Achievements and challenges in financing Indonesia

1
Achievements and challenges in financing
Indonesias regions

• Presentation to the IRSA Conference, Bandung,
  July 18, 2003
• Bert Hofman, World Bank

2
Challenges in Financing Indonesias Regions

• Achievements
• Challenge 1 Inequality
• Challenge 2 Fiscal Dependency
• Challenge 3 The Investment Climate
• Challenge 4 The Center Holding On
• Challenge 5 Corruption
• Directions for Reforms

3
Achievement 1 Indonesia survived the Big Bang

• Political, administrative, and fiscal
  decentralization in one go
• Wide-ranging authorities to 370 (now 416) local
  governments
• Regional share in government spending almost
  doubled (17 to 31 percent) and likely to grow to
  over 40
• 2 million outof 3.4 million central civil
  servants transferred
• 16,000 facilities handed over to the regions.
• Brand new intergovernmental fiscal system
• New political system, new accountability.

4
Achievement 2 Peoples Perception of Services
5
Achievement 3 Continued Fiscal Consolidation
6
Achievement 4 Development spending increased
Central and regional development spending,
percent of GDP
7
Challenge 1 Inequality
8
Challenge 2 Fiscal dependency
9
Challenge 3 The investment climate
Domestic and foreign investment approvals
10
Challenge 4 The center holding on
Central Development Spending, Rp. Bn.
11
Challenge 5 Corruptiona. Political
Share of people that believe money politics was
involved in Bupati Election and Accountability
speech
12
Challenge 5 Corruptionb. Civil service
13
Challenge 5 Corruptionc. Petty
14
Directions for reforms

• The center should devolve more resources
• Preferably in the form of tax base
• The DAU should become more equalizing
• And governance should improve
• Through more clarity in local functions
• ..better rules on financial management and
  procurement..
• ..better rules on politics..
• And DAKs with incentives to perform