The implementation of regional autonomy and the creation of new regions has led to dramatically increased demands for funding on the central government's annual budget, an official says.
Since the enactment of the 2001 Regional Autonomy Law, seven new provinces, 114 new regencies and 27 new municipalities have been created, bringing the total number of provinces to 33, regencies to 348 and municipalities to 86.
However, most of the newly established entities are heavily dependent on funding from the central government in the form of general allocation and special allocation payments, said Mardiasmo, the Finance Ministry's director general of fiscal balance.
"The central government has set aside Rp 164.8 trillion (around US$18 billion) in general allocation funds in the 2007 budget, a sharp increase from Rp 60.5 trillion in 2001," he said during a presentation he made to a two-day national workshop on fiscal decentralization.
As a result, instead of improving public welfare through the provision of more effective and efficient services, autonomy had in some respects only served to place additional burdens on the budget.
In addition, based on the 2004 Fiscal Balance Law, the Finance Ministry had adopted a policy of maintaining general allocation funding levels for this year and next. Under this policy, the general funding provided to each region in 2007 would not be less than that allocated this year.
Consequently, the central government had to cough up additional funding to maintain the current balance in general allocation funding, the amount of which had rocketed from Rp 300 billion in 2006 to Rp 4.4 trillion in 2007.
Mardiasmo, therefore, stressed the need for stricter requirements for the establishment of new regions, including a consideration of every would-be region's economic and financial capacities, and its revenue-raising potential.
Kausar AS, the ministry's director general for regional autonomy, concurred with Mardiasmo, saying that more than 83 percent of the new regions were excessively dependent on the central government for funding.
There are currently another 17 would-be new regencies/municipalities whose future status is being discussed by the government and House of Representatives. The government has also received proposals for the establishment of 21 new provinces and 94 new regencies and municipalities. (01)
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