Monday, 19 May 2014


To learn from past experiences and in view of various rules and future prospect, it was stipulated that broad regional autonomy in regencies and cities was only based on the principle of decentralization. In the province, there would be limited autonomy based on decentralization and deconcentration.

Besides this policy might open broad oppor­tunities for establishing a democratic Government, so the people could play their roles in executing devel­opment based on the potentials in the region, and the Government would be enabled to render better services for the people.

In principle all the Government's task to de­velop could be delegated to the autonomous Pro­vincial Governments except in defense and security, justice, external affairs, monetary, religion etc which nationally were better to be managed by the central Government. Basically there was distribution of pow­er between the Central Government and local govern­ments.

The Central Government's power was to en­hance execution of policy for national development at macro level, to manage financial balancing, state's administration system and state's economic institu­tions, human resources development and natural re­source development, strategic high technology, natu­ral conservation and national quality standardization.

The Provincial Government's power as auton­omous region included power in administration which was trans residential and power in other domains and provincial authority as administrative zone including governmental authority delegated to Governors as Government's representatives in the regions.

The autonomous provinces had the authority to execute decentralization plan aimed at enhancing provincial administration functions, provincial devel­opment execution, enhancement of service efficiency to the people, development of regional financing and people's empowerment.

By the above-mentioned authority, implemen­tation of the regional autonomous system must en­sure readiness of institutional function, and compe­tent personnel, material equipments, and economic potential of the regions to serve as income resources for the region, giving of fiscal and non fiscal incen­tives and financial relationship between the Central and local Government.

Serious attention on economic capacity of all autonomous provinces was of utmost importance. Fi­nancial matters should be managed based on APBD Regional Budget, general assistance, special assis­tance from the Central Government and income fund according to provincial economic contribution with­out disregarding Government's role.

Regional Government was expected to em­power all Indonesian regions in terms of politics, economy, or social culture. Independent legislation function and control by the Local Parliament [DPRD] would lead to effective local administration and dem­ocratic life of the people.

People's participation in development process would be enhanced to enable all the regions in Indo­nesia to grow integratedly. Hence the autonomous Government system was a starting point of Indone­sia's fundamental change process.

Autonomy as written in Law No. 22 year 1 999 which was revised into Law No.32 /2004 was generally understood as transfer of authority from the Central Government to the Provincial Government. It was more than just transfer of authority but also transfer of financial management known as Money Follow Function as regulated in Law no 25 Year 1999 which was revised into Law No 33/2004 on Financial Balancing between the Central Govern­ment and local Governments.

Further consequences of the implementa­tion of the two laws was that authority of the local Government would be greater so the responsibilities would be just as high. Regional governments must be able to manage authority in the broadest sense of the word to empower the people, economic and politi­cal institutions, legal institutions, religious institutions and non-Governmental organizations and all public potentials in the region within the United Republic of Indonesia.

Besides, the regional Government must also have the capability to manage their own fund. Every region was demanded to be able to finance develop­ments in their respective areas by their own financial resources which they commanded. The role of pro­vincial Governments in exploring and developing local potentials as source income would determine attain­ment level of the Government in that region.

Unfortunately as the decentralization of Gov­ernment [Otoda] was applied, many local Govern­ments were still unprepared in finance management. Financial performance was the benchmark of readi­ness of local Governments, but in reality financial management capability of some provinces were still dependent on cash supply from the Central Govern­ment. Supposedly they were self-reliant.

In regard to the local financial authority of the local Government, Law no. 32 /2004 regulated trans­fer of balancing fund consisting of General Allocation Fund [DAU], Special Allocation Fund [DAK], and fund from shared income consisting of tax income and natural Resources.

Spending of the balanced fund was fully en­trusted to the local Government. However the local Government must use the transferred fund effective­ly and efficiently in promoting minimum standard of public service presented transparently and account­ably.

However in reality, transfer from the Central Government were frequently used by the local gov­ernments to finance daily operations and in the Fi­nancial Report was included in the Regional Budget [APBD1. The objective of this transfer was to reduce inter Governmental gap and to ensure minimum pub­lic service standard all over the country, and only a small portion allocated for public welfare.

And yet the Regional Budget [APBD] was the main instrument for policy implementation for the lo­cal Government who was in the central position in the process of capability development by the Provincial Government. For that matter regional fund must be public orientated, be transparent about budgeting to the public as stated in the regional financial report.

Considering the wide disparity of develop­ment between the Central Government and the local Governments and bias in budget alocation, it was important to speed up development process and max­imize PAD management by all stakeholders. Unfortu­nately the application of OTODA seemed a far cry from its true objective. This was evident in absorption of local Government's fund for development.

Excessive fund of the Local Government were mostly deposited as fix deposit in banks which was ineffective because they became idle fund. So it was right for the Ministry of Finance to issue regulation on the maximum amount of fund to be placed in fixed deposits to enhance development in the regions .

The Central Government' fund was very often placed by the local Government at Regional Development Bank [BPDJ further re-deposited in the form of Bank Indonesia certificate [SBII and the fund flowed back to Central. Last year local Government's fund which was idle in banks came to Rp109 trillion further the fund became over spill of Budget Expen­diture [silpa] which was further used as initial fund 2014.

The Ministry of Internal Affairs approved pro­hibition to keep fund in fix deposits. Remaining [un­spent] fund from December to March was normally unused. In that case it was permissible to keep mon­ey in fixed deposit. The reason was: if fund were kept as giro the interest was only 3%, while in deposit it was 6%, so the depositor had 3% of difference to play with. But money keeping in deposits was done only for a limited period.

If fund of the regions could be fully used, inter-regional disparity could be minimized. In the past, a centralistic Government had caused disparity to widen, which was why people's welfare was not evenly spread. Besides regions were losing their cre­ativity in seeing the potentials in their region.

In a decentralized system as today, provincial Governments were demanded of their high capability and competence. They were demanded to be creative and innovative in developing their regions based on the budget in hand. In general regions which grew was because of creative quality of their leaders. They would make policies which were investor friendly so investors were enthusiastic about investing their capi­tal. (SS)

Business New - April 30, 2014

No comments: