State treasury management

State treasury management

Legislation alone will not be effective in preventing
corruption and curbing inefficiency within public finance
management, because the efficacy of the law, finally, depends on
the mentality of the officials implementing it.

But Minister of Finance Boediono was right in observing --
after the House of Representatives endorsed the state treasury
bill on Thursday -- that stronger rules on budget allocation,
accounting systems, cash and debt management, procurement and
internal control systems could greatly help minimize
opportunities for malfeasance.

The passing of the new legislation itself came as a surprising
year-end gift from the House. The general public, even most mass
media, seemed to have forgotten the bill after the government
submitted it to the House in September 2000, along with draft
laws on state finances and on auditing state financial
accountability.

There were vigorous debates for a few weeks immediately after
the unveiling of the three bills, but then they disappeared from
the deliberation agenda until this March, when the House
unexpectedly passed the state finance bill into law.

The lack of media coverage of the deliberations has not
adversely affected the quality of the laws, which were prepared
with assistance from the World Bank and the International
Monetary Fund, as well as several of Indonesia's sovereign
creditors.

The two laws provide stronger legal foundations for developing
higher standards of transparency and accountability in public
finance management. Hopefully, the other bill on auditing state
financial accountability can be completed early next year,
because the three pieces of legislation are designed to
supplement and reinforce each other -- with the single objective
of improving public finance management and accountability.

Law No. 17/2003 on state finances, which replaced Dutch
colonial laws of the early 1900s, stipulates that the financial
accountability reports of the central and local governments
should not only cover revenues and expenditures, as they do now,
but also cover budget realization, cash flow, notes on financial
reports and financial statements of state companies and other
state institutions.

In provisions specially designed to deter officials from
embezzling public funds, the State Finance Law stipulates that
any official who is tasked with receiving, keeping, paying and/or
transferring money, securities papers or state property will be
regarded as a treasurer, and are obliged to submit accountability
reports to the Supreme Audit Agency. The "treasurer" as defined
in this provision will be held personally responsible for any
loss of state money under their management.

The State Treasury Law is to replace the Dutch colonial budget
management law (ICW) of 1925 which, with some amendments, is
still used by the government. The new law will put the ministry
of finance fully in charge of managing the state budget, and it
clearly stipulates the principle of a single consolidated fund.
The law also enforces the role of the finance minister as the
state's chief financial officer.

The law stipulates provisions on budget management and
financial planning, debt, procurement and property management,
and penalty and sanctions for state treasurers. In addition, it
has clear-cut stipulations on the settlement of government
financial losses caused by mismanagement or corruption, and on
the foreclosure of the assets of treasurers found to cause
financial losses to the state.

The new law will require the government to reorganize the
ministry of finance by dividing its budgetary and treasury
functions. This will create a stronger treasury directorate
general, which will conduct a comprehensive overhaul of the
government's payment and receipt systems, consolidate the
government's cash resources currently held in thousands of bank
accounts and improve the framework of internal control.

The State Treasury and State Finance Laws will help the
government greatly in building a sound financial management
system, which is a key factor in good governance.

These two laws, together with the bill on state financial
audit, which is expected to be enacted early next year, will help
improve transparency in government budget preparations and
accountability in treasury management. This, in turn, will
facilitate the collection of sufficient resources from the
economy and the effective allocation and use of these resources.

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