Tussle over grants to regions

The central government needs to act quickly to clarify the controversy set off by the sweeping allegations by a House leader last week that 40 percent of the Rp 60 trillion (US$6 billion) in general allocation grants from the central government to provincial and district administrations in the current fiscal year had been misused.

Simply ignoring the issue in the hope that the controversy would die out and disappear from mass media coverage after a few days will not help smoothen the decentralization process. It will instead strain relations between the central and regional governments, especially since the tussle arose while the central government was considering the revocation of 68 regional bylaws found to in contravention of national laws.

Start-up problems were expected in the implementation of the local autonomy laws beginning last January in 30 provinces and more than 350 districts across the vast archipelago.

One can imagine how complicated and uphill has been the administrative task of transferring from the central government more than 2.1 million civil servants, their facilities and their archives, together with around 240 provincial-level, 3,935 district- or city-level offices and 16,000 implementing units. These transfers were supported by Rp 60 trillion in general allocation grants, with the obvious rationale that the transfer of expenditure responsibilities and their associated functions should be accompanied by the handover of revenues.

It is in anticipation of complications from that transitional nature that the 2001 state budget also allocates another Rp 6 trillion in contingency funds to back up the general grants. About 50 percent of the contingency fund has been used to help local administrations, which suffered mismatches between revenue and expenditure. Except for the mismatches experienced by several regional administrations and a teachers' strike recently over the issue of back pay disbursement, the decentralization process has so far run fairly smoothly.

Early on in the start of the local autonomy in January, many feared that corruption and inefficiency would flourish in the provinces and districts as the expenditure under their responsibility would suddenly increase sharply, especially because an effective mechanism of checks and balances had still to be developed.

Benny Pasaribu, chairman of the House of Representatives budget and finance commission, is right and has the right to ask for audits on the general grants. That is a basic element of an effective checks-and-balances mechanism.

But Pasaribu's allegations that up to 40 percent of the general grants had not been used for civil servants' pay and local development but for other expenditure, such as buying houses, cars and other goods not related to the interests of the local people, have certainly angered regional administrations.

Things were made even more controversial because Pasaribu did not support his sweeping allegations with reliable data nor findings from audits, and director general for inter-governmental fiscal relations Machfud Sidik, who is in charge of directly overseeing the disbursement of the grants, immediately denied Pasaribu's allegations.

But Sidik did not put the issue in the right perspective by immediately rejecting the allegations as groundless, but he simply said he had not received any reports indicating what Pasaribu had alleged.

Sidik also appeared ignorant of the harsh reality by asserting that everything about the general grants was alright because their use had been audited by local inspectorates. As a career bureaucrat Sidik must be fully aware how opaque has been the budget classification and documentation, how weak and ineffective have been procurement regulations and how severely limited has been the audit capacity, even within the central government, let alone within regional administrations.

It is most imperative that the controversy over the sweeping allegations be straightened out by auditing the use of the general grants. In fact, the government's reform agreement with the International Monetary Fund that was signed in August has anticipated the need for such audits, though not for the entire general grants. The agreement, among other things, stipulates that allocations of the contingency funds to the regions should be audited by December to help monitor fiscal decentralization and ensure macroeconomic control.

However, a similar tussle could again arise between the central and regional governments if local administrations are allowed to largely determine their own financial management, accounting and procurement systems. It does not make any sense at all to have different accountability standards, let alone one standard lower than the other. It is therefore crucial for developing national uniform standards for procurement and financial management.