1. Mataram Lombok Indonesia 8 May 2015
Session 3: Latest fiscal reforms of SNGs in Indonesia
and tasks for the new administration
Marcelino Pandin, PhD
OECD Korea Policy Center and MOHA on 1st Asian Public Governance Forum on LFM
Mataram Lombok Indonesia 8 May 2015

2. Brief intro to fiscal reforms of SNG in Indonesia
in a simplied continuum
1999
2004
2014
2001
Deconcentration, delegation and
selected devolution
Toward full-scale
devolution
Centralized .....
..... Decentralized .....
expenditure led
(dependence on transfer)
at city/regency level
mostly deconcentration
strong inertia ----
central vs decentralized
LG low capacity and trust
toward performance based
and specific target
innovative revenue enhancement (OSR)
a mix arrangement
Province-City/regency-village
linking fiscal and performance
Under Ministries
through Presidential
instructions
wider devolution
incentive & punishment
further fiscal & governance
reform
new gov mechanism/direct election
Abolish hold harmless principle
Revised fiscal transfer formula
detailed devolved functions of LGs
Law 22
Law 25
Law 32
Law 33
Law 23
A new bill
Law 6
on devolution at
village level

3. Latest fiscal reforms as of 2015
Provinces
Previous
New arrangement
strengthening provincial govts’ role
in monev cities and regencies
lead the coordination of cross-border
development between cities-regencies
lead land acquisition for major public infrastructure
new own source revenues
Central Govt
Central Govt
Provinces
Provinces
Cities and regencies
devolved land and building taxes incld stamp duty
special presidential infrastructure transfer
MIDF (in progress) – creditworthiness & governance
PERA (public expenditure andreview analysis)
more accountability on performance
Cities /
Regencies
Cities /
Regencies
Sub
districts
Villages
new governance structure and mechanism
e.g. Village council, village collaboration etc.
village transfer (separated to cities/regencies transfer
village owned enterprises (BUM Desa)
room for exploring new sources of income for villages
need be equipped with public finance mgt and audit
Villages & Subdistricts
Villages

4. Future direction for current administration (1)
At central govt:
address the classic problems: coordination failure among ministries and appetite in authorities
apply widely performance-based transfer and performance benchmark
promote creditworthiness to access external financing and improved governance
(anticipate municipal bond market and LG bankrupcy law)
provide intellectual and substatial inputs into village law 6/2014 and regulations
amend relevant laws to clearly separate mandates for resource allocation,
program implementation and independent external audit and monev
streamline procurement system and accommodate innovative undertakings incld PPP
consider the use of external and independent auditors
revive municipal contracts and actualize real and significant penalties to underperformers
set up an independent commission on grant allocation and evaluation on budget appropriation
support cities’ significant contribution to national economic growth

5. Future direction for current administration (2)
At subnational government levels:
link fiscal devolution and delivered performance contract
enhance quality of data for planning and control (incld spatial data)
sharpen revenue mobilization strategies to service dellivery
adopt innovative revenue enhancement:
pro-growth, pro-poor, pro-job, and pro-environment
run strategic cost reduction and smart budget allocation
improve modeling capacity that link budget and performance (e.g. job and growth)
- expand voice into choice and control

6. Thank you