Planning and Budgeting in

Decentralization Era
Presented by:
Ministry for State of National
Development Planning/
National Development Planning Agency
Republic of Indonesia
STUDY TOUR TO INDONESIA
Building local government Capacity
for More Effective Decentralization Reforms
“Strengthening Local Government Capacities for
Planning, Budgeting, and Managing Public Resources (SLGP)”
July,16, 2007
1
 OUTLINE
1. National Planning Development
System
2. Regional Development
3. Regional Budgeting
4. Decentralization and Regional
Autonomy
5. Assignment Function
6. Minimum Service Standard
7. Intergovernmental Transfer
8. National Action Plan for Fiscal
Decentralization
2
NATIONAL DEVELOPMENT
PLANNING SYSTEM

3
 BACKGROUND
BACKGROUND
 4th Amendment of the Constitution
– Changes in Planning Documents
– Direct Presidential Election
– Direct Elections on Sub National Governments
 Law 23/2003 on Presidential Election
– Candidates to convey their Vision, Mission and Programs
 Law 32/2004 on Local Governments (amendment 22/1999)
– Decentralization and Regional Autonomy
– Direct Elections
– Affirming The Role of Provincial Governments
 Public Finance Reform
 Law 17/2003 on Public Finance
• National Budgeting based on national plans
• Local Budgeting based on local plans
 Law 1/2004 on Public Institutions
 Law 15/2004 on Check and Balances in Public Finance 4
 NATIONAL
NATIONAL DEVELOPMENT
DEVELOPMENT
PLANNING
PLANNING SYSTEM
SYSTEM

SPPN is a unitary development planning

mechanism to produce development plans
in short, medium and annual plans to be
implemented by governments and citizens
in the regions

5
 REGULATORY FRAMEWORKS

 Law 25/2004 on National Development

Planning System (SPPN);
 Law 17/2007 on Long Term National
Development Plan (RPJPN);
 Government Regulation 39/2006 on
Monitoring and Evaluation on
Implementation of Development Plans
 Government Regulation 40/2006 on
Formulation procedures of National
Development Plans
 Presidential Regulation 7/2005 on National
Medium Term Development Plan (RPJMN);
6
Government Regulations to be drafted

• GR (draft) on Phases, Procedures, Control and

Evaluation on Sub-National Development Plans

• GR (draft) on Roles and Responsibilities of

Government and Sub-National Governments

7
 OBJECTIVES
OBJECTIVES

1. Coordination between development actors

2. To integrate, synchronize, and synergize inter-
regional, inter-spatial, and inter-temporal, inter-
role of governance in central and local level
3. To maintain linkages and coherence between
planning, budgeting, implementation and
Monitoring and evaluation.
4. To gain optimal public participation
5. To allocate resources efficiently, effectively,
just, and sustainable.

8
 PLANNING
PLANNING –– What’s
What’s New
New

THEN NOW
“Shopping List” “Working Plan”
• Plentiful • Input (Capital, Labor, Infrastructure, etc.)
• Boastful • Process
• Without Limits • Output / Outcome

Therefore Planning:
• Starts with information on availability of
resources and development directives

The Critical point is

• Formulate an optimum connection between
input, process, and output / outcomes

Punishable by
article 34 Law 17/2003

9
 PLANNING
PLANNING PROCESS
PROCESS

1. Political Process : Direct Elections (Presidential and Sub-

National) produces a Development Plan, (publik choice
theory of planning) especially in Vision, Mission and
Medium Term Development Plan.

2. Technocratic Process : Planning by professional planners

or planning boards and institutions in charge of planning
 to strengthen roles, function and qualification of
planning institutions.

3. Participatory Process : involving communities (stake

holders)  among others through Community Planning
Forums.

4. Bottom-Up & Top-Down Process : Both approaches

simultaneously.

10
 SCOPE
SCOPE of
of PLANNING
PLANNING

PERIOD NATIONAL LOCAL

20 YEARS Long Term National Long Term Local
Development Plans Development Plans

5 YEARS Medium Term National Medium Term Local

Development Plans Development Plans

5 YEARS Strategic plans of Strategic plans of Sub-

Ministerial Institutions National Agencies

1 YEARS Government Work Local Government

Plan Work Plan

1 YEARS Ministerial Institutions Sub-National Agencies

Work Plan Work Plan

11
 PLANNING
PLANNING PROCEDURES
PROCEDURES

I. Formulating the Plans

1. National/Local Development Plan
2. Ministerial Institutions/Local Agencies Draft Work Plan
3. Development Planning Forums
4. Development Plan, Final Draft
II. Finalizing the Plans
Laws on National Long Term Plans
Local Laws on Local Long Term Plans
Presidential Regulation on National Medium Term Plans
Local Leaders Regulation on Local Medium Term Plans
Presidential Regulation on National Sector Plans
Local Leaders Regulation on Local Sector Plans

III. Implementation Control

IV. Evaluation

12
PLANNING
PLANNING and
and BUDGETING
BUDGETING FLOW
FLOW CHART
CHART

Guidelines
Strategic Work Plan Budget Detail
Plan Dep Dep Guidelines Plan Budget

Central
Govt
Guidelines Reference

Guidelines Nat’l Med Detailing Nat’l Work Draft

Nat’l Long Nat’l
Nat’l
Term term Plan Guidelines Budget
Budget

Reference Consideration Synergized through planning forums

Guidelines Draft
Local Long Guidelines Local Dijabar LG Work Local
Local
Term Med-Term kan Plan
Budget
Budget

Local
Guidelines

Govt
Reference

Strategic Guidelines Guidelines

Budget Detail
Plan Local Work Plan
Plan Budget
Dep

UU SPPN UU KN

13
REGIONAL DEVELOPMENT

14
REGIONAL DEVELOPMENT ACTORS

GOVERNMENT

CITIZENS PRIVATE
SECTOR

15
 Central Government as
Regional Development Actor

CENTRAL GOVERNMENT

PROVINCIAL GOV’T PROVINCIAL GOV’T

REGENCY GOV’T MUNICIPAL GOV’T REGENCY GOV’T MUNICIPAL GOV’T

16
 Linkages & Performance Regional – National
Development

Local
LocalDevelopment
Development Aggregate
Performance
Performance
Provincial
Provincial
Development
Development
performance
performance
Local
LocalDevelopment
Development
Performance
Performance
National
National
Development
Development
Performance
Performance
Local
LocalDevelopment
Development Aggregate
Performance
Performance Aggregate
Provincial
Provincial
Development
Development
performance
performance
Local
LocalDevelopment
Development
Performance
Performance

17
Regional Development In Definition

 An integral and breakdown of National

Development in order to achieve development
targets/aims which is fitted to local potentials,
aspirations and problems (Handbook, Local
Governance and Development 2007)
 A Process to create public welfare, through
increased income, employment, business
opportunities, access to policy making,
competitiveness, and increased Human
Development Index (Draft GR on Procedure in
Formulating, Monitoring and Evaluation of Local
Development Plans Implementation)

18
 Local Development Issues
1. Chronic poverty, hunger and drop-out rates in under-
developed regions.
2. Uncompetitive.
3. Regional Inequality.
4. Low interregional economic linkages.
5. Java-centrist economic activity.
6. Sub-optimal utilization of regional potentials.
7. Low productivity.
8. Poor regions in borders, coastal areas and remote
islands.
9. Alarming rate of farmland conversion.
10. Deficiency of participation in development
11. Unfavorable local investment climate
19
 Keys to Successful
Regional Development

 Local development planning which is

inseparable from the national development
planning system
 Coordination, synergy and synchronized
development program and activities
between central and local government,
inter-department in managing and utilization
of limited resources.
 Cohesiveness between development actors
by involving all groups and potentials within
the population

20
LOCAL BUDGETING

21
 Development Planning and Budgeting
Process
• Changes is Planning and Budgeting System
• Continuity in planning, budgeting and political
process
• A need to open and active interaction,
communication, integration and synergy

planning process budgeting process Political process

- participatory - allocation - lobby

Nat’l Planning Board and MoHA Min. of Finance Parliament/Senates

22
LG Planning Board and Agencies Bureau of Finance - LG Local Parliament
 Public Finance Cycle
Medium – Long Short Term Planning / Budget Implementation and
Public
Term Planning Fiscal Policy Finalization Budget
Finance Audit
Accountability

Nat’l Planning Board Mo Finance Mo Finance Public Auditor

Medium-Long Implementation Financial

Short Term
Term Budgeting & Reporting &
Planning
Planning Accountability Audit

-Dok. Pelaksa- Laporan

-Renja K/L -APBN
RPJP dan RPJM Naan APBN Hasil
-RKP-Nas. - Rincian APBN
-LK-Pusat Pemeriksaan

-APBD -Dok. Pelaksa- Laporan

RPJP-D dan -Renja SKPD
-Penjabaran Naan APBD Hasil
RPJM-D -RKP-D
APBD - LK-Daerah Pemeriksaan

UU No.25/2004
UU No.17/2003 UU No.1/2004 UU No.15/2004

Law No.32/2004 on Sub National Governance &

23
Law No.33/2004 on National and Sub National Finance
 Local Budget Structure

 Revenue
 Expenditure
 Indirect
 Direct

(-)
Surplus/(Deficit)

 Financing
 Inflow
 Outflow (-)
Net Financing (-)
Surplus/Deficit Ongoing years
24
 Revenue Structure
A. Local Revenue:
1. Local Tax
2. Local Charges
3. Public Enterprise profit
4. Others
B. Balancing Funds :
1. Natural resource revenue, weighted
2. General Purpose Grantss
3. Specific Purpose Grants
C. Other revenue :
1. Donation
2. Grant
3. Emergency Funds
4. Special autonomy funds (Papua) and adjustment funds
5. Financial support from other local government

25
 Expenditure Structure
1. Indirect Expenditure :
1. Personnel Expenditure
2. Interest rate Expenditure
3. Subsidies
4. Grant
5. Social Funds
6. Revenue Sharing Expenditure
7. Financial Support
8. Contingencies

2. Direct Expenditure :
1. Wages
2. Procurements of goods and services
3. Investment

26
 Financing Structure
A. Revenue Financing:
1. Previous year Balance
2. Reserve funds withdrawal
3. Sales of Resources
4. Loans
5. Paid Loans

B. Expenditure Financing:
1. Reserve Funds Account
2. LGs Capital Investment
3. Paying Loans
4. Lending

Nett Financing (A – B)

27
 Local Budgeting Process
Medio Minggu II
Akhir Mei Minggu I Oktober 1 Desember 31 Des
Juni Juli
Pembahasan Perda
Raperda APBD
Pembahasan
DPRD

Membahas APBD
KUA PPAS

Nota Persetujuan
Kesepakatan Bersama
KepDa - DPRD
Ranc
Kepala Daerah

KUA
Rancangan
Pedoman PerKaDa Ttg PerKaDa
Raperda APBD
RKPD Ranc Penyusunan Penjabaran Penjabaran
RPJMD
PPAS RKA-SKPD APBD APBD

Pembahasan Verifikasi
RKA oleh Tim DPA oleh Tim
Anggaran Anggaran
Pemda Pemda
SKPD

Ranc
Renstra Renja RKA-SKPD DPA
DPA-
SKPD
SKPD
Mendagri /
Gubernur

Evaluasi

28
PENETAPAN DAN EVALUASI APBD
7 Hari Kerja
Minggu I 3 Hari 15 Hari Kerja 7 Hari
1 Desember Stlh Evaluasi 31 Desember
Oktober Kerja Setelah Diterima Kerja
Diterima
PEMBAHASAN
Kegiatan vs SETUJU
(KUA + PPAS) PERDA
DPRD

APBD
YA
TIDAK
RAPERDA
APBD
DITINDAK- YA
Kesepakatan
LANJUTI
Bersama
RAPBD
Kepala Daerah

Penjelasan
RAPERKADA TIDAK PERKADA
Dok Penduk
Penjab APBD Penjabaran
Sebelumnya APBD
YA

RAPERKADA PERKADA
Penjabaran Penjab APBD
APBD Sebelumnya

DISYAH
Mendagri / Gubernur

EVALUASI KAN
Kepent. Umum
Peraturan TIDAK
diatas
Raperda +
PERLU Raperkada
DITERIMA
PERBAIKAN APBD
DICABUT
YA

SELESAI
TIDAK
29
DECENTRALIZATION AND
REGIONAL AUTONOMY

30
MAINSTREAM OF DEVELOPMENT
 GLOBALIZATION
 quick transition of human relationship in trade,
investment and technology in amount quantity
 through national boarder (politic, economic,
social)
 global partnership.
 DEMOCRATION
a whole of political process and performance to
improve public welfare
 DECENTRALIZATION

31
 Decentralization and
Regional Autonomy

Decentralization

Distribution of government authority from central

government to local autonomy government to
arrange and manage their own authority in the
system of Unitary State of the Republic Indonesia

Regional Autonomy
Rights, authority, and obligatory of local
autonomous regions to arrange and manage their
own government functions and local people needs
based on Local government law

32
 AIMS of Decentralization and
Regional Autonomy

 Increase people welfare through

making public service delivery
close to the people, and increasing
people empowerment
 Support local democratization to
support national democratization,
and economic and social stability
of our nation.
33
Decentralization and Regional Autonomy
Background
 The implementation of laws 22/1999 on
Regional Governance and 25/1999 on Fiscal
Balance between Regional and Central
Governments has reformed the governance
system in Indonesia fundamentally.
 Realizing that both laws, which had been
drafted and passed under great time pressure
in 1999, had several shortcomings, The
government of Indonesia together with this
country’s parliament has undertaken a thorough
review of the laws.
 Furthermore, both laws have been replaced by
the laws 32/2004 and 33/2004.
34
Decentralization and Regional Autonomy
Framework
 The new laws provide clearer and more detailed
regulations for the implementation of
decentralization and regional autonomy.
 They are however not aimed at recentralizing
government authority,
 This government is, like all previous
governments since 1998, strongly committed to
promoting regional autonomy

35
 Principles of Regional Autonomy

Widest ranging Real Autonomy Responsible

Autonomy Autonomy

= all government functions = government functions = the ultimate goals of

are being implemented transferring government
except those determined as functions from central
central government based on tasks, government to sub-
functions in Law 32/2004 responsibilities, and national governments
obligations which have are to empower regions
are distributed among including to increase
levels of administration. the potentials to grow the welfare of the
and develop in line with people of the regions
regional potentials and and to increase
regional characteristics. democratization in
regional governance
processes.

Source: Law 32/2004, General Elucidation 36

Related Law and Regulation
 Law number 17 years 2003 on on State Finance
 Law number 34 years 2000 on Regional Taxes and
Charges
 Law number 1 years 2004 on State Treasury
 Law number 25 years 2004 on National
Development Planning System
 Law number 32 years 2004 on on Regional
Governance
 Law number 33 years 2004 on Fiscal Balance
between Regional and Central Governments
 Other law and regulation as an implemented law
mentioned above

37
ASSIGNMENT FUNCTION

38
Indonesia’s Intergovernmental
Relations

 All authorities are devolved except in the fields

of international policies, defense & security,
judicature, monetary & fiscal,religions.
 Districts & Cities are responsible for delivering
public services, at least in thirty one activities,
such as: public works, health, education &
culture, communications, industry & trade,
capital investment, environment, land,
cooperatives & labor.

39
 ASSIGNMENT of FUNCTIONs
Government Functions

CONCURRENT
ABSOLUTE - National National and Sub National

- National Security OPTIONAL OBLIGATORY

(Economic Sector) (Basic Services)
- Monetary
e.g. : Agriculture, e.g.: pub health,
- Judicial Manufacture, trade, Basic education,
tourism, fisheries etc environment, public works,
- Foreign Affairs And transportation

- Religious Affairs
Minimum Service
Standards
40
 Assignment of Functions (1)
 Law 22/1999:
 Applies principle of general competence/residual functions
for district level by stipulating that Kabupaten/Kota have all
government functions except for central and provincial
government functions defined in articles 7 and 9 of Law
22 of 1999.
 Delegates the detailed assignment of government
functions for central and provincial levels to Government
Regulation No. 25 of 2000.
 Law 32/2004:
• Does not assign all residual functions to Kabupaten/Kota
but contains “positive list” of obligatory government
functions for provinces and districts, with further details to
be regulated in Government Regulation – is being finalized.

41
 Assignment of Functions (2)

 Similar to Law 22/1999

 Exclusive central government functions (foreign
policy, defence, security, justice, national monetary
and fiscal affairs, and religious affairs);
 New in Law 32/2004:
 Central government functions besides the exclusive
ones are not described in the law; and
 Three (3) criteria to determine appropriate level of

implementation of government functions:

externalities, accountability and efficiency.

42
 Assignment of Functions (3)
New in Law 32/2004:
 Differentiation between obligatory and non-
obligatory or optional government functions,
both for provinces and districts.
 Implementation of obligatory government
functions to be guided by minimum service
standards.
 “Positive lists” of obligatory functions for
provinces (provincial scale) and for districts
 Details regarding functional assignment to be
regulated in Government Regulation – is being
finalized.
43
 Implementation of Government Functions

Central Government Functions Regional Functions

(art. 10.4) (art. 11.3)

Direct Deconcentration Assistance tasks Obligatory Functions Optional Functions

Implementation
National

Ministries
State Ministries
Non-Ministerial
Agencies

(art. 37) (art. 13) (art. 14)

Regional

Governor (as the

(art. 228) representative of Central Province
Government in the
Vertical Agencies regions) Kabupaten/Kota
** Desa
44
** Assistance tasks
 Challenges (1)
• The new laws also have some based on
implementation experiences and involving
shortcomings as well, which should be dealt with
through a review process at a later stage, all
important stakeholders.
• For the time being, the government would undertake
all efforts necessary to facilitate a smooth
implementation of the laws.
 Following a clear, time-bound programme for
issuing the necessary implementing regulations
 Socialized the new laws to government
institutions at central and regional levels as well
as to other relevant parties.

45
 Challenge (2)
The government has finalized the most
urgently and high priority are those on :
• The elections of regional heads.
• The assignment of government functions,
• Minimum service standards,
• Supervision and guidance,
• Guidelines on local government organizational
structures,
• Cooperation between and among region,
• Mechanism of creating, uniting, and
diminishing region,
• Regional finance management.
• Besides these, a major task ahead of us will
be the harmonization of sector laws and
regulations with the decentralization policy.
46
MINIMUM SERVICE STANDARD

47
 Public service is activity or series of activities in order to fulfill basic needs
as a civil/citizen right, such as goods, services, or administrative services
which provided by public service provider
 Decentralization is a concerted effort to improve quality of public service
by bringing governance closer to public.
 Although after 6 years of decentralization, public service is yet to be
improved, moreover, retrogression is reported
 World Bank (2003)  The People is yet to see improvements, although the
trend is reversed and started to get better in 2005

48
 The need of a Service Standard
 Benchmarking, to evaluate and indicate (a
yardstick) performance for local governance and
regional development
 To improve development planning, especially for
obligatory functions
 Performance indicator for performance based
budgeting
 Minimum Service Standard is a yardstick to serve as
a guidelines to deliver services and reference in
evaluating service quality as a commitment to deliver
quality public service

 Planning  fulfillment of Standard

49
Issues to be considered

 Complexity.
 Funds allocated for implementation
 Norms and standards as reference

50
Future Implementation

 To date, Minimum Service Standards (MSS) for 3

main sectors : health, education and basic
infrastructure.
 Standards must be included in planning
documents to ensure funding for implementation
 Monitoring Instruments and evaluation on
standards fulfillment in the regions.

51
Steps Taken
 GR on Guidelines to Formulate and Implement MSS (Dec 05)

 MoHA Regulation on Formulation and Implementation Manual

of MSS (Feb 07)

 MoHA Decree on The Establishment on Consultation team for

MSS Formulation (Feb 07)

 National Workshop to discuss Draft MoHA Regulation

on Guidelines to Formulate Plans to Fulfill MSS based
on Local Potential Analysis

52
Near Future Agenda
 MoHA Regulation on Guidelines to Formulate Plans to
Fulfill MSS based on Local Potential Analysis
 Establishment of Technical Working Group on MSS to
accommodate various actors, including National
Government, Donor, Experts and other stakeholders.
 National Consultation Team on MSS
 Dissemination on MoHA regulation on Formulating and
Gazette the MSS
 National symposium, to be addressed by the Head of the
National Planning Board, and other cabinet members.

53
 FUTURE CHALLENGES

 Clarification of each tiers of governments roles and functions to

optimize service delivery.
 Optimize the role of The Advisory Council on Regional Autonomy
to fulfill MSS
 Synchronization of Planning Framework, as mandated in the Law on
National Planning and Budgeting System with Law on Sub National
Governments so that MSS can be addressed in the Local Medium
Term Plan

54
INTERGOVERNMENTAL
TRANSFER

55
Indonesia’s Intergovernmental Relations

 One third of national budget’s expenditure

are transferred to locals budget mostly as
block grants.
 At least 25 % of national revenues
transferred to regions through General
Purposes Grants mechanism
 Management of 2,5 millions national civil
servants handed over to local government

56
 Indonesia’s Intergovernmental
Relations ……..(continued)

 Two laws on special autonomy were also

enacted in 2001
 Law number on Special Autonomy of Aceh
 Law number 21 years 2001 on Special Autonomy of
Papua
These laws legally accepted ”the asymmetric
treatment”’ of sub national government, e.g. Papua
is given 70% revenue sharing rates for oil & gas. In
addition, Papua gets a special grants equal to 2
percent of the national GPG transfer

57
 Authority and Fiscal Issues (1)

Law NO. 32 /2004 Law NO. 33/2004

Sub National Governments National-Sub National Fiscal
Arrangements

Decentralization of Gov’t Fiscal Decentralization

Roles & Functions

C
Nat’l Gov’t Roles & Nat’l Budget Balancing Funds
O Function
N
C
U
R
Fund Transfers
R Provincial Govt Delegation and Assistance Prov. Budget
E Roles & Functions
N
T

Local Gov’t Roles &

Decentralization Local Budget
Functions

58
 Authority and Fiscal Issues (2)

National – Sub National

Roles & Functions

Deconsentration Decentralization Assistance

Nat’l Budget Local Budget Assigned budget

National – Sub National

Relationship

Local Revenue Public Revenue General Purpose Grants

Local Borrowing:
Sharing (Resource Specific Purpose Grants Domestic, Foreign,
tax) short term, long
term

59
 NATIONAL FISCAL DESIGN
authority Authority
Government Local
Implementation
Government
Funding source

Local Budget
Revenue Sharing
Local Owned
Decentralization Revenue (PAD) General Purpose
Grant (GPG)
Balance
Deconcentration Fund Specific Purpose
Grant (SPG)
Other
Co-administered Incomes Remaining
Tasks from balance in the
government to Expenditure
Local budget
region Surplus/Deficit
Local Reserve
Financing Fund
Revenue Proceeds from sales
of Local assets set
aside for the
National Budget purpose of
Local Borrowing
National Budget
60
Intergovernmental Transfers

Revenue
Intergovernmental transfers in Indonesia comprise 3
Sharing
basic types of schemes, known as Balance Fund
Provinces

Districts/Cities
General purpose
grant

Specific Purpose
Grant

61
 Revenue Sharing

 Taxes
 Property Tax

 Property Rights Transfer Tax

 Personal Income Tax

 Natural resources
 Forestry

 General Mining

 Fishery

 Oil and Gas

 Geothermal

62
REVENUE SHARING PERCENTAGES

No Revenue Types
Central Provinces Districts/Cities Balance to other
Districts/Cities

1. Property Tax - 16,2 64,8 (+) +

2. Property Rights Transfer - 16 64 (+) +
Tax
3. Personal Income Tax 80 8 12 -

4. Forestry: IHH 20 16 64 -
5. Forestry: PSDH 20 16 32 32
6. General Mining: Land 20 16 64 -
rent
7. General Mining: 20 16 32 32
Royalties
8. Fishery 20 - - 80
9. Oil 85 3 6 6
10. Gas 70 6 12 12
11. Reforestation Fund 60 - 40 -

12. Geothermal 20 16 32 32

63
General Purpose Grant (GPG)

 To address problems related to both vertical

fiscal imbalances and horizontal fiscal
imbalances
 Formula based on equalization grant that
considered both relative measures of
expenditure needs and fiscal capacities
 Accounts for an average 64 percent of the
total of districts’ revenues

64
 General Purpose Grant (GPG)
………………(Continued)

GPG Formula
 GPG = Total Wages of local civil
servants + fiscal Gap (FG)
 FG =Fiscal Needs - Fiscal Capacity

 Fiscal Needs : population, area,

construction price index, HDI, GRDP

 Fiscal Capacity; own source, revenue

sharing

65
 General Purpose Grant (GPG)
………………(Continued)

 Until 2007 Indonesia adopts Hold harmless

concept for GPG
 no local government received GPG less than
GPG of 2005

66
General Purpose Grant (GPG)
………………(Continued)

GPG Proportion to Local Revenue

90%
80%
70%
PERCENTAGE

60%
50%
40%
30%
20%
10%
0%
99/00 2000 2001 2002 2003 2004 2005
YEAR

Total Provinces/Districts/Cities Total Provinces Total Districts/Cities

67
Specific Purpose Grants (SPG)

 SPG shall be allocated to certain local government to

finance specific activities
 Government establish criteria in allocating SPG
 General Criteria, established with due regard to the
financial capacity of the region in local budget
 Special Criteria, established with due regard to the
prevailing laws and regulations and local
characteristics.
 Technical Criteria, established by line ministries.
 Receiving local government shall provide matching
fund of at least ten percent of allocated SPG

68
Specific Purpose Grants (SPG)……
(continued)

 Specific activities funded by SPG (2006)

 Primary Health;
 Primary Education;
 Infrastructures:
 road, bridges, irrigation, and clean water;

 Fisheries & Marine;

 Agriculture;
 Local government infrastructures;
 Environment.

69
 Disbursement Procedures

 Revenue Sharing
 Disbursed quarterly based on the realization of
revenue derived from each type of resources
 General Purpose Grant
 Disbursed monthly based on budget

 Specific Purpose Grant

 Disbursed in 4 times e.g :

 First Second Third Final

 30% 30% 30% 10%

70
 CONTRIBUTION OF LOCALLY OWNED
REVENUES (LOR) TO LOCAL REVENUES

50.00%  LOR’s
LOR’scontribution
contributionto to
Local revenues still low
Local revenues still low
45.00%
 For
ForLocals
Localsnot
notininexcess
excessof of
40.00% 10%, and potential to
10%, and potential to be be
decreased
decreased
35.00%
 For
Forprovinces
provincesrelatively
relatively
30.00%
high, above 30%
high, above 30%
 Regional
Regionalaggregate
aggregate
25.00% (Provinces/Districts/Cities)
(Provinces/Districts/Cities)
still
stillaround
around14%
14%--18%
18%
20.00%

15.00%

10.00%

5.00%

0.00%
99/00 2000 2001 2002 2003 2004

Total
Total Provinces
Propinsi District/Cities
Kab_Kota
71
Notes : year of 2000’s data converted to 12 month.
PROPORTION OF SALARY EXPENDITURE
TO LOCAL EXPENDITURE
70,0%
60,0%
50,0%
Percentage

40,0%
30,0%
20,0%
10,0%
0,0%
99/00 2000 2001 2002 2003 2004
Years

Total Provinces/Districts/Cities Total Provinces Total districts/cities

Notes:
• Year 2000’s Data converted to 12 month.
• Graphic shows percentage to local government
expenditure. 72
 Future Challenges

 Hold harmless policy will not be

implemented starting from 2008,
whereby there will be possibilities for
some regions to receive GPG less than
2005 or even they do not receive at all
 The impact of national revenue
fluctuation on transfers

73
 Future Challenges

 Implementing clear function distribution

among line ministries and local government
along the monitoring responsibility
 Migration of sectoral expenditure that is used
for funding local functions to SPG
 The Need of clear authorities in order to
develop more sound monitoring.
 The Need to enhance coordination of
monitoring among line ministries across
national and local level.

74
NATIONAL ACTION PLAN FOR
FISCAL DECENTRALIZATION

75
 Basic Elements and Strategic Issues In Local
Governance
Basic Elements
1. Function
2. Institution
3. Personnel
4. Local Finance
5. Representation
6. Public Service
7. Control/Supervision

Strategic Issues
1. Special Autonomy for Papua
2. Special Autonomy for ACEH - NAD
3. New LGs and Frontier regions
4. Community Empowerment

76
 Why NAPFD

NAPFD is carried out earlier than other

decentralization and regional autonomy related
National Action Plans, because it is viewed as an
essential factor concerning work relation
procedure among levels of governments as well
as regulating national resources to be utilized by
both the central and regional governments
NAPFD is also needed in regulating fiscal
decentralization including the quality of access to
financial resources by regional governmen such
access is highly decisive for the success of
regional autonomy policy.

77
 Aim of NAPFD
Key aim for The NAPFD itself are :
1. Explain numerous fiscal decentralization
related objectives, strategies, and actions of
the government, within the next five year;
2. Provide a framework that will support
efficiency and central-to-region fiscal
transfer equitableness improvement
effectively; and
3. Support regional financial management
effectively.
78
 Benefits of NAPFD
NAPFD—which has been prepared and will be
explained in this detailed activities plan—is
expected to be able to :
1. provide a framework for, especially, review
materials in the future;
2. as well as foundation in preparing government
policy, and regional fiscal regulating and inter-
governmental relation related laws and
regulations.

79
 NAPFD POSITION
Associated to revitalization of decentralization and regional
autonomy processes, NAPFD which has been stipulated in
President Regulation 7/2005 on National Medium Term
Development Plan (RPJM) 2004-2009, the prepared NAPFD is
expected to be a policy umbrella, and the next law can be
a foundation for implementing RPJM 2004-2009 in
decentralization policy and regional autonomy.
Associated to the Grand Strategy of Regional Autonomy, it has
been agreed to prepare National Action Plan for Fiscal
Decentralization (NAPFD), as explanation of one element
which is more focused on fiscal policy aspect;
Associated to Local Government Finance and Governance
Reform, this program is intended to provide more effective
regional public services delivery system through fiscal
development; budgeting; and financial management
framework;

80
Main Points of The NAPFD Matrix (1)

(i) Administration Regulation – objective :

to clarify administration regulation in every
government levels
(ii) Balancing of Funding and
Administration - objective : to ensure
adequate fund for various administrations
and obligations

81
Main Points of The NAPFD Matrix (2)

(iii) Regional Spending- objectives : In

order to make more rational, and
directible public spending to improve
quality service
• Minimum Service Standards
• Restructurization of Regional
Government Organization

82
Main Points of The NAPFD Matrix (3)

(iv) Local Revenue :

 Local Own Revenue- objective : to firm up local
own revenue by improving capacity
 Transfer- objective : To improve horizontal and
vertical balance through inter-governmental fiscal
transfer
Revenue Sharing Fund
General Purpose Grant
Spesific Purpose Grant

(v) Local Loan– objective : to improve fiscal

prudencial and support regional development

83
Main Points of The NAPFD Matrix (4)

(vi) Local Financial Management, objective : to

increase effectivity, order and accountability
 Regional Asset and Financial Management
 Accountability
(vii) Capacity Building – objective : to build local and
national capacities in financial management,
monitoring and evaluation
(viii) NAPFD coordination, monitoring and
evaluation - objective : to strengthen DPOD’s role in
decentralization coordination implementation

84
Thank You

85