for TSA MOF SPAN will be capable of carrying out reconciliation and
operations (reconciliation and reporting of TSA operations in an automated process using
reporting) are performed by MOF the GL Module available in the Oracle EBS
through automated processes
supported by IFMIS.
Q.16 Accounting of the TSA operations BI Bank Indonesia operates BI SOSA application system (BI
(recording all daily flows and Centralized Automated Accounting System) to provide
providing daily bank statements) administration and accounting of the Government's
is performed by the BI through account managed by the central bank.
automated processes supported by
the BI information systems.
Components
Segregation of key Q.17 Oversight functions for payment BI Bank Indonesia operates BIG-eB application system (Bank
TSA duties (payment and settlement systems (financial Indonesia Government Electronic Banking) to provide an
management and + information security controls) internet banking connection for the Government as the
control, settlements, are performed by the BI through financial and information security controls.
and accounting/ automated processes.
reconciliation) is enforced
through organizational
structures, user access
in the treasury/payment
systems and procedural
documents.
2.2 Daily recording and reporting of TSA transactions
All TSA transactions Q.18 RTGS system is capable of BI RTGS records/reports TSA flows on a daily basis. MOF's
related with budget recording/reporting the details of Agent Bank for collecting revenue (Bank Persepsi) reports
revenues (receipts) and all TSA payments on a daily basis. via electronic docs (DBF format) sent as email attachments,
expenditures (payments) every day.
are recorded and reported
through BI payment and
settlement systems, as
well as the MOF’s IFMIS
solution on a daily basis.
Q.19 ACH (BCS) system is capable of BI BCS records/reports TSA flows on a daily basis. MOF's
recording/reporting the details of Agent Bank for collecting revenue (Bank Persepsi) reports
all TSA payments on a daily basis. via electronic docs (DBF format) sent as email attachments,
Attachment
every day.
199
200

Components
Q.20 Bank Indonesia GL captures all BI BI SOSA (accounting) system captures all RTGS/BCS flows
flows in TSA bank accounts through on a daily basis.
their accounting system/GL on a MOF has real time online access to its bank account
daily basis. statements through BIG-eB system.
All TSA transactions Q.21 Bank Operational (Agent Banks) BI Currently, Agent Banks (Bank Persepsi) transfer all MOF
related with budget transfer all revenues to the MOF's revenues to the TSA in the central bank on a daily basis
revenues (receipts) and designated TSA bank account at the at end of day. Revenue data from agent banks will be
expenditures (payments) BI on a daily basis through online reconciled with the MPN and discrepancies will be
are recorded and reported connections to RTGS/BCS. immediately resolved.
solution on a daily basis
Q.22 DG Treasury submits all payment MOF/BI DG Treasury is a direct participant of RTGS through a
requests in required formats workstation to automate expenditure payments from
through MOF-BI TSA interface from Central Bank to the Bank Operational for expenditure.
a secure electronic payment center
through automated processes
supported by IFMIS on a daily basis.
Q.23 BI sends bank statements from the BI DG Treasury can download RTGS statements from central
RTGS and BCS about the details bank BIG-eB systems online.
of all TSA transactions through

automated processes on a daily
basis.
Components
Q.24 BI sends bank statements from the BI Central Bank produces daily GL statements and reconciles
BI General Ledger about the flows Central Treasury account daily in an automated way
in TSA bank accounts through
automated processes on a daily
basis.
Q.25 Reconciliation of the BI (and Agent BI SPAN has capacity to reconcile bank statements
Bank/BO) bank statements is automatically on a daily basis
performed by the MOF through the
IFMIS General Ledger (GL) module
on a daily basis.
All TSA transactions Q.26 Each TSA transaction must contain MOF New generation of the State Receipt System (MPN G-2)
related with budget a unique identifier which can be provides a unique billing code (per payment made by tax
revenues (receipts) and used to link the payment or receipt payer) and these are captured in RTGS/BCS transaction ref
expenditures (payments) to the accounting entries in the numbers.
are recorded and reported MOF’s IFMIS GL.
solution on a daily basis
2.3 Audit trails
Audit trails are enabled Q.27 "Audit trail" is enabled in BI RTGS BI Yes, the Central Bank of Indonesia system has enabled an
and effectively used in platform and effectively used. effective audit trail
BI and MOF information
Attachment
systems
201
202

Components
Q.28 "Audit trail" is enabled in BI ACH BI Yes, the Central Bank of Indonesia system has enabled an
(BCS) platform and effectively used. effective audit trail
Q.29 "Audit trail" is enabled in BI BI Yes, the Central Bank of Indonesia system has enabled an
accounting/GL operations and effective audit trail
effectively used.
Q.30 "Audit trail" is enabled in MOF FMIS MOF - Existing system has limited capabilities to support an
databases and effectively used. “audit trail”.
- “Audit trail” will be enabled in SPAN once operational.
Q.31 "Audit trail" is enabled in MOF MOF MOF ICT center (Pusintek) as the unit to manage the MOF
EPC databases (in case of indirect databases center has enabled a quite effective audit trail in
participation) and effectively used. its system.
2.4 Inventory of bank accounts
An inventory of existing Q.32 BI has an inventory of all Bank BI Central Bank's interbank system (RTGS) has an inventory of
Bank accounts to be accounts to be used in TSA all participant bank accounts. Beneficiary bank accounts are
used in TMIS and TSA operations. automatically checked before payment.
operations exist and
regularly updated
Components
Q.33 MOF FMIS has an inventory of all MOF/BI - Existing treasury system has an inventory of bank
bank accounts to be used in TSA accounts.
operations and this is synchronized - SPAN will have further capability to maintain the
with the BI inventory. inventory not only of all relevant bank accounts but also
of suppliers (vendors/contractors/public employees)
2.5 Transaction level controls
All transaction level Q.34 BI has RTGS/BCS payment system BI BI interbank systems have the necessary automated
controls are performed checklists managed through payment controls. Results of operations are reported to
as a part of the oversight automated processes and reports participants automatically, based on an expanded version
role on payments and the results of all transactions in of the SWIFT format.
settlements well-defined formats (SWIFT).
Q.35 RTGS and BCS payment controls BI BI interbank systems have capabilities to check the bank
include checking the bank accounts against the "black list".
accounts against the "black list"
maintained by the BI.
Q.36 DG Treasury submits all payment MOF/BI DG Treasury submits all RTGS payment requests
orders electronically from FMIS to automatically through a secure channel
RTGS/BCS, without any manual
intervention. BI disables manual
entry mode for CT.
Attachment
203
204

Components
3 Capacity and competencies
3.1 Bank Indonesia capacity
BI units (payment systems Q.37 For each interbank payment BI BI has the necessary instructions and training programs for
and IT) have adequate system related position, there is the interbank system users/managers.
number of trained staff a job description specifying the
to manage interbank duties of the position, reporting
payment systems lines, delegations of authority and
qualification requirements.
Q.38 Total number of authorized BI Yes, at present the BI staff that manage the payment systems
personnel to manage payment are adequate in terms of number and qualifications. The
systems is adequate compared to standard of services has also followed the ISO. All staff are
the volume of transactions and properly trained. However, in the future, with the increase
intensity of work. in the types and volume of transactions, more staff might
be needed.
3.2 DG Treasury capacity
DG Treasury units Q.39 For each TSA related position, there MOF DG Treasury has sufficient staff in Directorate Cash
(electronic payment is a job description specifying the Management, 181 KPPNs and Directorate Treasury system
system and IT) have duties of the position, reporting to manage TSA operations.
adequate number of lines, delegations of authority and
trained staff to manage qualification requirements.

TSA operations
Components
DG Treasury units Q.40 Total number of authorized MOF Yes, but continued and sustained training and capacity
(electronic payment personnel to manage TSA building programs will be required.
system and IT) have operations is adequate compared
adequate number of to the volume of transactions and
trained staff to manage intensity of work.
TSA operations
Q.41 The Treasury staff is experienced MOF Yes, DG Treasury staff is experienced and capable of making
in the operation of electronic secure use of the automated BIG-eB system provided by
payment system (EPS) and can BI to execute TSA transactions on the interbank payment
execute TSA transactions on systems.
the interbank payment systems
securely.
3.3 ICT infrastructure
ICT infrastructure is Q.42 BI data center is well prepared to BI Bank Indonesia RTGS and BCS data centers are fully
capable of handling the handle all TSA transactions and operational and capable of handling the existing work load.
workload to support full store relevant details.
scale centralized TSA
operations
Q.43 MOF data center is well prepared MOF MOF's new data center is ready to manage and store all TSA
to manage all TSA operations and transactions within the IFMIS/SPAN operations. COTS Oracle
store the details of all transactions. EBS application software has been substantially developed
(to be applied in FY 2014).
Attachment
205
206

Components
4 Information security controls
4.1 BI information security controls
Information security Q.44 Authentication and authorization BI Bank Indonesia has a well-established user authentication
controls are actively used (type of digital signature used; solution based on smart cards. There is a dedicated unit
in the BI information storage of the digital certificates providing access rights and issuing digital signatures.
systems issued).
Q.45 Privileged access (who has BI Bank Indonesia information technology department
privileged access to TSA databases has dedicated specialists for system admin and network
and interbank system platforms). management functions. Access logs are monitored
regularly.
Q.46 Data security and integrity BI Bank Indonesia has a secure Virtual Private Network (VPN)
(solutions for secure data transfer + established over dedicated fiber optic lines connecting all
encryption of data in transit). participants to the BI data center.
Q.47 Network and web application BI Bank Indonesia has a secure IT infrastructure and necessary
firewalls (solutions for reviewing monitoring tools.
logs, restricting access).
Components
Q.48 Password for all user types. BI Bank Indonesia system users have clearly defined roles
and access rights, linked with individual user names and
passwords.
Information security Q.49 Physical security (access control and BI All Bank Indonesia data centers have necessary access
controls are actively used data center security). control solutions (card readers, cameras, motion sensors,
in the BI information etc.). Fire alarm and extinguishing (gas), air conditioning,
systems UPS and generator backup are in place.
Q.50 Backup and storage (all transactions BI All Bank Indonesia data centers have data storage and
for the last 5 years stored actively automatic backup/restore units. Storage and server
in databases; older records are capacities need to be increased to support future TSA/FMIS.
archived; who maintains TSA
records).
4.2 DG Treasury (CT) information security controls
Information security Q.51 Authentication and authorization MOF DG Treasury has limited capabilities for the user
controls are actively used (type of digital signature used; authentication solution based on smart cards. SPAN
in the CT information storage of the digital certificates implementation is expected to improve the use of digital
systems issued) signatures.
Q.52 Privileged access (who has MOF DG Treasury has dedicated specialists for system admin and
privileged access to TSA databases network management functions. However, staff capacity
and interbank system platforms) may not be adequate for full-scale SPAN/IFMIS operations.
Also, access logs are not monitored regularly.
Attachment
207
208

Components
Q.53 Data security and integrity MOF MOF has a secured Virtual Private Network (VPN) established
(solutions for secure data transfer + over Indonesia Telkom backbone, connecting all treasury
encryption of data in transit) offices to the data center.
Q.54 Network and web application MOF DG Treasury has a secure IT infrastructure and necessary
firewalls (solutions for reviewing monitoring tool. SPAN implementation is expected to
logs, restricting access) improve the network monitoring capabilities.
Information security Q.55 Password for all user types MOF DG Treasury system users have passwords for access to
controls are actively used existing treasury system.
in the CT information SPAN/IFMIS is expected to improve the user roles and
systems access rights.
Q.56 Physical security (access control and MOF Necessary access control solutions are installed in MOF data
data center security) center (card readers, cameras, motion sensors, etc.). Fire
alarms and extinguishers (gas), air conditioning, UPS and
generator backup are in place.
Q.57 Backup and storage (all transactions MOF MOF data center (PUSINTEK) has modern data storage and
for the last 5 years stored actively automatic backup/restore units capable of supporting new
in databases; older records are IFMIS/SPAN and TSA operations.
archived; who maintains TSA
records)
Components
5 Oversight mechanisms
5.1 BI is subject to regular Q.58 Financial/compliance audit of the BI BI BI is regularly audited by the Supreme Audit Agency (BPK)
review by internal audit, operations
external audit or by peer
auditors.
Q.59 IT Audit of the BI information BI BI information systems are regularly audited by internal
systems (payment systems and audit (Department of Internal Audit, Division of Information
accounting) System Audit).
5.2 DG Treasury is subject to Q.60 Financial/compliance audit of the MOF MOF is regularly audited by the Supreme Audit Agency
regular review by internal DG Treasury operations (BPK); internal audit by IG-MOF
audit, external audit or by
peer auditors.
Q.61 IT Audit of the MOF information MOF IT Audit of the MOF information system (FMIS and electronic
systems (FMIS and electronic payment center) was rarely conducted by external and/
payment center) or internal auditors. However PUSINTEK (MOF IT Center)
maintains and updates the IT system on a regular basis.
5.3 IMF Safeguards Q.62 The BI governance framework is up BI An IMF safeguards assessment has never been performed.
Assessment is performed to the standards as evidenced by
regularly as a review the IMF's Safeguards Assessment
of the BI's governance
framework
Attachment
209
210

Components
5.4 PEFA assessment is Q.63 The TSA operations and the CT/ MOF/BI - 2007 PEFA assessment (public)
performed as a core BI practices are reviewed during - 2011 repeated PEFA assessment (public)
diagnostic to review the PEFA assessment, and related
the overall PFM assessments are used to monitor
and accountability the progress.
performance
5.5 Financial risks and controls Q.64 The risk and controls report is MOF/BI Bank Indonesia has oversight mechanisms and risk
are regularly reviewed and prepared annually, describing assessment procedures in place. A risk and control review
attached to the annual the overall assessment of the BI is performed annually.
financial system reviews of information systems, the controls
the BI and MOF. and any deficiencies.
Q.65 The risk and controls report is MOF A risk and control review is recognized as an important part
prepared annually, describing the of the oversight functions.
overall assessment of the MOF
information systems, the controls
and any deficiencies.

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Cash Management

Foreign Affairs, Trade and Affaires étrangères, Commerce

Printed in October 2014

Voices of the Key Implementers .......................................................xi

Abbreviations and Acronyms ...........................................................xv

Executive Summary ...........................................................................xix

1.1. Introduction ...............................................................................3

1.2. Cash Management in International Practices..........................3

1.3. Cash Management in Indonesia ...............................................17

1.3.4. Coverage of State Cash Management in Indonesia...............................23

1.4. Conclusions ................................................................................42

2.1. Introduction ...............................................................................49

2.2. TSA-Concepts and International Practices ...............................49

2.3. Implementation of the TSA in Indonesia .................................59

2.4. CONCLUSIONS ...........................................................................84

3.1. Introduction ................................................................................91

3.2. Cash Planning and Budget Execution –

3.3. Cash Planning and Budget Execution in Indonesia .................112

3.4. Conclusions ................................................................................142

4.1. Introduction ...............................................................................149

4.2. Financing the Budget - International Experiences..................149

4.3. Active Cash Management and Budget Financing

4.4. Conclusion ..................................................................................173

Appendix 1 Comparison with IMF Generic Milestones for

Attachment The World Bank Treasury Single Account Rapid Assessment

Box 1.1 Salient Features of the IFMIS (SPAN) Feeder Application

Figure 1.1 Coverage of the Public Sector GFSM 2001 ..................................7

Table 1.1 Cost of Carrying Excess Funds 2010-2013 ....................................19

A decade-long cash management reform by the Government of Indonesia has

Cash management reforms were a pillar of these reforms in Indonesia. They

Marwanto Harjowiryono Rodrigo A. C

Voices of the Key Implementers

Challenges During the Early Implementation of Cash Management Reform

Mr. Tata Suntara (The Secretary of Directorate General of Treasury, Ministry of

I recall that in my previous position as the Director for Cash Management in

Cash Management Reform is a Continued and Never Ending Process in

Mr. Rudy Widodo (Director of Cash Management, DG Treasury Ministry of

With improvements in our IT system, a close coordination with Bank Indonesia,

Although many improvements have been made, we should not be satisfied by

Abbreviations and Acronyms

ABP Annual Borrowing Plan

DMO Debt Management Office

SAL Accumulated Budget Surplus or Excess Cash from Unrealized Annual

Fiscal Year (FY): January 1 to December 31

Following the Asian financial crisis of 1997, the Government of Indonesia

OVERVIEW OF INDONESIA’S EXPERIENCES IN REFORMING CASH MANAGEMENT

The achievements are the outcomes of a challenging journey, which entailed

THE IMPACT OF THE TREASURY SINGLE ACCOUNT

An early foundation of Indonesia’s cash management reforms was the

of government cash in a TSA also provides the opportunity to reduce transaction

PLANNING OF IN-YEAR EXPENDITURE AND REVENUE CASH FLOWS

The accuracy of projections of expenditure flows could be further enhanced by

in-year cash management by setting and updating the economic assumptions

Projection of revenue flows presents challenges in Indonesia due to the revenue

STRATEGIES FOR FINANCING OF CASH NEEDS

Traditionally, the Government’s borrowing strategy has been to ensure the

Information Network (CPIN) is also used for communication at a working

Indonesia debt management will undoubtedly grow stronger as it completes

OBJECTIVES AND STRUCTURE OF THE BOOK