Making Indonesia’s Budget Decentralization Work: the Challenge of Linking Planning and Budgeting at the Local Level

Abstract

While many countries have decentralized budget spending in the last decade, few have tried to do so as quickly and as ambitiously as Indonesia. The 2001 ‘sink-or-swim’ decentralization largely abolished the hierarchical relationship between the center, province and the district and transferred around one third of central government expenditure to the regions. This replaced the deconcentrated agencies of central government (ie. central government units operating in the regions) with a presumption that (despite Indonesia being a unitary state) local governments undertake all spending responsibilities other than those specifically assigned to the national government. Provinces and districts are responsible for an increasing share of national personnel and material expenditures, and it is reported that some sixty percent of the routine budget and just under forty percent of development budget is managed at the sub-national level. Local budgets are approved by autonomous (parliament like) local councils, replacing the previous deliberative councils, with resource allocation decisions being made by an elected local mayor, the local planning agency (BAPPEDA) and local finance office (Badan Keuangan).