Sub‐national Government Capital Spending in Indonesia: Level, Structure, and Financing

Abstract

SUMMARYSub-national government capital spending is important for both public service delivery and economic development. Currently, Indonesian sub-national public capital spending appears barely sufficient to cover the annual depreciation of its fixed assets. A substantial proportion of local government investment spending goes to create relatively unproductive assets, such as administrative office buildings. Sub-national governments finance their capital acquisitions out of gross operating budgets and have thus far not used, to any great extent, either borrowed funds or their significant cash reserves for such purposes. Indonesian sub-nationals need to spend more on capital than they do now and also need to focus that spending on more useful types of infrastructure. The major constraints to increasing capital spending at the sub-national level are not related to a dearth of finance, but regulatory rigidities in budget preparation and implementation and, most importantly, a lack of capacity to plan, design and implement investment projects.

Urbanization and Economic Growth in Indonesia: Good News, Bad News and (Possible) Local Government Mitigation

“…Sub-national governments in Indonesia make up about half of consolidated public infrastructure spending, a seemingly meaningful amount. Lewis and Oosterman (2010) provide evidence to suggest, however, that Indonesian sub-national spending on infrastructure, which is financed entirely out of gross operating budgets, is barely sufficient to keep up with the depreciation of local public assets. In any case, it is reasonably clear that both central and sub-national governments will have to increase infrastructure spending in order to meet rising demand, especially in urban areas, and stimulate regional and national economic growth.…”

Decentralisation to promote Regional Development in Indonesia

“…Moreover, the variance across Indonesia's provinces in public servant density is enormous, ranging from around 10 per 1 000 population in Banten and West Java, to over four times that in Maluku and West Papua (Figure 12). Lewis and Oosterman (2011) argue that while the sub-national governments account for a significant proportion of public investment spending, a large share of this goes to towards relatively unproductive assets such as office buildings. All these indicators suggest that sub-national governments are, in this respect at least, not converging on best practice.…”

Investment Activity of Large Cities - Regional Centres in Poland

“…Thus, public investment activity starts at the local level. Implementation of investment projects by local government unitsthereby strengthening their investment activityis vital for every country, positively impacting its development (Lewis and Oosterman, 2011). Under the Polish Commune Government Act (Art.…”

“…Eastern Poland regions are among the least developed areas due to their peripheral location, both in the country and in all European Union. Therefore, it is vital for regional centresvoivodship citiesto conduct intense investment activity because investment outlays are an essential factor of economic growth (Dubik, 2005;Lewis and Oosterman, 2011;Dijkstra et al, 2011;Crescenzi and Rodríguez-Pose, 2012). Thus, the question arises, do regional centres located in Eastern Poland take advantage of the opportunity to advance their development through the implementation of investment projects, including those co-financed by the European Union?…”