Tussle over grants to regions

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.