Milestone in accountability

The government and the House of Representatives should be highly commended for their achievement in completing the law on state finances, which forms the foundation for the building of a legal and institutional framework for the public financial management system.

It is amazing, though, to note how the mass media, which have been so highly critical of the utterly poor accountability of the government regarding public finances, played down the passage of a law that is crucial to the process of increasing accountability in treasury management, and in increasing transparency in all government transactions.

The law is truly a milestone in the national drive for good governance, greater democracy and transparency, as it is the first legislation on the management of public finance ever enacted since the nation's independence 58 years ago.

It will replace three Dutch laws on treasury management, which were made almost 80 years ago to serve the needs of a colonial regime that did not require democratic legitimacy nor accountability for its budget.

Many may overlook the true meaning and weight of the new law, as it only lays down the basic principles of public financial management. Moreover, the enforcement of the law still depends largely on two other pieces of legislation -- on state treasury and on the auditing of state financial accountability -- that have yet to be approved by the House. The three draft laws were actually proposed in a package to the House in September 2000, but only the one on state finances has been enacted.

However, the high quality of accountability and transparency in public financial management can already be discerned from the law's provisions on the budget process and the compulsory independent oversight of public expenditures by the Supreme Audit Agency (BPK).

The law stipulates that the financial accountabilities of both the central government and local administrations shall be audited by the BPK, and the accountability reports shall contain not only revenues and expenditures as they do now, but shall also cover budget realization, a cash-flow report, notes to financial reports and the financial statements of state companies and other state institutions.

The law also clearly governs the distribution of power on state finances between the executive and legislative branches and among the different levels of government: the financial relations between the government and the central bank; and between the government and state companies, the planning and budgeting process, the role of the finance minister and line ministers in public expenditure management.

Many of the principles have yet to be elaborated in the other two draft laws on state treasury and audit on state financial accountability, but it is already clear from the principles that fiscal policy will no longer be just a question of raising revenues and minimizing wasteful spending -- it also requires fundamental changes in the way public finances are managed.

Most important is that the law stipulates the principle of a single consolidated fund, thereby eliminating extra-budgetary funds, and clearly lays down the division of authority between the finance minister as the chief financial officer and line (spending) ministers as chief operating officers.

The law allows the central government to give loans or grants to local administrations and vice versa, and to procure loans or grants from foreign governments or institutions with prior approval from the House.

The central government is also allowed to lend to state companies and to local administrations credits or grants it gets from foreign governments and institutions. Local administrations are allowed to lend or borrow from other local administrations with prior approval from regional legislative councils. But the legislation does not stipulate anything on foreign borrowings by local administrations.

In provisions specially designed to deter officials from embezzling public funds, the law stipulates that every official who is charged with receiving, keeping, paying and/or transferring money, securities papers, or state properties, is a treasurer who is obliged to submit accountability reports to the BPK. The "treasurer", as meant in this provision, shall be held personally responsible for any loss of state money in his/her management.

This stipulation will go a long way toward maintaining high discipline in the accountability of public finance, as treasurers would certainly dare to ignore orders from their superiors or senior officials that are against budgetary or treasury rules, knowing that they could no longer escape responsibility or seek protection behind the authority of their bosses, as many officials now do.

Since the law on state finances will serve the public demand for good governance, greater democracy and transparency through a better management of public finances, it is most urgent that the House speed up deliberations of the two other bills on state treasury and auditing of state finance accountability.