General Purpose Central-Provincial-Local Transfers (DAU) in Indonesia: From Gap Filling to Ensuring Fair Access to Essential Public Services for all

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Improving the allocation and efficiency of public spending in Indonesia

“…In 2013 the share of personnel and administration in total expenditures varied between 41% in Kalimantan and 57% in Java-Bali, and this share increased from 2008 to 2013 in all island groups (by from 2 percentage points for Java-Bali to 10 percentage points in Eastern Indonesia) (Patunru and Rahman, 2014). The central government tries to control personnel spending by limiting local recruitment, but this reduces accountability and the quality of governance at the local level (Shah et al, 2012). The World Bank (2012a) estimates that in 2011 general administration represented about 25% of subnational spendingwhile the international standard is about 5%and that the increases in education and health-care spending in the previous decade were at the expense of infrastructure.…”

“…Continued fragmentation could also limit public spending efficiency. According toShah et al (2012), DAU's current design induces the creation of new entities to receive more transfers per head. During the period 2010-14, six provinces, 17 districts, 325 sub-districts and 4079 villages were created.…”

The evolution of the electronics industry on Batam Island (Riau Islands Province, Indonesia): an evolutionary trajectory contributing to regional resilience?

“…Following the end of the New Order, decentralization reforms were legislated in 1999 and implemented in 2001. Indonesia went from one of the world's most centralized political systems to one of its most decentralized (Shah et al 2012). Direct elections were established for provincial and local governments, and these levels of government received the lion's share of government duties and responsibilities (Buehler 2010).…”

12. Explaining regional heterogeneity of poverty: evidence from a decentralized Indonesia

“…The central government distributes unconditional block funds (dana alokasi umum or DAU) to the regions using a formula accounting for both needs and economic potential DAU are the main mechanism through which the central government provides funds to finance provincial and kabupaten government expenditures in Indonesia (Shah, Qibthiyyah, and Dita, 2012). In addition, in an attempt to reduce inequalities between regions, poorer provinces and kabupaten are eligible for additional grants from the central government.…”

“…In addition, in an attempt to reduce inequalities between regions, poorer provinces and kabupaten are eligible for additional grants from the central government. These include specific allocation funds (dana alokasi khusus or DAK), Special Autonomy grants for Aceh, Papua and West Papua, adjustment compensation funds (dana penyesuaian or DP), and regional incentive funds (dana insentif daerah or DID) and grants (hibah) (Shah, Qibthiyyah, and Dita, 2012). DAK are intended to influence local government spending on areas of national priority, and account for 6% of central transfers and fund 5% of subnational expenditures.…”