The Impact of Decentralization on Subnational Government Fiscal Slack in Indonesia

Abstract

Since Indonesia began implementing its decentralization program in 2001, subnational unspent balances have grown rapidly and have reached levels that many officials find unreasonably high. But the extent to which subnational government reserves are excessive, in general, is not obvious. A not implausible decrease in the price of oil would reduce transfers to subnationals significantly and, if sustained, could possibly eliminate reserves in a relatively short time. Central government should not take any immediate action to reduce subnational slack resources directly but should instead focus on removing the underlying causes of such.

Inequality convergence in inefficiency and interprovincial income inequality in Indonesia for 1990–2010

“…Measuring municipal governments' fiscal efficiency resulting from fiscal decentralization reforms can be another extension. Indonesian decentralization laws place the responsibility for public spending on district governments rather than provincial governments although control over major sources of revenue remains highly centralized (Lewis and Oosterman 2009).…”

Indonesian Decentralization: Accountability Deferred

“…15 They argue that subnational governments cannot even manage to spend the amounts of money to which the already have access and that therefore they certainly don't need additional funding. While there is some doubt about the extent to which subnationals, in general, have saved excessively, most MOF policymakers certainly appear to believe that over-savings among provinces and kabupaten/kota is broadly the norm (Lewis & Oosterman, 2009). MOF tends to favor a reallocation of existing intergovernmental resources rather than a significant increase in new funding for subnational governments.…”

“…15 As of the end of 2008, subnational governments held Rp 70 trillion in cash reserves. It is estimated that this sum represents about 25 percent of total subnational spending (Lewis & Oosterman, 2009). funds. 16 Essentially, intergovernmental transfers are entitlements; and as such, they are not well suited for adaptation as performance incentive grants.…”

“…The general purpose transfer is an equalization grant and allocations are derived from a formula that considers both expenditure needs and fiscal capacities.17 The first maybe rather more easily achieved than the second. Only three local governments received unqualified audits in 2006, the most recent year for which data are available(Lewis & Oosterman, 2009). Downloaded by [Umeå University Library] at 16:10 19 November 2014…”

Jakarta in Post-Suharto Indonesia: Decentralisation, Neo-liberalism and Global City Aspiration

“…It has been widely observed that the New Order's highly centralised governance served to increase regional disparities between the most populous island of Java (and especially Jakarta) 1 on the one hand, and other regions of Indonesia on the other (see, for example, Aspinall and Fealy, 2003;van Klinken, 2007;Lewis and Oosterman, 2009;Wollenberg et al, 2009). In an article published in this journal in 2003, Tommy Firman noted that more than three-fifths of the nation's economic activities are concentrated in JMA.…”