German Technical
Cooperation
CAPACITY BUILDING NEEDS
ASSESSMENT FOR LOCAL
GOVERNMENTS AND
LEGISLATURES
CLEAN
Urban Project
Regional Finance
31 August 2000
GTZ Office, Deutsche Bank Building, Jl. Imam Bonjol No. 80, Jakarta 10310
Tel +62-21-324 007 Ext. 124 and 126; Fax +62-21-324 070
Support for Decentralisation Measures (SfDM), Tel +62-21-351 1584, +62-21-351 2609;
Fax +62-21-386 8167
Email: capacity@gtzsfdm.or.id
Website: www.gtzsfdm.or.id/capacity/cb_index.htm
Report No. FR/5
Foreword
This Thematic Report on Regional Finance is one of the final thematic reports prepared by the
Capacity-Building Needs Assessment Study which was jointly carried out by GTZ (German
Technical Cooperation) and the USAID CLEAN-Urban Project. The objective of this report is
to identify and prioritize the capacity-building needs to help local governments competently
implement the new local government finance system envisaged under Law No. 22/1999, Law No.
25/ 1999 and their supporting regulations.
The report stresses that the new local government finance system represents a fundamental
reform which provides the opportunity for meaningful decentralization including enhanced local
decision-making authority, transparency and local accountability. However, it places extensive
new demands on the local DPRD members, local government officials and communities to
effectively capitalize upon these opportunities. The existing system of local government financial
management which is dictated in great detail by central government regulations and guidelines
with intrusive supervision by central and provincial governments will be replaced by a system
of general guidance from the central government supported by central monitoring, evaluation and
facilitation. The local governments will themselves be largely responsible for the detailed design
and implementation of systems for budgeting, accounting, reporting and other aspects of financial
management. This has a profound impact on the new capabilities required of DPRD members,
local government officials and the communities.
The capacity-building needs to support this reform are extensive; especially as many local
governments have serious deficiencies in their capacity to implement even the existing system.
Thus, to support rapid decentralization of local government finance, capacity-building efforts by
the GOI and support from donors must be strategically prioritized.
This report has been prepared by Adam Nugroho and Bill Kugler of the CLEAN-Urban Project.
During the final stages of preparing the report, the former State Ministry for Regional Autonomy
(MNOD) was merged with the Ministry of Home Affairs and Regional Autonomy. Reference to
MNOD should therefore be read as referring to the latter. The views expressed in this report are
the views of the authors, and do not necessarily represent the views of GTZ, USAID or of the
Government of Indonesia.
31 August, 2000
Rainer Rohdewohld
Team Leader (GTZ)
Capacity Building Needs Assessment for
Local Governments and Legislatures
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
2
Executive Summary
Law No. 22/1999 regarding Local Governance, Law No. 25/1999 regarding Central-Local Fiscal
Balance and the supporting government regulations represent a fundamental reform of the
existing local government finance system which provides the opportunity for meaningful
decentralization. This includes enhanced local decision-making authority, transparency and local
accountability.
Under the existing system, the central government has dominated the sources of regional finance
as well as the permissible uses of such finance. Law No. 25/1999 regarding Central-Local Fiscal
Balance and the supporting Government Regulation on Equalization Funds introduces the more
flexible General Allocation Grant (Dana Alokasi Umum –DAU ) to replace both the Subsidi
Daerah Otonom (SDO), which previously paid all local government staff salaries, and the
previous INPRES grants for development expenditures. This change will make it possible for
local governments to make better decisions regarding the appropriate balance between operations
and maintenance allocations versus those for new development projects. In replacing the SDO
system, DAU will also allow local governments to design their own organizations for service
provision and will finally give them incentives for achieving labor productivity in the provision
of services. With the introduction of the new DAU and the widening of local government
responsibilities, local governments will have to make much more difficult decisions regarding
the allocation of funds between different sectors under their responsibility. This means that
DPRD members and local government officials will need new and increased capabilities to make
such decisions on budgetary allocations. In making these decisions, local governments must be
capable of better understanding the priorities of the local communities. This also places new
demands on the DPRD, local government officials and the communities.
Until now, the systems and procedures for local government financial management have been
dictated in great detail by central government regulations and guidelines, especially PP 5/1975
and PP 6/1975, which have been enforced by intrusive supervision from the central and
provincial governments. These are now being replaced by a system of general guidance from the
central government supported by central monitoring, evaluation and facilitation. The local
governments will themselves be largely responsible for the detailed design and implementation
of systems for budgeting, accounting, reporting and other aspects of financial management. This
has a profound impact on the new capabilities required of DPRD members and local government
officials. The draft Government Regulation on Local Government Financial Management
encourages full cost recovery for service provision, where appropriate. It also specifies that local
governments will use a performance-oriented budgeting approach for both budgeting and
financial performance reporting in order to make a clear linkage between inputs and expected
outputs. This performance measurement and reporting to the executive, the local parliament and
to the community will help improve transparency and accountability. All of these have huge
implications for the new types of capabilities that are required of local governments.
The study team has taken these new systems and approaches that are emerging in the legal
framework for Regional Finance and combined them with international best practices to form
what we call the Normative Framework for Regional Finance. From the framework, capacities
that are needed by local parliaments, local government officials, local communities and central
government ministries were identified. Instruments were then developed to gauge the existing
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
3
capacities and identify those for which capacity-building support is needed. During the
development of the Normative Framework, a three dimensional approach of capacity was used,
whereby capacity of a local government is recognized as dependent not only on the capacity of
individuals (individual level) or the local government management tools (entity level), but also
on the enabling framework of national and local policies and regulatory systems (systems level).
Based on the Normative Framework, instruments such as in-depth interview formats and
questionnaires were developed and used in the field survey work to evaluate the existing and
needed capacities. Extensive interviews were conducted with concerned central government staff
followed by in-depth field surveys conducted in Kota Makassar, Kabupaten Bima, Kota Malang
and Kabupaten Kutai Induk; as well as the related provincial offices in Propinsi Sulawesi Selatan,
Propinsi Jawa Timur, and Propinsi Kalimantan Timur.
The general findings of the field surveys indicate that existing capabilities of local governments
for local government financial management vary greatly; ranging from those that are competent
to implement the existing centrally-dictated systems to those with substantial deficiencies. The
new regional finance system requires a quantum leap of capabilities such that even the fairly
competent local governments will require substantial and sustained capacity-building support in
order to fully implement the new system. With such huge needs for capacity-building at all levels
(system, entity and individual), there is a very urgent need for the Government of Indonesia to
adopt a clear, phased strategy to support the capacity-building needs. Toward that end, this report
provides recommendations grouped by priority as follows: those immediate priority activities that
must be completed if decentralizations will substantially start as of January 2001, those that must
be started now but implementation will take time, those whose start-up can be delayed and those
activities of secondary priority.
In order to support the effective implementation of decentralized regional finance in January
2001, the most immediate capacity-building need is to issue and fully socialize the Government
Regulation on Local Government Financial Management (PP Pengelolaan dan
Pertanggungjawaban Keuangan Daerah) and the Government Regulation on Equilibrium Funds
(PP Dana Perimbangan) which will have a serious impact on the local government budgeting
process and availability and allowable uses of transfers from central to local governments. This
socialization must be in sufficient depth that local governments can fully comprehend the
operational implications of the new system and can act upon this knowledge. Such socialization
must not be limited to the local government executive and finance officers but also DPRD
members on Komisi C, all senior local government officials with budget responsibility and the
local communities. This broad and in-depth socialization will at least allow local governments
to effectively employ their existing financial expertise to adapt and implement the new system.
Next, capacity-building activities should focus on those new systems and skills that are needed
under the new local government finance system; especially an APBD budgeting process which
is responsive to priorities of the local communities and the introduction of performance-oriented
budgeting and reporting to improve accountability and transparency. At the same time, attention
should be paid to correcting critical deficiencies of the less capable local governments. This can
be accomplished through targeted technical assistance and training support, as request by the
local governments and communities themselves.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
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In the medium-term, there is a critical need to introduce a career path system for local
government finance complete with job descriptions tied to minimum qualifications and training.
The training systems is deficient and must be upgraded, building first upon improving the
existing training institutions, courses and training materials.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
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Ringkasan Eksekutif
Undang-Undang No. 22 tahun 1999 tentang Pemerintahan Daerah dan Undang-Undang No. 25
tahun 1999 tentang Perimbangan Keuangan antara Pusat dan Daerah serta Peraturan Pemerintah
lainnya, memberikan dampak perubahan besar dalam penataan sistem keuangan daerah yang
sedang berjalan saat ini yang mana dapat menghasilkan arti desentralisasi. Hal ini termasuk
mendorong pembuatan keputusan, kewenangan, transparansi, dan akuntabiliti Daerah.
Pada sistem yang ada saat ini, Pemerintah Pusat mendominasi terhadap sumber-sumber keuangan
daerah serta mengarahkan penggunaan dana tersebut. Undang-Undang No.25 tahun 1999 tentang
Perimbangan Keuangan antara Pusat dan Daerah serta Rancangan Peraturan Pemerintah tentang
perimbangan keuangan mengatur lebih fleksibel mengenai Dana Alokasi Umum (DAU) serta
menggantikan mekanisme Subsidi Daerah Otonom (SDO) yang mengalokasikan dana gaji
pegawai daerah, serta menggantikan mekanisme pemberian dana INPRES.
Perubahan tersebut dimungkinkan Pemerintah Daerah dapat menetapkan dengan baik
keseimbangan alokasi dana operasi dan pemeliharaan dengan belanja pembangunan yang baru.
Dalam menggantikan mekanisme SDO, Pemeritah daerah juga dapat menggunakan DAU untuk
mendesain organisasinya agar dapat memberikan pelayanan yang lebih baik dan pada akhirnya
dapat memberikan insentif untuk mencapai pemenuhan padat karya. Dengan menerapkan
mekanisme DAU dan perluasan tanggung jawab Pemerintah Daerah, Daerah akan mendapatkan
kesulitan dalam menetapkan alokasi dana sektoral sesuai dengan tanggungjawabnya. Dengan
demikian anggota Dewan dan aparat Pemerintah Daerah perlu menambah kemampuannya dalam
menetapkan alokasi dana. Dalam menetapkan keputusan, Pemerintah Daerah harus mempunyai
kemampuan yang lebih baik untuk mengerti prioritas masyarakat. Hal ini juga menempatkan
keinginan baru dari DPRD, Pemerintah Daerah dan Kelompok Masyarakat.
Saat ini, sistem dan prosedur pada pengelolaan keuangan daerah diatur secara terinci melalui
peraturan dan pedoman, khususnya pada PP No 5 tahun 1975 tentang pengurusan
pertanggungjawaban dan pengawasan keuangan daerah dan PP No 6 tahun 1975 tentang cara
penyusunan APBD, pelaksanaan tata usaha keuangan daerah dan penyusunan perhitungan APBD,
yangmana telah diatur dengan pengawasan yang ketat dari Pemerintah Pusat dan Propinsi. Hal
ini telah mulai digantikan dengan pedoman umum dari Pemerintah Pusat dengan dukungan
pemantauan, evaluasi dan fasilitasi dari Pusat. Pemerintah Daerah akan memperluas
tanggungjawabnya lebih rinci dan melaksanakan sistem penganggaran, akuntansi, pelaporan, dan
aspek-aspek lainnya dalam pengelolaan keuangan. Hal ini memberikan dampak terhadap
kemampuan baru yang diperlukan bagi anggota DPRD dan aparat Pemerintah Daerah. Pada RPP
Pertanggungjawaban dan Pengelolaan Keuangan Daerah diamanahkan tentang pemulihan biaya
(cost recovery) dalam pemberian pelayanan. Dan juga mengamanahkan kepada Pemerintah
Daerah untuk menggunakan pendekatan anggaran kinerja dan pelaporan kinerja keuangan daerah
agar terlihat secara jelas antara input dan output yang akan dicapai. Ukuran kinerja dan laporan
kepada Eksekutip, Dewan dan masyarakat akan dapat membantu meningkatkan transparansi dan
akuntabilitas. Secara keseluruhan sebagaimana diutarakan diatas akan membuat implikasi yang
besar pada kemampuan yang diperlukan oleh Pemerintah Daerah.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
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Tim studi telah mempersiapkan sistem dan pendekatan baru yang dapat terlihat pada kerangka
hukum keuangan daerah serta menggabungkan dengan praktek-praktek yang baik dan diakui
secara internasional yang diberi nama Kerangka Normativ bagi Keuangan Daerah. Dari Kerangka
Normativ tersebut, kapasitas yang diperlukan oleh anggota dewan, aparat daerah, masyarakat dan
Pemerintah Pusat telah diidentifikasi. Instrumen dirancang untuk memperlihatkan kapasitas saat
ini dan mengidentifikasi pengembangan kapasitas yang dibutuhkan. Selama pengembangan
kerangka normativ, digunakan pendekatan tiga dimensi, dimana kapasitas pemerintah daerah
diketahui banyak tergantung tidak saja pada kapasitas tingkat individu, perangkat daerah (entity
level), akan tetapi juga pada tingkat sistem, kebijakan, peraturan-peraturan pusat dan daerah.
Melalui Kerangka Normativ, instrumen seperti wawancara secara lebih mendalam, questionare
dikembangkan dan digunakan dalam survey lapangan guna mengevaluasi keadaan sekarang dan
kebutuhan akan kapasitas. Wawancara lebih luas dilakukan dengan pihak aparat Pemerintah
Pusat yang dilanjutkan pada saat kunjungan lapangan di Kota Makassar, Kabupaten Bima, Kota
Malang dan Kabupaten Kutai induk termasuk juga beberapa propinsi antar lain; di Propinsi
Sulawesi selatan, Propinsi Jawa Timur dan Propinsi Kalimantan Timur.
Temuan umum pada survey lapangan atas kemampuan yang ada pada Pemerintah Daerah dalam
pengelolaan keuangan keuangan daerah sangat bervariasi; Daerah kompeten dalam melaksanakan
sistem yang diatur oleh Pusat. Pada sistem keuangan daerah yang baru diperlukan kemampuan
Pemerintah Daerah secara substansial dan didukung dengan pengembangan kapasitas yang
berkesinambungan dalam rangka pelaksanaan keseluruhan sistem keuangan daerah yang baru.
Dengan diperlukannya pengembangan kapasitas pada seluruh tingkatan (sistem, entity, dan
individu), maka Pemerintah Indonesia perlu menetapkan secara jelas, penahapan strategi dalam
mendukung kebutuhan pengembangan kapasitas. Selanjutnya, laporan ini menyajikan
rekomendasi yang dikelompokan berdasarkan prioritas sebagai mana berikut ini ; yangmana
kegiatan-kegiatan dalam skala prioritas segera serta harus selesai bila desentralisasi akan dimulai
Januari 2001, yangmana harus dimulai saat ini akan tetapi pelaksanaannya membutuhkan waktu,
yangmana mulai pelaksanaannya dapat mundur dan yangmana kegiatan-kegiatan tersebut adalah
prioritas kedua.
Dalam mendukung pelaksanaan secara efektiv desentralisasi keuangan daerah pada Januari 2001,
kebutuhan pengembangan kapasitas yang harus segera adalah mengesahkan dan
mensosialisasikan Peraturan Pemerintah tentang Pengelolaan dan Pertanggungjawaban Keuangan
daerah dan Peraturan Pemerintah tentang Perimbangan Keuangan yang mana akan memberikan
dampak serius pada proses penganggaran Pemerintah Daerah dan tersedianya serta
diperbolehkannya daerah menggunakan dana transfer dari Pusat ke Daerah. Sosialisasi harus
cukup mendalam dimana Pemerintah Daerah secara komprehensip mengetahui implikasi
operasional dari sistem baru dan dapat melaksanakan berdasarkan pengetahuan yang dimiliki.
Sosialsasi tersebut tidak harus terbatas pada para pejabat daerah dan aparat keuangan, akan tetapi
juga anggota DPRD pada komisi C, seluruh pejabat pada unit kerja yang bertanggungjawab pada
bidang anggaran dan kelompok masyarakat. Pengembangan dan pendalaman sosialisasi paling
tidak Pemerintah Daerah akan secara efektif mengaktivkan para ahli keuangan guna menetapkan
dan melaksanakan sistem baru.
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Selanjutnya, kegiatan pengembangan kapasitas harus difokuskan pada sistem baru dan keahlian
yang dibutuhkan sesuai dengan sistem pengelolaan keuangan daerah yang baru; khususnya pada
proses APBD yang dapat menjawab prioritas kebutuhan masyarakat yang sesuai kebijakan
anggaran yang ditetapkan oleh DPRD dan dengan partisipasi masyarakat serta memperkenalkan
pendekatan anggaran kinerja dan pelaporan guna meningkatkan akuntabilitas dan transparansi.
Secara bersamaan, perhatian perlu diutamakan dalam perbaikan masalah yang sangat kritis
karena kurangnya kemampuan daerah. Hal ini dapat dilakukan melalui dukungan technical
assistance dan pelatihan, sesuai dengan permintaan Pemerintah Daerah.
Dalam jangka menengah, dibutuhkan sistem karier pegawai Pemerintah Daerah dibidang
keuangan daerah yang sesuai dengan tugas pokok dan fungsi yang berkaitan dengan kwalifikasi
minimum dan pelatihan. Sistem pelatihan bidang keuangan daerah sudah tidak cocok lagi dan
perlu diperbaiki, diawali dengan meningkatkan kelembagaan pelatihan, kursus dan bahan
pelatihan.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
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TABLE OF CONTENTS
Foreword
2
Executive Summary
3
Ringkasan Eksekutif
6
Table of Contents
9
Abbreviations and Glossary
10
1. Review of Previous and Existing Key Regulations and Policies
15
2.
1.1. General
15
1.2. Sources / Uses of Funds
15
1.3. Local Government Financial Management Systems and Procedures
17
Assessment of the Emerging Framework for Regional Finance
2.1.
Key features of the new framework (policies, legal regulations)
20
2.2
The Normative Framework
24
3. Capacity Assessment and Capacity Building Initiatives for Regional Finance Undertaken by Others
3.1.
Past, current and planned initiatives for capacity assessment, results and findings
3. 2. Past, current and planned initiatives for capacity building, results and findings
4.
Capacity assessment for Regional Finance
34
34
38
44
4.1.
Our Methodology
44
4.2.
General Observations from Each Field Visit Location
45
5. Findings and Recommendations from the Current Study (According to Level)
6.
20
50
5.1. System Level
50
5.2 Entity Level
63
Recommendations by Priority and Possible Donor Support
69
6.1 Immediate Priorities (Should be completed by Jan, 2001)
69
6.2 Must be Started Now but Implementation will Take Time
73
6.3 Important but Start-up can be delayed
79
6.4 Secondary Priority (Impact will only be realized in medium-to long-term)
81
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
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ABBREVIATIONS AND GLOSSARY
ADB
Asian Development Bank
APBD
Anggaran Pendapatan dan Belanja Daerah (annual budget of the
autonomous regions)
APBN
Anggaran Pendapatan dan Belanja Nasional (central government
annual budget)
BAPPEDA
Badan Perencanaan Pembangunan Daerah (Regional Development
Planning Board)
BAPPENAS
Badan Perencanaan Pembangunan
Development Planning Board)
BPKP
Badan Pemeriksa Keuangan dan Pembangunan (Government
Agency for Audit of Finance and Development)
BUMD
Badan Usaha Milik Daerah (public enterprise owned by a
autonomous regional government)
BUMN
Badan Usaha Milik Negara (public enterprise owned by the central
government)
BUILD
Break-Through Urban Initiatives for Local Development (BUILD)
Bupati
Regent. Head of an autonomous Regency ( kabupaten ) local
government
CIP
Capital Improvement Planning
DAU
Dana Alokasi Umum or General Allocation (block grants from
central government to autonomous regions)
DAK
Dana Alokasi Khusus or Special Allocation (specific grants from
central government to autonomous regions)
DG BANGDA
Directorate General for Regional Development, Ministry of Home
Affairs
DIP
Daftar Isian Proyek (List of projects implemented in the regions
by central government technical ministries and financed from the
central government budget)
Daerah
Autonomous Region. Can refer to autonomous provinces, cities
(kota) or regencies (kabupaten)
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Nasional
(National
10
Dinas
Technical unit of the autonomous regional government; essentially
operated as a cost center.
DIPENDA
Dinas Pendapatan Daerah ( Local Tax office)
DPOD
Dewan Pertimbangan Otonomi Daerah or Regional Autonomy
Advisory Council
DPRD
Dewan Perwakilan Rakyat Daerah (Regional House of
Representatives)
GOI
Government of Indonesia
IBRD
International Bank for Reconstruction and Development (World
Bank)
INPRES
Instruksi Presiden or Presidential Instruction (previous system of
both block and specific central government grants to autonomous
local governments which were decided annually at the discretion
of the President)
IIUD
Institutionalizing Integrated Urban Development Project
IUIDP
Integrated Urban Infrastructure Development Program
IUIDP-PJM
IUIDP-Medium Term Investment Program for Urban Infrastructure
Kepala Daerah (KDH)
Head of an autonomous region (Governor for Province, Regent for
regency or Mayor for city)
Ka Bag
Kepala Bagian or Head of Bagian
KaDinas
Kepala Dinas or Head of a dinas
KANDEP
Kantor departmen (deconcentrated office of a central government
ministries located at the local government level).
KANWIL
Kantor wilayah (deconcentrated office of central government
ministries located at provincial level).
KEPPRES
Keputusan Presiden or Presidential Decision (executive order from
the President to the administration).
KEPMEN
Keputusan Menteri or Ministry decree
KKD
Kursus Keuangan Daerah (Regional Finance Course)
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11
KKN
Korupsi, Kolusi, Nepotisme
RIAP
Revenue Improvement Action Plan (part of IUIDP)
LKD
Latihan Keuangan Daerah (Regional Finance Training)
LIDAP
Local Institutional Development Action Plan (part of IUIDP)
MAKUDA
MAPATDA
Manual Keuangan Daerah (Regional Finance Manual)
Manual Pendapatan Daerah (Local Government Revenue Manual)
MENPAN
Menteri Negara Pendayagunaan Administrasi Negara or State
Minister for Administrative Reform
MOF
Ministry of Finance
MOHA
Ministry of Home Affairs
MNOD
Menteri Negara Otonomi Daerah or State Ministry for Regional
Autonomy
OSR
Own Sources Revenue
PAD
Pendapatan Asli Daerah. Own source revenues of the autonomous
regional governments
PBB
Pajak Bumi dan Bangunan or Property Tax on Land and Buildings
PDAM
Perusahaan Daerah Air Minum or Local Government-Owned
Water Enterprise
Perda
Peraturan Daerah (local regulation)
Permendagri
Peraturan Menteri Dalam Negeri or Ministry of Home affair
regulation
PERPAMSI
Persatuan Perusahan Air Minum Seluruh Indonesia (Association
of Indonesian Water Enterprises)
PDPP
Program Dasar Pembangunan Perkotaan (new medium-term, allsector investment planning tool for local governments)
POB
Performance Oriented Budgeting
POMMS
Performance-Oriented Maintenance Management System
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12
PP
Peraturan Pemerintah or Government Regulation (legal instrument
which is one level below a law)
REPELITADA
Rencana Pembangunan Lima Tahunan Daerah or regional
government five-year development plan
RPP
Rancangan Peraturan Pemerintah or draft government regulation
RPD/RDA
Rekening Pembangunan Daerah or Regional Development Account
of the Ministry of Finance for subsidized loans to local
governments for infrastructure and services with cost recovery
RIAP
Revenue Improvement Action Plan (part of IUIDP)
UIMDS
Urban Institutional and Manpower Development Study
SDO
Subsidi Daerah Otonom. Central government grants to the
autonomous regions primarily to cover routine expenditure for
civil service salaries
Sekjen
Sekretaris Jenderal or Secretary-General.
SIKD
Sistem Informasi Keuangan Daerah (Local Government
Information System)
SK Menteri
Surat Keputusan Menteri or Ministerial decision (previously had
binding effect on regional governments).
SKB
Surat Keputusan Bersama or joint ministerial decision between two
or more ministers (previously had binding effect on regional
governments)
SAPA
Sistem Akuntansi dan Pengendalian Anggaran or System for
Accounting and Budget Control (pilot project conducted in 1990’s
to introduce modified-accrual accounting and double-entry book
keeping)
SAJM
Sistem Anggaran Jangka Menengah or medium-term budget
system (pilot project conducted in 1990’s)
SLA
Subsidiary Loan Agreements. (Main channel for IBRD and ADB
lending through the central government to local governments for
IUIDP urban infrastructure investments).
SP3
Sistem Pelaporan dan Pengendalian Pendapatan (Revenue’s
Control and Reporting System)
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13
Surat Edaran
Letter of suggestion (without binding effect on regional
governments)
UNDP
United Nation Development Program
UPTD
Unit Pelaksana Teknis Daerah or Local Unit for Technical
Implementation (semi-autonomous sub-unit of a dinas )
UU
Undang-undang (Law)
Walikota
Mayor Head of Autonomous City (Kota) Local Government
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
14
1. Review of Previous and Existing Key Regulations and Policies
1.1. General
Until now, the central government has dominated the sources of regional1 finance as well
as the permissible uses of such finance and the systems and procedures for regional
government financial management. The limited decentralization of selected governmental
functions/services to the municipalities and regencies in the 1987 - 1999 time frame (see
discussion under B3 - Urban Services) was accompanied by limited devolution of
supporting financial resources to the local governments. This devolution of financial
resources generally consisted of increasing central-local transfers rather than through
devolving revenue generating authority to local governments themselves. Greater discretion
was also provided to local governments by gradually increasing the proportion of more
flexible block grants in relation to the tied specific grants. Local government financial
management systems and procedures have also been rigidly prescribed by the central
government. Almost all decisions regarding local government finance (budgeting,
accounting, tariff setting, etc) have been regulated by detailed central government
regulations and almost all local decisions required prior approval by provincial and/or
central officials prior to implementation. The central and provincial governments provided
very rigorous, if not necessarily effective, supervision. While such control and supervision
may have been appropriate in the early stages of the decentralization effort (starting in
earnest in 1987) due to a lack of capacity of local governments, the very substantial
investments in local government financial management capacity building in the 1987-1999
period made fiscal decentralization more practical and desirable in order to increase public
expenditure effectiveness, efficiency and transparency.
1.2. Sources / Uses of Funds
The Government did not produce a new fiscal decentralization law to accompany Law No.
5 of 1974 on Local Government Administration2. Thus, the totally inadequate Law No.
32 of 1956 regarding Fiscal Balance between Central Government and Regions
Responsible for Implementation of Own Tasks3 remained officially in effect, although it
was never elaborated through supporting implementing regulations. Therefore, the structure
and amount of local government financing was largely determined on an annual basis by
decisions of the President, based on recommendations of the Ministry of Finance and
BAPPENAS as contained in the national annual budget.
1
In the following, the term “regional” includes provincial (propinsi) , municipality (kota) and regency
(kabupaten) governments while the term “local government” refers only to the municipality and regency
governments.
2
UU No. 5 / 1974 tentang Pokok-Pokok Pemerintahan Di Daerah
3
UU No. 32 tahun 56 tentang Perimbangan Keuangan Antara Negara Dengan Daerah-daerah yang Berhak
Mengurus Rumah-Tangganya Sendiri
Capacity Building Needs Assessment for Local Governments and Legislatures 15
Regional Finance (August 2000)
As of 1994/954, of the total amount of government spending to provide governance,
infrastructure and services in the regions, approximately 50 percent was channeled to and
spent by the deconcentrated offices of central ministries located in the regions (through
sectoral DIKs and DIPs). Only 50 percent was spent through the regional government
budgets; and most of this spending was done within a strict regime of central controls and
“tops-down” planning.
The sources of the 50 percent spent through the regional government budgets and under
their administration in 1994/95 were as follows :
-
39 percent from Subsidy Daerah Otonomi (SDO) Grants
Under the SDO system, the Ministry of Home Affairs controlled the detailed
authorized structure of each provincial and local government and provided a subsidy
to the regional governments for the authorized personnel. Regional governments had
no control over their organizational structure or hiring-and-firing decisions and no
incentives for improved labor productivity.
-
16 percent from Block INPRES (Instruksi Presiden) Grants
Block INPRES grants were provided to provincial (Level I) and local (Level II)
governments based on annual instructions of the President. While the allocation of
these grants was based on formulae (which could change each year) and local
governments had sectoral discretion in their allocation, these grants could only be
used for development expenditures and were not predictable. This led to poor ability
of local governments to plan for the future and a very poor balance between
development and operations/maintenance expenditures.
-
13 percent from Specific INPRES Grants
These were highly specific sectoral grants with the priority and allocation decisions
essentially being made by central government ministries (BAPPENAS, MOF, MOHA
and concerned technical ministries). Under this system of specific grants (for health,
education, urban infrastructure, re-greening, etc), the local governments essentially
accepted those grants as the amounts to be dedicated to those sectors and did not have
much discretion with regard to inter-sectoral allocations based on locally-defined
priorities.
-
10 percent from Property Taxes (PBB), Fees for Transfer of Land and Buidlings
(BPHTB) and Natural Resource Revenues
PBB, BPHTB and natural resource revenues are administered and collected by central
government with a portion of the official proceeds being redistributed to the local
governments. Local governments have no control over the tax rates although they
could assist the central government in identifying new tax objects to expand the tax
bases.
4
Source: Monitoring Indictors of Repelita VI Urban Policy Action Plan Implementation Results, Municipal
Finance Project/BAKD, April 1997.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
16
-
20 percent from Local Own Source Revenues (OSR)
Prior to 1997, local governments were given substantial flexibility in establishing
local taxes and user charges and, as a result, total OSRs grew at over 10 percent per
year in real terms during the early 1990s. However, many local governments
implemented a number of unproductive and inefficient taxes and user charges which
threatened local economic development and allowed some abuses. Law No 18 of
1997 regarding Local Taxes, Fees and User Charges5 was implemented to
regularize the framework for allowable local taxes and user charges before the
situation got out of control. This law helped to eliminate the most egregious nuisance
taxes and user charges but seriously impacted local OSRs and local revenue
generating initiative. Law No. 18/1997 was supported by Government Regulation
No. 19 of 1997 regarding Local Taxes6; Government Regulation No. 20 of 1997
regarding Local Fees and Charges7; and Government Regulation No. 21 of 1997
regarding Vehicle Fuel Tax8.
-
2 percent from loans
These were primarily heavily-subsidized Subsidiary Loan Agreements (SLA) and
Regional Development Account (RDA) loans for urban infrastructure and services.
Both systems were heavily dominated by central government ministries.
The above figures demonstrate the serious vertical fiscal imbalance wherein the regional
governments are dependent upon central government grants for about 70 percent of their
total funding and have very limited own responsibility/authority to raise revenues.
In the 1987 -1999 period, substantial progress was gradually made in channeling an
increasing proportion of central funds for development projects to local governments
through the INPRES mechanism rather than through central technical ministries using the
DIP mechanism. However, the channeling of funds to match functions/services nominally
transferred to local governments through government regulations generally lagged
substantially behind the nominal transfer of functions. The proportion of total spending
being executed by central technical ministries was still extraordinarily large as of 1999.
1.3. Local Government Financial Management Systems and Procedures
As stated above, local government financial management systems and procedures have
been rigidly prescribed by the central government. Almost all decisions regarding local
government finance (budgeting, accounting, tariff setting, inspection, etc) were regulated
by detailed central government regulations and most financial decisions required prior
approval by provincial and/or central officials who provided very strict supervision. The
following list of major centrally-generated regulations and guidelines which local
governments were compelled to follow as of 1999 gives an indication of the extent and
intrusiveness of central regulation:
5
UU No. 18 / 1997 tentang Pajak Daerah dan Retribusi Daerah
Peraturan Pemerintah No. 19/1997 tentang Pajak Daerah
7
Peraturan Pemerintah No. 20/1997 tentang Retribusi Daerah
8
Peraturan Pemerintah No. 21/1997 tentang Pajak Bahan Bakar
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
6
17
-
Government Regulation 5 of 1975 regarding Management, Accountability and
Supervision of Regional Finance (Peraturan Pemerintah No. 5 tahun 1975 tentang
Pengurusan, Pertanggungjawaban dan Pengawasan Keuangan Daerah).
-
Government Regulation 6 of 1975 regarding Procedures for Drafting APBD,
Implementation of Regional Financial Administration, and Financial
Accountability Reporting of APBD (Peraturan Pemerintah No. 6 tahun 1975 tentang
Cara Penyusunan APBD, Pelaksanaan Tata Usaha Keuangan Daerah dan Penyusunan
Perhitungan APBD).
-
MOHA Regulation No. 2 of 1996 regarding APBD Implementation (PerMenDagri
No. 2 tahun 1996 tentang Pelaksanaan APBD) to comprehend KEPPRES No. 16 /
1996 regarding implementation of changes to the APBN budget structure which had
implications for the implementation of the APBD revenue, routine expenditure,
development expenditure and procurement of goods and services.
-
MOHA Regulation No. 11 of 1975 regarding Examples for Drafting of APBD,
Implementation of Regional Financial Administration, and Financial Accountability
Reporting of APBD (PerMenDagri No. 11 tahun 1975 tentang Contoh-Contoh Cara
Penyusunan Pelaksanaan Tata Usaha Keuangan Daerah dan Penyusunan Perhitungan
APBD).
-
MOHA Decree No. 110 of 1998 regarding Form and Composition of Local Revenue
Budget (KepMen No. 10 tahun 1998 tentang Bentuk dan Susunan Anggaran
Pendapatan Daerah) to comprehend changes needed for implementation of Law No.
18/1997.
-
MOHA Decree 5 of 1982 regarding Guidance for Regional Development Planning
(P5D /Rakorbang Process) (KepMen No. 5 tahun 1982 tentang P5D).
-
MOHA Decree No. 570-360, dated 28 October 1981 regarding Program for Regional
Budgets and Control of Borrowing.
As a further example of the level of detailed guidelines which were previously prescribed
by central government, the following more detailed guidelines were promulgated by
MOHA for the implementation of the previously discussed Law No. 18 / 1997 and
Government Regulations 19/1997, 20/1997 and 21/1997:
-
Decision of the MOHA No. 170 of 1997 regarding Tax Collection Guidance,
-
Decision of the MOHA No. 171 of 1997 regarding the Procedure for Adoption of
Local Government Regulations for Taxes and Charges
-
Decision of the MOHA No. 172 of 1997 regarding Criteria for Tax Payment
(Includes detailed bookkeeping and accounting guidance)
-
Decision of the MOHA No. 173 of 1997 regarding Local Government Tax Inspection
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
18
-
Decision of the MOHA No. 174 of 1997 regarding the Administration of Local
Government Charges
-
Decision of the MOHA No. 175 of 1997 regarding Local Government Charges
Inspection Guidance.
Of particular note is the extent of central and provincial control and “tops-down”
intervention in the local government budgeting processes. Development planning followed
the P5D Process of “Bottom-up / Top-Down” planning coordination. However, the central
and provincial governments controlled the grants associated with the process and, therefore,
had a commanding role in defining the investment priorities in the local development
budgets. The draft annual budget (routine and development) was typically developed by the
walikota/bupati and executive staff. The combined routine/development budget was then
reviewed by the Provincial Biro Keuangan prior its submission to the local DPRD. The
DPRD was then expected to approve the APBD budget after some token modifications.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
19
2.
2.1.
Assessment of the Emerging Framework for Regional Finance
Key features of the new framework (policies, legal regulations)
2.1.1. Sources / Uses of Funds
In order to protect macro-economic stability during the economic crisis and recovery
period, compounded by the potentially destabilizing effects of rapid decentralization,
Law No. 25/1999 regarding Central-Local Fiscal Balance9 does not delegate additional
revenue generating authority to local governments in order to address the existing
vertical fiscal imbalance, except in a small number of local governments which will
receive vastly increased shared natural resource revenues. However, the new law and the
supporting Government Regulation on Equilibrium Funds (RPP Dana Perimbangan)
do embody many significant reforms of the grants / transfers system as follow:
-
General Allocation Grant (Dana Alokasi Umum or DAU):
The general allocation grant will essentially replace the previous SDO, Block
INPRES Grants and some portion of the previous Specific INPRES Grants with
the following probable impacts:
minimum floor amount of 25 percent of APBN domestic revenues will
improve predictability of transfers;
formula-based approach, based on expenditure needs less local revenue
potential of each local government will improve both targeting of grants
and transparency;
administration of DAU by the Sekretariat DPOD with participation of
local government associations and DPRD representatives on the DPOD
will improve transparency and participation;
elimination of SDO system will give local governments control over their
organizations and hiring-and-firing decisions and incentives for labor
productivity;
as DAU can be used for either routine or development expenditure, more
rational decision can be made regarding priorities for operations and
maintenance versus new development spending.
local government will have more authority to allocate the budget between
more sectors based on local priorities.
The biggest problem in implementing DAU is to ensure that DAU allocations are
consistent with functions/services that will ultimately be accepted by local
governments under Government Regulation No. 25/2000 regarding Functions
of Central Government and Autonomous Provincial Governments (PP 25/2000
tentang Kewenangan Pemerintah dan Kewenangan Propinsi Sebagai Daerah
Otonom). While the general principles of the DAU calculation formula is
9
UU No. 25/1999 tentang Perimbangan Keuangan Pusat dan Daerah
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
20
specified in the RPP Dana Perimbangan (to be resubmitted to SekKab in midSeptember, 2000) the detailed formula and factors embodied in the formula are
to be further specified and approved by the DPOD by the end of October, 2000.
Achieving this deadline is crucial so that local government can complete their
APBD budgets in time for the 2001 fiscal year starting on 1 January.
-
Special Allocations ( Dana Alokasi Khusus or DAK):
The mechanisms for determination and allocation of DAK are still not well
defined. They will be further specified by Decision of the Minister of Finance
regarding Special Allocation Grants (KepMen Keuangan tentang Dana Alokasi
Khusus). It is expected that DAK funds will be made available to local
governments for investments in specific sectors of national priority which are not
given adequate priority by local governments unless incentives and/or access to
additional funds are provided. These funds would be made available on a
matching-grant basis for projects that originate from the local governments which
meet the nationally pre-determined sectoral priority criteria.
-
PBB, BPHTB and natural resource revenue distributions:
PBB was not transferred to local government administration in Law No. 25/1999.
However, in the Letter of Intent between the GOI and IMF in July 2000, it was
specified that further review will be undertaken to evaluate the feasibility of such
transfer. The law did specify the transfer by formula of much larger specific
shares of natural resource revenues (oil, gas, forestry, marine resources, etc.). This
change will have a very positive revenue impact for a small number of local
governments, but an unavoidably negative impact on the ability of the central
government to provide the existing level of equalization grants to other local
governments in the future.
In order for central government agencies (especially DPOD, MOF and MOHA) to
collect the local government financial and other information required to support
calculation of DAU and in order to monitor and evaluate the performance of local
governments in implementing decentralization, a local government financial information
system must be established at central government. This system will be regulated by a
Government Regulation (RPP Informasi Keuangan Daerah) and a more detailed
Decision of the Minister of Finance (KepMen Keuangan tentang SIKD).
Revisions to Law No. 18 /1997 regarding Local Government Taxes, Fees and User
Charges (RUU tentang Perubahan atas Undang-Undang No. 18 / 1997 tentang Pajak
Daerah dan Retribusi Daerah) will allow local governments to continue the existing
regime of taxes, fees and user charges. In addition, they will be allowed to implement
new taxes, fees and user charges which conform to general criteria that will be specified
in the new law. This will allow local governments to use their own initiative to apply
taxes, fees and user charges that are appropriate to the special conditions and
opportunities that exist in the local environment.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
21
2.1.2. Local Government Financial Management Systems and Procedures
The new laws and supporting draft Government Regulations apply a fundamentally
different approach to the regulation and implementation of local government financial
management systems and procedures. Under the new approach, the central government
will promulgate only the minimum level of regulations needed to establish the basic
principles and general requirements for local government budgeting, accounting and
financial accountability reporting. The central government will also promulgate more
detailed guidelines which will be in the form of suggested model approaches ( perhaps
by Surat Edaran or Letter of Suggestion) which the local governments are not required
to follow but may find useful in designing their own systems and procedures. The role
of central government will be to generate such general guidelines and then to monitor,
evaluate and facilitate their implementation. It is envisaged that professional associations
of local government finance and accounting professionals will eventually play a
substantive role in establishing generally accepted government accounting and auditing
standards as well as generally accepted budgeting and financial accountability reporting
guidance.
The local governments are themselves responsible for establishing the detailed local
government financial management systems by local regulation (Perda), within the broad
guidelines established by central government. Within the guidance of these Perdas, the
Walikota / Bupati will be responsible for establishing the detailed procedures by
issuance of Decisions of the Head of Local Government (Surat Keputusan KDH).
The essential Government Regulations to support implementating Law No. 22/1999 and
Law No. 25/1999 with respect to local government financial management systems and
procedures are as follows:
1)
Government Regulation on Local Government Financial Management and
Accountability for Autonomous Task (RPP Pengelolaan dan
Pertanggungjawaban Keuangan Daerah)
One fundamental change under the new laws and this regulation is the greatly
enhanced role of the DPRD in participating fully with the executive in the
development of the budget policy and in the subsequent approval process.
Whereas the DPRD previously acted more as a “rubber-stamp” approval of the
draft APBD prepared by the executive, the DPRD is now expected to participate
in the developmend of the budget policy and general budget guidance in
cooperation with the Walikota/Bupati as an early step of the budgeting process.
Based on this agreed budget policy and general guidance, the executive will then
prepare the detailed draft APBD budget. The draft APBD is then submitted by the
Walikota/Bupati to the DPRD for a meaningful review and approval process and
the final budget is to be disseminated to the public. As a result of the broader
scope of local government responsibilities and the new flexibility offered with the
DAU, local government planning, programming and budgeting will require new
capabilities especially in the area of establishing inter-sectoral priorities based on
meaningful input from the community.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
22
Other fundamental changes reflected in the draft Government Regulation are the
introduction of Performance-Oriented Budgeting and Financial Accountability
Reporting which will be disseminated to the public.
According to Law No. 22/1999, all Perdas regarding the establishment of
financial management systems, as well as the approval of the APBD budget, may
be implemented by the local government with immediate effect, not requiring the
prior approval of central/provincial authorities. The local government must,
however submit all Perdas to the Minister of Home Affairs (with copy to the
Governor in his deconcentrated capacity) within 15 days of promulgation. The
MOHA/Governor may then rescind the Perda if and only if it is not according
with existing regulations and/or violates the public interest. If a Perda is rescinded
by the MOHA, local governments now have the right to appeal such decision
through the Supreme Court.
2)
Government Regulation on Local Government Financial Management for
Implementation of Deconcentrated and Co-Administration Responsibilities
(RPP Pengelolaan dan Pertanggungjawaban Keuangan dalam Pelaksanaan
Dekonsentrasi dan Tugas Pembantuan)
This regulation covers the financial management systems and procedures to be
used for central government tasks implemented as deconcentrated tasks by
provincial level of government and as assistance tasks by local governments. It
does not depart substantially from existing systems and procedures except for the
requirement that local governments will have meaningful authority to negotiate
with central government to ensure that adequate resources are provided to the
local governments for execution of any tasks performed as co-administration
tasks.
3)
Government Regulation on Local Government Borrowing (RPP Pinjaman
Daerah)
This regulation reiterates Law No. 25/1999 regarding (1) the ability of local
governments to borrow domestically without the prior approval of central
governments; and (2) the role of the Minister of Finance in controlling all
international borrowings. It establishes borrowing ceilings on total long-term
local government debts (at 75 percent of local government revenues excluding
borrowings) and total short-term debt (at 25 percent of local government annual
revenues excluding borrowings) as well as minimum debt-coverage ratio (DCR)
requirements (2.5). The draft regulation does not regulate borrowing of regional
government owned enterprises (BUMDs) so another regulation will be needed for
this purpose.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
23
2.2
The Normative Framework
Based on the newly emerging framework for Regional Finance as described above, along
with best practices in the sector, a Normative Framework has been developed which
forms the basis for the capacity assessment. This framework consists of three interrelated
columns which address the underlying principles, operational implications and the types
of competencies that DPRD members, local government officials and the local
communities must have to make decentralization successful.
The Normative Framework is based on the following principles:
1)
Local governments should employ user charges to finance those services for
which it is possible to measure household consumption. Local government should
attempt to implement full-cost recovery tariffs, where practical and to the extent
possible. Where full-cost recovery is not practical, local governments should
provide targeted subsidies through mechanisms that still require adequate
operational performance by the service provider.
2)
To the extent possible, local governments should finance those services whose
primary benefits accrue to the local populations (but for which household
consumption cannot be measured) by local taxes.
3)
Local services that provide substantial benefit spillovers (or that are of national
interest) should be financed (at least in part) by specific grants from the center.
4)
Local government should be provided with access to general transfers in order to
meet expenditure needs ( after own-source revenues and other transfers are
accounted for) and redress fiscal inequalities.
5)
Local governments should have access to credit to finance investment in
infrastructure that is required for the provision of local services.
6)
Local government budget reflects the aspirations of the public, as channeled
through the local parliament.
7)
In order to improve budget effectiveness, efficiency and transparency, the budget
should be prepared (to the extent practical) using a performance-oriented
budgeting approach which clearly links inputs (costs) to expected outputs /
outcomes.
8)
Local parliaments formally participate in the review and adoption of local
budgets.
9)
Financial Accountability Reporting will also be based on the performanceoriented approach.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
24
10)
Local government financial management systems adhere to principles of
transparency and accountability.
11)
Local government accounting is performed in accordance with generally accepted
principles and practices of public sector accountancy.
12)
Local governments oversee local government enterprise operations
13)
Local governments must plan and implement organizational and manpower
development to support regional finance functions.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
25
NORMATIVE FRAMEWORK FOR REGIONAL FINANCE
General Principles
1. Local governments should employ user
charges to finance those services for
which it is possible to measure
household consumption.
Operational Considerations
•
User charges are set to recover full costs of
service delivery, where appropriate; in cases
where subsidies are warranted, they are used
in a transparent and accountable manner.
Target Groups/Competencies
Central ministries:
• able to set guidelines on tariff setting and review process
DPRD:
•
believes full-cost recovery principles are important and sees the need
to balance its desire to minimize tariffs with the need of utilities to be
sustainable and to operate on commercial principles.
•
able to communicate this policy to the public
•
able to set an objective tariff review process
•
able to determine priorities for service subsidies within the financial
limitations of the kota/kab
• able to allocate such subsidies through APBD
BUMD / Dinas
(⇒ B 3)
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
•
able to prepare and communicate tariff recommendations to DPRD
and the public.
•
able to quantify and recommend specific subsidies required for
services to targeted recipients
•
able to measure performance of service units in providing subsidized
services
26
NORMATIVE FRAMEWORK FOR REGIONAL FINANCE
General Principles
2. To the extent possible, local
governments should finance those
services whose primary benefits accrue
to the local population (but for which
household consumption cannot be
measured) by local taxes.
Operational Considerations
•
Other measures to strengthen the local tax
base are identified and implemented (i.e
PBB, PPH).
Target Groups/Competencies
DepKeu / DDN / MenegOD
•
able to evaluate impact, risks, and opportunities
•
[GOI/IMF Letter of Intent]
•
• able to conduct research for revenue improvement.
Dipenda / Bagian Keuangan (and DPRD)
Tax laws (including UU 18/1997) are
amended as necessary.
•
able to set the local tax rates in accordance with local service demands
and willingness to pay
•
able to adjust tax rates concurrent with improving service delivery.
•
able to prepare studies of revenue improvement
(⇒ B 3)
• able to measure the efficiency of revenue collection .
Sekwilda/Dipenda
•
3. Local services that provide substantial
•
benefit spillovers (or that are of national
interest) should be financed (at least in
part) by specific grants from the center.
Appropriate sectors for specific transfers are
identified and matching grants are
developed.
able to administer taxes, valuation, rate-setting proposals, collection.
DepKeu / MenegOD / Technical Ministries
• able to develop and monitor appropriate matching grants
Dipenda / Bagian Keuangan
•
able to determine financing needs, allocate resources, and manage
matching transfers
(⇒ B 3)
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
27
NORMATIVE FRAMEWORK FOR REGIONAL FINANCE
General Principles
4. Local governments should be provided
with access to general transfers in order
to meet expenditure needs (after ownsource revenues and other transfers are
accounted for) and redress fiscal
inequalities.
Operational Considerations
•
Target Groups/Competencies
Services to be decentralized to local
governments should be “costed out” with a
view to determining expenditure needs.
Sekretariat PKPD
Dana Alokasi Umum is allocated across
local governments positively according to
expenditure needs and negatively according
to fiscal capacities.
• able to monitor and evaluate DAU performance
Dipenda / Bagian Keuangan
•
Full range of debt financing instruments
available.
DepKeu / Other Ministries
•
Timely and full repayment of loans is a
solemn obligation of the local government
and its enterprises.
•
•
•
able to establish Dana Alokasi Umum system with clear and simple
allocation principles
able to allocate and manage block transfer resources
(⇒ B3)
5.
Local governments should have access
to credit to finance investment in
infrastructure that is required for the
provision of local services.
(⇒ B3, B4)
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
• Assist in the development of debt financing mechanisms
DPRD / KDH
•
able to establish general policy regarding indebtedness of the local
government and willingness to borrow for selected purposes.
• able to evaluate and decide on specific borrowing proposals
Sekwilda / KaBagKeu / BAPPEDA
•
able to project debt-carrying capacity of the local government and
enterprises
•
able to prepare competent project borrowing proposals
•
able to negotiate rescheduling of debt, where unavoidable.
28
NORMATIVE FRAMEWORK FOR REGIONAL FINANCE
General Principles
6. Local government budget reflects the
aspirations of the public, as channeled
through the local parliament.
Operational Considerations
•
•
•
In the initial stage of APBD budget
preparation, the KDH and DPRD agree
upon the general Budget Policy.
Target Groups/Competencies
DPRD:
•
The Budget Policy becomes the general
direction for the executive in preparing the
detailed draft annual budget (RAPBD).
aware of the new annual budget process guidelines and, in coopertion
with the KDH, able to establish an appropriate budget process by
PERDA.
•
There should be a direct relationship
between the annual budget (APDB) and a
multi-year budget (Rencana Angggaran
Multi-Tahun)
capable of understanding the community needs and priorities through
coordination mechanisms with community leaders, private sector
leaders, and other groups.
•
able to define and communicate the general inter- and intra-sectoral
priorities for budget allocation.
(⇒ B 1)
• able to communicate the agreed upon Budget Policy to the public.
KDH / Sekwilda / BAPPEDA:
•
able to competently evaluate general trade-offs involved in
prioritizing inter- and intra-sectoral activities and programs .
•
aware of the new annual budget process guidelines and, in coopertion
with the DPRD, able to establish an appropriate budget process by
PERDA.
•
Capable of understanding the community needs and priorities through
coordination mechanisms with community leaders, private sector
leaders, and other groups
DPRD / KDH / Sek / BAPPEDA / KaBagKeu/Dinas:
•
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
able to develop and implement an all-sector medium-term planning
mechanism for setting medium-term spending priorities (both routine
and investment) within financial constraints of the kota/kab.
29
NORMATIVE FRAMEWORK FOR REGIONAL FINANCE
General Principles
7. In order to improve budget
effectiveness, efficiency, and
transparency, the budget should be
prepared (to the extent practical) using
a performance-oriented budgeting
approach which clearly links inputs
(costs) to expected outputs / outcomes.
Operational Considerations
•
Preparation of a competent performanceoriented kota/kab budget requires:
•
•
development of performance budgeting
measurements and standard spending
assessments for each unit/activity
•
estimates of local government revenue
and expenditures, clearly linked to
responsibilities for specific, measurable
outputs/outcomes.
(⇒ B 5)
8. Local parliaments formally participate in
the review and adoption of local
budgets.
•
adoption of an appropriate budget
structure which matches the
organizational assignment of
responsibilities of the local government
Review and acceptance of the RAPBD is
under the control of DPRD.
(⇒ B 1)
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
Target Groups/Competencies
DDN/ DepKeu
•
able to establish guidance on structure and content of mandatory
financial reporting requirements under UU 22/1999 and UU 25/1999
Sekwilda/ KaBag Keuangan
•
able to recommend budget structure to be established by PERDA in
accordance with general guidelines and based on organizational
structure and functions of Pemda.
Sekwilda / KaBagKeu / KaDinas / BAPPEDA:
•
able to define detailed performance targets and measures that link
inputs (budgeted costs) to outputs.
Sekwilda / KaBagKeu / KaDinas / BAPPEDA:
•
able to produce budget estimates and communicate the input vs.
output linkages during budget review process.
•
if expenditures proposed by service units are reduced in the budget
development process, then reductions in outputs must also be clearly
documented.
KDH / Sekwilda / Bagian Keuangan
•
able to communicate the performance-oriented RAPBD budget to the
DPRD.
DPRD
•
able to review and evaluate the contents of the RAPBD (as submitted
by KDH) for conformance with the Budget Policy.
•
able to conduct meaningful public hearings
•
able to communicate APBD to public
30
NORMATIVE FRAMEWORK FOR REGIONAL FINANCE
General Principles
9. Financial Accountability Reporting will
also be based on the performanceoriented approach.
Operational Considerations
•
To ensure accountability and transparency,
performance reporting must demonstrate
clear linkage of actual inputs (costs) and
outputs versus planned inputs and outputs.
Both for purposes of:
• internal management reporting and
•
10. Local government financial
management systems adhere to
principles of transparency and
accountability.
•
•
•
•
reporting to DPRD and the public
This will require that local governments:
improve transparency of procurement
processes
improve transparency of cash management
processes
ensure transparency of managing the new
reserve funds (dana cadangan)
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
Target Groups/Competencies
KDH / SekDa / KaBagKeu / KaDinas / BAPPEDA
• able to design and implement appropriate reporting system
DPRD / Sekretariat DPRD
•
able to define Financial Accountability Reporting requirements by
PERDA; and
•
able to design and implement less detailed but meaningful reporting to
the public.
Sekwilda/Bagian Keuangan/KaDinas:
•
able to implement the compulsory competitive bidding process.
•
able to design and implement competent dana cadangan management
system
31
NORMATIVE FRAMEWORK FOR REGIONAL FINANCE
General Principles
11. Local government accounting is
performed in accordance with generally
accepted principles and practices of
public sector accountancy.
Operational Considerations
New approaches which must be adopted in the
medium term include:
•
•
double entry book-keeping system
•
internal (management) audits will be used to
improve the performance and accountability
of local governments
•
12. Local governments oversee local
government enterprise operations.
(⇒ B2, B3)
modified accrual basis for budgeting,
accounting, and reporting.
•
where appropriate, external audits by BPKP
may be augmented by independent public
audits commissioned by the DPRD.
Local governments establish objectives for
municipal enterprises and monitor and
evaluate their operational and financial
performance vis-à-vis those objectives.
Target Groups/Competencies
Bagian Keuangan/Sekwilda
•
understands the accounting system double entry and modified accrual
basis
•
understands the process of accountability and financial statement
forms.
• able to evaluate budget accountability
Local Government Finance and Accounting Professionals:
•
able to establish generally accepted accounting and financial
management standards for local governments
•
able to enforce the professional standards
•
Public Accountants able to perform audits of local governments and
municipal enterprises.
DPRD / KDH
•
able to decide on the establishment or disestablishment of BUMD
•
able to provide general objectives and annual performance targets (for
full-cost recovery services, for subsidized services and for PAD).
•
able to ensure sustainability of BUMDs through approval of
appropriate full-cost recovery tariffs
Sekwilda / KaBagKeu:
•
able to effectively monitor and evaluate operational and financial
performance of BUMDs
BUMD
•
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
able to provide necessary information and cooperate in monitoring
and evaluation exercises
32
NORMATIVE FRAMEWORK FOR REGIONAL FINANCE
General Principles
13. Local government must plan and
implement organizational and
manpower development to support
regional finance functions.
(⇒ B 7)
Operational Considerations
This entails:
• improved organizational design and
development planning
• improved individual carrier planning in
finance
• improved job description linked to
qualifications
• improved recruitment mechanisms
• improved mechanisms for staff motivation
• systematic training program
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
Target Groups/Competencies
Bagian Keuangan/Dipenda/Bagian Kepegawaian
• recruitment mechanism can be implemented by the higher level within
this unit and can get the professional staff.
• promotions are based on knowledge and professionalism of the staff.
• job description not overlapping with other units, the staffs can work at
their tasks without confusion.
• establish income, social guarantees, and other work facilities to
improve staff motivation.
• measurements and standard-of-work appraisal are implemented.
• increase training course volume and quality.
33
3. Capacity Assessment and Capacity Building Initiatives for Regional
Finance Undertaken by Others
3.1.
Past, current and planned initiatives for capacity assessment, results and
findings
3.1.1
Urban Institutional and Manpower Development Study (UIMDS); December
1988
This was a very ambitious study under the guidance of the MOHA and financed
by an IBRD Urban Sector Loan. Its objective was to evaluate the capacity and
capacity-building needs of the Level II local governments (municipalities and
regencies) to accept additional responsibilities for urban management as
envisioned in the Urban Policy Action Plan and PP 14/1987. The objective of this
study was to make recommendations regarding reorganization of responsibilities,
human resources management systems and training priorities primarily in the
areas of urban spatial planning, urban infrastructure planning and local
government financial management. Extensive survey work was conducted
including:
-
evaluation of institutional designs in 18 local governments and their
provincial governments.
- Detailed manpower survey using self-assessment questionnaires with 25.000
local government and 55.000 provincial respondents.
- Survey of central and provincial training institution.
The recommendations of this study specifically related to Regional Finance
included reorganization of Bagian Keuangan, Dipenda and BAPPEDA at local
government level into one organization to allow for the consolidated budgeting
of revenue and combined, better coordinated routine / development expenditure.
The study recommended improving the content of existing government
managerial training programs and that a priority be put on training in financial
management and urban spatial planning.
3.1.2 Local Government Institutional Development Study (LGISD); 1990
This was essentially a follow-up study to the UIMDS and was also conducted
under the guidance of MOHA. The primary objective of the study was to
amplify the UIMDS and provide detailed recommendations for a program of
local government training to be implemented over a 10 year period. The study
produced an extensive database of existing training activities and
recommendations for training priorities to support decentralized local
government finance as well as provision of urban infrastructure and services.
The recommendations of the study were to be used to design a program to be
financed by a second policy-based IBRD Urban Sector Loan which, however,
was ultimately not implemented. Nevertheless, many of its recommendations
were adopted by subsequent GOI and donor financed training projects.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
34
3.1.3. Local Institutional Development Action Plans (LIDAP), Integrated Urban
Infrastructure Development Program (IUIDP); 1988 to present
Almost every local government in Indonesia with an urban area population of
over 20,000 has implemented an Integrated Urban Infrastructure Development
Program (IUIDP). These all contain an IUIDP-PJM (or multi-year investment
plan) and about 50 percent have included the associated Local Institutional
Development Action Plan (LIDAP). The LIDAP consisted of an assessment of
the capacity building needs of local governments to competently implement the
IUIDP investment program. The focus of the LIDAP was primarily on the
organization, manpower, training and support systems and equipment needs of
the local governments to specifically support the IUIDP program implementation.
The LIDAP thus focused exclusively on the units of local government
implementing IUIDP investments projects (BAPPEDA, Dinas PU, Dinas
Kebersihan, PDAM, etc) and the Bagian Keuangan and Dipenda which were
responsible for planning and implementation of the taxes, fees and charges
required to repay the IUIDP program loans. After the detailed assessment was
completed, the LIDAP proposed a multi-year Action Plan to be implemented
concurrent with the infrastructure investment plan.
The major criticism of the LIDAP was that it was largely prepared by consultants
managed by DG BANGDA / MOHA and not under the control and supervision
of the local governments themselves. The local governments, therefore, had a low
sense of ownership for the LIDAP and rarely implemented the action plans
satisfactorily once the consultants finished the studies.
Because of the poor results from the comprehensive LIDAPs prepared in the past,
the ADB has decided to discontinue the comprehensive LIDAP approach and
focus only on LIDAP-like assessment and action planning to support improved
local government revenue generation (See RIAP below.)
3.1.4. Revenue Improvement Action Plan (RIAP), Integrated Urban Infrastructure
Development Program; 1988 to present.
Most local governments which have implemented IUIDP investment programs
have also implemented the associated Revenue Improvement Action Plan or
RIAP which is designed to help local governments increase their revenues from
local taxes, fees and user charges in order to repay the IUIDP loans. The RIAP
process includes an assessment of the local regulations, organization, manpower,
systems and procedures related to revenue generation and proposes an action plan
of needed capacity building. The RIAP also provides local governments a
methodology for targeting specific, high-potential revenue enhancements that
should be given a priority and a methodology for making multi-year revenue
projections. A RIAP Manual was developed by the Institutionalizing Integrated
Urban Development Project (IIUD) Phase I, funded by UNDP, in cooperation
with Badan Diklat / Ministry of Home Affairs which is continuing to conduct
training of the trainers on RIAP for Diklat Propinsi in the provinces.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
35
3.1.5. Urban Management Training Program (UMTP); Municipal Finance Project,
1993.
The USAID-financed Municipal Finance Project, in cooperation with a interministerial committee (MOF, MOHA, DGCK/PU, BAPPENAS) conducted a
limited needs assessment specifically for Urban Financial Management Training.
Using the database and recommendations from the UIMDS and LGISD studies
and extensive interviews at central, provincial and local governments, the MPF
assessment concluded there was already a vast amount of sub-managerial level
training in regional finance available in the GOI system. This included the KKD,
LKD, and various Bendaharawan training courses for Eselon 4 and below. What
was missing was strategic financial management training more appropriate for
senior financial managers like KaBag Keuangan, Ka Dipenda and BAPPEDA.
This assessment resulted in the design and implementation of the two week Urban
Financial Management Course which continues to be provided to senior local
government financial managers by UI (see below). The priority contents of the
course as defined by the assessment were: Strategic planning, revenue
improvement, loan mechanisms, expenditure priorities and multi-year Capital
Investment Planning.
3.1.6. UNDP Break-Through Urban Initiatives for Local Development (BUILD)
The objective of the first phase of this UNDP grant-funded project was to
strengthen the capacity of selected local governments (Kota Kendari, Kota
Mataram and Kota Metro) through introduction of “best practices” in urban
management such as management that is responsive, accountable, innovative,
transparent and participatory.
The needs assessment” phase consisted of:
a workshop of all of the local government units to determine the most
important problem areas in urban management and the selection of a
limited number of priority areas on which to focus BUILD support (e.g.
revenue generation);
next, meetings were conducted between BUILD project staff and relevant
service unit officials to break-down the problem area into more specific
building blocks that could be addressed by the limited resources of the
BUILD Project (e.g. focus on increasing solid waste revenues through
implementing joint billing with PLN or the PDAM); and
finally, BUILD technical assistance was provided to assist the local
government to address both the technical aspects as well as identify and
address the detailed capacity-building needs.
To-date, one of the most successful innovations tested in the three pilot local
governments and subsequently disseminated to other local governments has been
in increasing local government revenues through simplification of the local
government permits into a one-stop permit facility.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
36
3.1.7. Community and Local Government Support- Sector Participation Project (CLGSSPP); ADB Loan 1677-INO
Of the three TA grants associated with this loan, only one contains a capacity building needs assessment specifically related to Regional Finance:
-
Capacity Building for Setting Up District Level Financial and
Budgetary Systems (TA 3178-INO)
Short-term technical assistance to the Directorate for Local
Government Revenues and Financial Management, DG PUMDA,
Ministry of Home Affairs to recommend a revised local government
budgeting processes consistent with Laws No. 22 /1999 and 25/1999
and to conduct a local government capacity-building needs assessment
for decentralized local government financial management with a heavy
emphasis on detailed training requirements. This activity is
complimentary to this Regional Finance section of this GTZ/CLEANUrban needs assessment.
Thie ADB project started in March, 2000 and will continue until
November, 2000. Needs assessment field suverys were conducted in the
Bagian Keuangan, Dipenda, Irwil and BAPPEDA of 4 local
governments; Kabupaten Bandung, Kabupaten Cianjur, Kota Tegal and
Kota Metro. Detailed findings are documented in the Interim Report. As
of the Interim Report Workshop on 31 August, 2000, it appears that the
main outputs of the project will be:
-
detailed recommendations of a new local government budgeting
process that is consistent with the new RPP Pengelolaan dan
Pertangunggawaban Keuangan Daerah. These may be a useful
input for the current activities of MNOD / MOHA to prepare
APBD budgeting guidelines and example Perda.
-
detailed recommendations for regional finance courses required
in the medium term to implement the new regional finance
system. However, this study does not have the resources to
prepare a detailed analysis of the existing training system and
existing training courses. Such an analysis is needed to
competently develop a practical strategy and action plan for
getting from where we are today to the desired goal.
3.1.8. Urban Environmental Management Program: Support for Decentralization and
Democratic Local Governance in Indonesia - USAID/UEM, March, 2000.
This was a short-term consultancy by International City Managers Association
(ICMA) to the USAID Office of Urban Environmental Management (UEM) to
identify priority activities for a future program of technical assistance to be
supported by USAID/UEM starting at the end of 2000. The capacity building
needs assessment activities consisted primarily of interviews with key GOI
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
37
officials, short site visits to three local governments (Kabupaten Barito Kuala,
Kabupaten Bandung and Kabupaten Pasir) and four regional focus group
meetings in Kota Bandung, Kota Pekanbaru, Kota Mataram and Kota
Makassar.
The recommendations of the report drew heavily upon and were largely
consistent with recommendations of previous reports and focused mainly on
local government finance, non-technical urban management, and associationbuilding issues in which ICMA is most competent. The report recommended
that USAID/UEM support a program to include (1) participation of 12
Indonesian cities in the ICMA Resource Cities Program of twinning activities;
(2) training of 12 local governments in Local Government Budgeting and
Financial Management; and (3) support for development of the Associations of
Cities, Regencies and Provinces; and (4) technical assistance to key central
government ministries critical to decentralization.
3. 2. Past, current and planned initiatives for capacity building, results and findings
3.2.1.
Main Existing GOI Training Programs for Regional Finance
The following are the main, regularly delivered courses that form the backbone
of the GOI regional finance training system:
-
Kursus Keuangan Daerah (KKD)
University of Indonesia, University of Hasanudin, Andalas University and
University of Gajah Mada currently conduct the regional finance course
(KKD). This course is for local government officials of echelon 4 and
below; primarily those working in Bagian Keuangan and Dipenda. The
course has duration of 4 months and is financed by local governments
paying tuition to the university offering the course.
-
Latihan Keuangan Daerah (LKD)
University of Indonesia currently conducts the Regional Finance Training
(LKD). This training is a 10 week course targeted to Eselon 3 and 4 local
government officials. Attendees are typically mid-level officials who have
financial responsibilities, not limited to Bagian Keuangan and Dipenda.
This would include service unit (dinas) officials with management
responsibilities for budgeting, accounting, reporting, revenue collection
and/or asset management.
-
Kursus A (Bendaharawan Barang) - Course A (Asset Management )
This one-week training course is for local government officer of Eselon
3 and below who are responsible on managing local government assets
(Bendaharawan barang). This would especially include officials from the
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
38
various service units (dinas) which manage and/or use local government
owned assets in the provision of infrastructure and services. The course
is conducted on a regular basis by the Diklat Propinsi.
-
Kursus B (Bendaharawan Uang) - Course B (Financial Treasurer)
This one month course is for local government officials of Eselon 3 and
below who responsible for regional finance and treasury functions. That
would include officials from almost all of the units of local governments
who have any financial and or treasury responsibilities. The course is
provided on a regular basis by the Diklat Propinsi.
-
Kursus C (kursus Pengawasan) - Course C (Oversight / Control)
This course is targeted to local government officials who are responsible
for oversight/control of local government finance and local government
assets. It is offered by the Diklat Propinsi on an irregular basis because of
the low demand for the course.
-
Pemses (Pemberdayaan ekononomi strategi) - Local economic
development.
This two week course on local government economic development is
targeted participants wh0 are typically heads of local government units
(Kepala Dinas, KaBag Keuangan, KaBidang BAPPEDA). This training
course was developed by Gajah Mada University on a project basis,
starting 1995. It continues to be provided by Gajah Mada with funding by
local government budgets of the participants.
3.2.2. MAPATDA (Manual Pendapatan Daerah) - Manual for Local Government
Revenues
Manual Pendapatan Daerah is a manual for revenue collection using the tax
payer self-assessment approach. Under this approach, tax payers are required
to have a unique regional tax registration number (Nomor Pokok Wajib Pajak
Daerah). Implementation of this approach has had a very positive effect on tax
collections. MAPATDA also proposed reorganization of the Dipenda structure
depending on the type of the local government. The system was developed and
pilot tested under the IBRD Urban Sector Loan through the Ministry of Home
Affairs. It has already been implemented in 99 local governments. The
improved manual and computerized taxpayer data system continues to be
implemented in new local governments with both APBN and APBD funding
with the ultimate target of reaching all local governments.
3.2.3. MAKUDA (Manual Keuangan Daerah or Regional Finance Manual)
This was developed as a detailed manual and training program to provide
instruction on implementation of PP 5/1975 and PP6/1975 and supporting
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39
regulations, as continuously improved. MAKUDA is currently used, with varying
degrees of proficiency, in all local government.
3.2.4 POMMS (Performance-Oriented Maintenance Management System)
The POMMS system was designed to provide local governments a methodology
with which to plan the expenditures required to provide adequate maintenance
and operations of existing local government assets in better balance with
requirements for expenditures for new investments. Initial installation of the
POMMS methodology has been conducted on a project-financed basis in
association with IUIDP loan projects and continuing operation of the system is
typically financed from the local routine budget. POMMS has already been
applied in conjunction with Sulawesi-Irian Jaya IUIDP (18 local governments),
East Java IUIDP (36 local governments), Bali UDP (8 local governments),
Semarang/Surakarta UDP, Central Jawa IUIDP. It is still being implemented in
Kalimantan UDP (5 local governments).
3.2.5 RIAPs (With LIDAPs, only to support revenue generation)
Under IBRD and ADB IUIDP loan programs, RIAPs have already been
implemented in 36 local governments in East Java, 10 local governments in Bali,
14 local governments in West Java, 5 local governments in 4 provinces in
Kalimantan;, in Kota Semarang, Kota Surakarta and Daerah Istimewah
Yogyakarta in Central Java, 6 local governments in the Eastern Island, and 8 local
governments in Sulawesi and Irian Jaya.
Currently, Ministry of Home Affairs is continuing RIAP implementation
(together with limited LIDAP) in tandem with implementing IUIDP investment
programs for the 52 local governments in 8 provinces on Sumatra Island (except
Aceh). This training and technical assistance, funded by ADB loan, will be
completed in the Year 2001. The scope of work focuses on preparing projections
of the local government revenue improvements for which the Dipenda and other
related unit are responsible.
3.2.6
SAPA (Sistem Akuntansi Pengendalian Anggaran) - IBRD financed project
started in 1990.
This was a project to develop and pilot test a methodology to introduce modifiedaccrual based accounting and double entry book-keeping. Ministry of Home
Affairs implemented pilots test in cooperation with Kabupaten Sidoarjo and
Kabupaten Bogor funded by the IBRD loan. SAPA has already been implemented
in 19 Biro Keuangan Propinsi and is now being implemented in the remaining
7 Provinces (DIY, Maluku, sulawesi Tenggara, Kalimantan Timur, Bengkuku,
Papua and Kalimantan Barat) using SDO funds. The main constraints of
implementing the SAPA have been that (1) officials who have been trained are
often moved to other positions or are assigned too many other tasks to properly
maintain SAPA; and (2) standard accounting reporting formats have not been
developed and disseminated.. Experience wih the pilot testing of the associated
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
40
methodologies SAJM (System Anggaran Jangka Menengah) and SP3 were not
successful and were, therefore, discontinued.
3.2.7 CBUIM
The CBUIM Project is currently contracting consultants for implementation of
three short-term technical assistance projects related to Regional Finance capacity
building for implementation in 2000-2001.
•
TA for Regional Financial Development: This is a two year technical
assistance project to design and pilot test a system of meaningful service unit
performance indicators. The performance indicators for various services
provided by kota local governments could be used for comparative evaluation
of performance between local governments and over time in specific local
governments to measure improvement or deterioration of performance. The
system will be tested in 6 pilot cities.
•
TA for Institutional Development: Using the results of the above performance
indicators, this two year TA project will assist local governments to prepare
detailed capacity building programs. This pilot project will be conducted in the
same 6 pilot cities.
•
TA for Regional Budgeting System: Also linked to the development of the
performance indicators system mentioned above, this two year TA will pilot
test the implementation of new local government budgeting practices which
introduce Performance-Oriented Budgeting and Financial Accountability
Reporting in two pilot cities. The introduction of a revised local government
budgeting system, including the introduction of POB practices, are specified
in the draft Government Regulation regarding Local Government Financial
Management of Decentralized Functions (RPP Pengelolaan Keuangan Daerah
- Tugas Decentralisasi).
3.2.8 BUILD (Breakthrough Urban Initiatives for Local Development)
The second phase of this UNDP grant-funded project, which started in June 1999,
is a continuation of BUILD phase I but with an added focus on the changes
introduced by reform and the autonomy laws. Hence, more focus will be given
to good governance and empowerment of the local parliaments. Specific activities
include: increasing the role of DPRD in planning, programming and monitoring
the local government budget, implementaion of the draft government regulation
in regional finance management. The additional local government pilot project
are in the following locasl governments: Gorontalo, Sawah Lunto, Bogor,
Sukabumi, Surakarta, Probolinggo.
The BUILD Project currently has a Municipal Finance Advisor who is assisting
the 9 participating local governments to prepare evaluations of the local
government financial condition and financing capacity and helping to identify
alternative sources of long-term finance ( community participation, private sector
participation, bonds, etc)
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
41
3.2.9 UMTP Courses continuing (Urban Management Core Course/Badan Diklat)
The UMTP core course for senior local government urban management teams,
was developed and pilot tested under the Municipal Finance Project. Extensive
Training of trainers was conducted. It has been fully institutionalized at Badan
Diklat /MOHA where it continues to be regularly taught and financed from the
annual budget of Badan Diklat.
3.2.10 CLEAN-Urban Project, USAID (on-going 1997 – 2000 )
The USAID-funded CLEAN-Urban project has the primary objective of
developing of a decentralized, self-sustaining system of local government
infrastructure finance. To accomplish this goal, it supports development of
appropriate central government policies and direct capacity-building of local
governments and communities. Specifically related to Regional Finance, this
includes:
•
Technical assistance to MOF/MOHA/MNOD to prepare and socialize the
government regulations for regional finance to support Law No. 25/1999, the
revision of Law No. 18/1997, the draft Law on BUMD and the RPP on
Management of Urban Areas.
•
Direct technical assistance and training to 8 local governments in East Jawa
to develop all-sector, annually updated Capital Improvement Plans (known
as Program Dasar Pembanguan Perkotaan – PDPP). This is an extension of
the IUIDP-PJM methodology which only covered 7 urban infrastructure
components. Under Laws No. 22/1999 and 25/1999, where local governments
will have much broader responsibility for planning and programming in all
sectors under their responsibility, the introduction of the PDPP all-sector
capability is crucial. Also crucial is the introduction of mechanisms for
community participation in establishing priorities for investments in the
PDPP. MOHA issued a General Guideline for PDPP implementation to all
local governments in June, 2000. Further assistance to MOHA, extensive
training of a small number (8-10) of additional local governments and less
extensive training to a large number of local governments (100-150) is
envisaged by USAID in the next phase of the project.
•
Supporting the Ministry of Home Affairs (DG PUMDA) and PERPAMSI to
provide guidance and training to PDAMs in Corporate Planning and the
preparation of Customer Satisfaction Surveys (CSS). MOHA issued
guidelines for both PDAM Corporate Planning and CSS to all local
governments and PDAMs in July, 2000. Pilot projects and workshops for
trainers in both topics are currently being conducted.
•
Assistance to MNOD/MOHA to prepare guidelines and examples for
preparation of Perda for Local Government Financial Management, for
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42
implementation of the new APBD budgeting process, and for introduction of
Performance-Oriented Budgeting. Pilot training activities will be conducted
based on the new guidelines with broader training program envisaged by
USAID in the extension of the project.
3.2.11. Capacity Building for Decentralization on Indonesia (Infrastructure Planning
and Capital Budgeting) (2000-2001)
This is a two year USAID-funded cooperation between the University of Southern
California and Bandung Institute of Technology to provide 6 week training
courses to 50 participants per year (3 local officials and 2 university ”consultants”
from each of 10 selected local governments) in urban infrastructure planning,
programming and budgeting.
3.2.12. International City Managers Association Project, USAID (end 2000 – 2003)
This is a three year project designed to:
•
Provide extensive direct technical assistance and training to up to 12 local
governments in order to fully implement Law 25/1999 and the supporting
government regulations.
•
Support the participation of 12 local governments in the Resource Cities
Program, a twinning program between Indonesian and US cities.
•
Provide technical assistance and training to help build the capabilties of
local government associations; especially the new Asosiasi Pemerintah
Kota and Asosiasi Pemerintah Kabupaten.
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43
4.
4.1.
Capacity assessment for Regional Finance
Our Methodology
The methodology was developed by first, answering the question “Capacity to do what?”.
The team used the capacities that were identified in the Normative Framework as the
capacities that local governments must have to make decentralization successful. During
the development of the Normative Framework, a three dimensional approach of capacity
was used, whereby capacity of a local government is recognized as dependent not only
on the capacity of individuals (individual level) or the local governments (entity level),
but also on the enabling or constraining framework such as the national policy and
regulatory system (system level).
Because many of the approaches emerging from the new framework for regional finance
will be new and unfamiliar to the local governments, the team felt that reliance on selfassessment of capacity building needs by local governments alone would not be
sufficient. Experiences of other capacity assessments, such as those carried out by the
recent CBUIM Career Mapping System and Training Needs Identification, supported the
team’s opinion. Interviews with central government and provincial governments on their
perspective of local government capacity building needs were necessary to complement
the results of the self-assessment. Interviews with provincial governments, especially the
Biro Keuangan, were particularly beneficial because they have more direct experience
with local governments and they were also be able to provide opinions on capacity
building needs in other local governments in their province. The team is cognizant of the
risk of self-interested biases in the opinions of provincial and central government officials
and will take it into consideration accordingly.
In addition to local governments perspectives of capacity building needs, extensive
interviews with central government officials have been conducted to obtain information
on new policies and regulations that are being developed, to receive feedback on the
Normative Framework, and to understand plans for transfer of personnel and assets to the
regions. Interviews with central government officials were also used to gauge the level
of consensus on the implications of and plans for implementation of the autonomy laws
among the central government officials and ministries.
For assessment at the local level, the team felt that quantitative instruments and closedended questions would not be too useful because a lot of discussion would be needed to
take place up-front to explain what the new approaches to regional finance entail. Hence,
the team envisioned focus group discussions and interviews with individuals, especially
in the Bagian Keuangan and Dipenda, whereby the Normative Framework and its
operational implications were explained first, to be followed by responses from the
respondents on their capacities to implement such approaches and their perceptions of
capacity building needs.
Open-ended questionnaires were used to complement the discussions. These
questionnaires were useful to increase the number of respondents, because meetings can
be dominated by one or two individuals; and also if given in advance, to give an idea to
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
44
the respondents what the team want to discuss and therefore give time to the respondents
to prepare their initial reactions. Questionnaires will be given to individuals in Bagian
Keuangan, Dipenda, BAPPEDA, Sekwilda, Kepala Daerah, Biro Keuangan Propinsi,
and members of local parliaments having an interest in local government financial
management. The main target group for discussion and questionnaire respondents is
upper management (KaBag Keuangan, KaDipenda and Kepala Seksi).
Even though the focus of the capacities to be assessed are capacities to implement new
approaches to regional finance, some resources were dedicated to identify capacity
building needs to implement functions under the previous system. This was done by
reviewing existing capacity needs assessments, interviewing local government officials
on their current problems and capacity building needs and asking questions on these
issues in the questionnaires.
4.2.
General Observations from Each Field Visit Location
Nobody (at central, provincial or local government level) has a consistent concept of
the implications of decentralization on capacity-building needs. Even among central
level ministries, there are differing perceptions on the impacts of decentralization.
Therefore, this current study is needed to allow GOI to set priorities and coordinate all
related activities (rather than just accepting individual ministry recommendations
and/or donor offers of specific projects).
Even though it appears that some local governments are aware of the contents of Laws
No. 22/ 1999 and 25 /1999, the implications are not clear to them because they do not
have the Government Regulations and supporting guidelines for implementation. These
regulations and more detailed implementing guidelines are still being developed. Thus,
local government officials are not in a position to competently anticipate the real impacts
of decentralization. As a result, self-evaluation of capacity-building needs by local
government officials can only provide useful inputs on capacity-building needs that still
existed under the old system.
Between 1987 and the present, there has been a large investment in establishing and
executing technical training for local government financial management. However, the
training has been built around the existing heavily top-down planning approaches and
highly specified and regulated financial management systems. The new approaches to
local governance and local government financial will require large investments in training
to support these new responsibilities for autonomous regional finance.
Caution is required in assessing the scope of the numerous capacity-building programs
and projects that have been implemented, are being implemented and are planned to be
implemented versus the real needs. In particular, very small scale technical assistance
projects tend to have grand names that mislead the evaluator into thinking that a
particular aspect of capacity-building is already being provided for when, in fact, the
needs are vast by comparison.
The following are very brief overviews of the general environment and main capacitybuilding issues in the management of Regional Finance which were observed in each of
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
45
the four local governments surveyed by the team during June and July, 2000. Detailed
observations/findings by each location may be found in the accompanying Field Visit
Reports.
Kota Makassar
Kota Makassar is a metropolitan city of about 1.1 million people, the provincial capital
of South Sulawesi and a strategic gateway to Eastern Indonesia with a fairly buoyant
agricultural export-driven economy. The APBD budget for the Year 2000 is about Rp.
166 billion, with a routine expenditure budget of Rp. 125 billion and development
expenditures of Rp. 41 billion. Income from Own Sources Revenues is only Rp. 30
billion, or 18 percent of total revenues, with the remaining revenues coming from central
and provincial government grants.
Kota Makassar is normally considered to have a competent, well-informed and proactive executive and staff for managing regional finance in compliance with the existing
system dictated by PP 5/1975 and PP 6/1975. Given the level of competence of the local
government, it was surprising to find a general lack of familiarity (by the DPRD and all
levels of the executive) with both the contents and operational implications of
PP25/2000, the draft government regulations related to local government finance and
the operational implications of these new regulations. This highlighted the critical
weakness to-date in socialization of the new regulations (which until now has not
penetrated to the level of practical operational implications); with weakness observed
both in the central-to-local government communication as well as within the local
government. Partly as a result of this lack of clear guidelines and other accessible and
absorbable information, Kota Makassar’s efforts to take a pro-active approach to
anticipate the impacts of decentralization have been limited. They have taken the
initiative to create a Tim Koordinasi Otonomi Daerah which has made some progress
in designing a Local Government Finance Board (Lembaga Keunagan Daerah) but these
efforts are not supported by a clear understanding of the content and operational
implications of the draft regulations, especially for local government finance. The
executive and legislature are not yet prepared to draft the Local Regulation regarding
Local Government Finance Management (Perda tentang Pokok-Pokok Pengelolaan
Keuangan Daerah) as required under Law No. 25/1999 and RPP Pengelolaan dan
Pertanggungjawaban Keuangan Daerah nor have they taken any initiative to anticipate
the new local revenue opportunities which are provided under the draft revision of Law
No. 18/1997.
The financial staff is competent in executing the current budgeting, accounting,
reporting and revenue systems dictated by PP 5/1975 and PP 6/1975 and supporting
regulations and guidelines. They have adequately implemented existing programs like
MAPATDA, MAKUDA. The first Revenue Improvement Action Plan (RIAP) was
prepared in 1997 and is being implemented although there has been no updating since
1997. Managers generally feel confident that senior and mid-level financial staff
adequately understand the contents of the existing financial management training
programs KKD and/or LKD which 4 of the existing staff have attended. The total
number of staff is adequate and includes 3 formally trained accountants (S1), a rarity in
local governments in Indonesia. However, in detailed discussions of the new types of
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46
tasks that will be required of the financial staff under the new local government finance
system, it is clear that there will be extensive needs for capacity-building in making the
transformation from the existing centrally dictated system with strict supervision from
provincial level government.
In the interviews, the lack of career paths in local government finance was identified as
a major constraint in developing a more professional staff as was the lack of job
descriptions linked to minimum qualifications including training courses, certifications
and experience requirements. Other constraints mentioned were the lack of competent
training at the Diklat Prop in regional finance, the inadequacy of local government
budgets for training and resistance to paying for staff to attend training at local
universities (especially UNHAS which provides LKD/KKD). The incentives of the
existing promotion system encouraged officials take structural training to the neglect of
functional training.
Kabupaten Bima
Kabupaten Bima is a financially relatively poorly endowed local government with a total
population of around 540,000; of which around 110,000 reside in the only major
urbanized area, previously Kotip Bima. The APBD budget for the Year 2000 is Rp 108
billion with routine expenditures budget of Rp. 62 billion and the development
expenditures budget of Rp 46 billion. Income from Own Sources Revenue is only Rp.
4 Billion, or less than 4 percent of total revenues with the remaining fund sources
coming from the central government grant or a small portion from provincial grants.
Largely due to the fact that the new Bupati was previously a senior official of the DKI
Jakarta Biro Keuangan, there was some appreciation of the new PP 25/2000 and some
of the contents of the draft government regulations for regional finance. However, that
understanding was fairly superficial and did not penetrate to the level of the operational
implications of the new local government finance system nor was the mid- to lower level
staff aware of the contents and implications of these draft regulations, even though they
had attended the socialization workshops conducted by MOF/MNOD/MOHA. The
executive and legislature are not yet prepared to draft the Perda regarding the local
government finance management (Pokok-pokok Pengelolaan Keuangan Daerah) as
required under Law No. 25/1999 and RPP Pengelolaan dan Pertanggungjawaban
Keuangan Daerah. However, due to the extremely high priority now given by the Bupati
to increasing OSR’s (PAD), there was a very high level of awareness of the draft
revision of Law No. 18/1997. Kabupaten Bima, in cooperation with the province NTB
and other local governments within the province, has already identified nine new taxes
and user charges and has prepared draft Perda to implement them immediately upon
approval of the revision of the law.
The capacity to implement even the existing budgeting, accounting, reporting and
revenue systems as dictated by PP 5/1975 and PP 6/1975 is very weak. Especially in the
Dipenda, the MAPATDA system was being used without the requisite organizational
changes being made and there was almost no real attempt to coordinate revenue
generating activities and provide adequate data. Although the total number of staff was
reportedly adequate, the level of training was extremely low with the exception of
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47
having two formally trained accountants (S1) on the staff. There is no competent training
for regional finance available locally, nor is the training available at Diklat Prop in
Mataram considered by local government officials to be of adequate quantity or quality.
Local government officials in the survey emphasized that local training budgets were
totally inadequate and that the incentives of the existing promotion system encouraged
officials take structural training to the neglect of functional training.
Kota Malang
Kota Malang, a fairly prosperous city of 810,000 people and seat of higher education
institutions, generally has a capable, progressive and pro-active local government (both
DPRD and executive). The APBD budget for Year 2000 is Rp. 88 billion, with routine
expenditure budget of Rp 71 billion and development expenditures of Rp 17 billion.
Own source revenues are Rp 15 billion, or 17 percent of total revenues, with the balance
coming from transfers from the central government and provincial government.
Senior local government officials were relatively aware of the recent regulations and
their implications; especially with respect to the RPP Pengelolaan dan
Pertanggungjawaban Keuangan Daerah where senior finance officials had actively
participated in MNOD workshops in East Jawa to prepare early drafts of the RPP and
in subsequent socializations workshops by MOF/MNOD/MOHA. Kota Malang has been
pro-active in establishing a functioning Coordinating Team for Regional Autonomy.
This Team has been instrumental in Kota Malang anticipating decentralization by
sharing information throughout the local government, starting to clearly define the
responsibilities of the Kota and proposing reorganization of the local government. This
includes the creation of a Local Government Finance Board. They are aware of the draft
revision of Law No. 18/1997 and are trying to anticipate new opportunities for local
government revenue generation, although these are focused largely on schemes to tap
into duties on cigarettes (cukai rokok) which may not be appropriate. Kota Malang has
also recently committed to implement the PDPP medium-term all-sector, rolling
development planning approach and have already implemented the PDAM Corporate
Plan.
The (admittedly too large) staff is generally competent to implement the existing
systems dictated by PP 5/1975 and PP 6/1975 and MAPATDA and MAKUDA
programs are fully operational. A RIAP was prepared by the Bagian Keuangan rather
than the Dipenda, which should have been responsible, so the action plan was never
implemented. Recent changes in the KaBag Keuangan and retirement of the KaDipenda
place a heavy reliance on the mid-level staff which seem quite competent. After detailed
discussions with the senior staff regarding the new requirements and operational
implications of the new regulations on local government system, they were not only able
to grasp the concepts and implications, but able to frankly discuss the limitations of the
existing systems and staff to operationalize the new system. They were already
experiencing difficulties with the lack of definition of the appropriate role of the DPRD
and the executive in the APBD budget preparation process and their lack of
communications/negotiation skills which were previously not needed.
As in Kota Makassar, the local officials identified the lack of career paths in local
government finance as a major constraint in the developing a more professional staff as
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48
well as the lack of job descriptions linked to minimum qualifications including training
courses, certifications and experience requirements. They complained of the lack of
competent training at the Diklat Prop in regional finance, the inadequacy of local
government budgets and resistance to paying for staff to attend training at local
universities. In Malang, there is ready access at the local universities to excellent training
in finance and many of the staff are themselves paying for such training; especially S1
in economics and finance. The private and university training resources should be better
used by the local government.
Kabupaten Kutai Induk
In Year 2000, the original Kabupaten Kutai with a population of about 575,000 people
was divided into Kab. Kutai Barat, Kab. Kutai Induk, Kabupaten Kutai Timur and Kota
Bontang. The residual Kab. Kutai Induk has about 200,000 residents of which about
40,000 live in the only major urbanized area of Tenggarong. Kab. Kutai Induk has
substantial revenues from shared income on gas, oil, forest products and coal which
increase 4-5 fold in 2001. At the same time, it has a large population of poor rural
residents (40 percent).
While the senior executives were not well informed on PP 25/1999 or the majority of
the draft government regulations on regional finance, they were very up-to-date on
portions of Law 25/1999 and the RPP Dana Perimbangan that related to shared
revenues on natural resources. The Dipenda was extremely active and apparently
competent in preparing revenue projections which is a very challenging task given the
limited information on natural resources revenues currently available to local
governments. However, the capacity of the Bagian Keuangan in executing even the
current system under PP 5/1975 and PP 6/1975 has some obvious deficiencies; most
notably in coordination of the revenue and development sides of the budget. The Bagian
Keuangan does not appear to be taking a pro-active approach to anticipating the
systematic changes needed under the new system of regional finance. Both the executive
and the legislative are not yet prepared the draft Perda regarding the local government
finance management (Pokok-pokok Pengelolaan Keuangan Daerah) as mentioned in
Law No. 25/1999. Of particular concern is the lack of anticipation of how to
productively use the windfall from shared natural resource revenues in Year 2001. The
kabupaten has not yet given consideration to the needs for reorganization, including the
creation of a Local Government Finance Board.
The number of trained finance officers and capabilities to handle the financial management are
very limited. The kabupaten should clearly invest some of their new revenue windfall to the
recruitment of trained professional financial staff (probably available in Samarinda) and training
of existing staff.
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5. Findings and Recommendations from the Current Study
(According to Level)
5.1. System Level
5.1.1. National policies, regulations and guidelines:
1)
Lack of awareness and understanding of Law No. 25/1999 and draft
supporting regulations; especially the draft Government Regulation
regarding Management and Accountability for Regional Finance (RPP
Pengelolaan dan Pertanggungjawaban Keuangan Daerah).
Most local government DPRD members and executives, including the finance
officers, do not fully comprehend the fundamental changes in the system of local
government finance embodied in this new law and supporting regulations. Law
No. 25/ 1999 is not, in itself, sufficiently detailed so that the local government
officials can understand the operational implications of the new system. The
supporting RPPs have not yet been finalized and socialized in a way that allows
local governments to anticipate the new decentralized system of local government
financial management.
In particular, local government executives and finance officers are not aware the
that new RPP for Management and Accountability for Regional Finance will
replace the existing PP 5/ 1974 regarding Arrangement, Accountability and
Supervision of Local Government Finances and PP 6/1974 regarding
Implementation of Local Government Finances and Calculations of the Annual
Budget and the related detailed KepMen, InMen, etc. Of utmost urgency is that
local governments be made aware of the need to prepare a local government
regulation (Perda) to regulate the system of local government financial
management and that they be made aware of the new recommended APBD
budget preparation process meaningful DPRD participation and practical steps
for the transition between the existing system under PP5/1975 and PP 6/1975 and
the new system.
Recommendation:
(1a)
Highest priority should be given to the completion, acceptance and broad
socialization of the RPP for Management and Accountability of Regional
Finance. The other 5 RPPs related to regional finance should follow as
shortly thereafter as possible.
(1b)
Guidance (in the form of suggestions only) should be provided to regional
governments on how to make the transition from PP 5/1974 and PP 6/
1974 to the decentralized system embodied in the RPP regarding
Management and Accountability for Regional Finance based on local
priorities and capacity to implement the new RPP.
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50
(1c)
2)
Socialization of the RPP regarding Management and Accountability of
Regional Finance should consist of:
-
an immediate program to socialize the main aspects of the new
regional finance system (and the operational implications) to
DPRD Komisi C members, all senior executives of the local
government with substantial budgeting and/or finance
responsibilities (e.g. all KaDinas) , local universities, community
groups and tokoh masyraakat.
-
a more in-depth program of training of all senior and mid-level
financial officials should be conducted in all local governments (±
400 Local Governments) to explain the impact of each chapter of
the RPP, their operational implications and strategies for phased
implementation.
-
more in-depth training program should be available on demand to
support those regional governments with limited capacities to
implement the approaches embodied in the RPP.
(1d)
MOHA should immediately prepare and disseminate an example Local
Government Regulation on Financial Management (Perda Pengelolaan
Keuangan Daerah) as general guidance to assist local governments in
preparing their own Perda.
(1e)
MOHA should prepare and disseminate more detailed guidance on
practical approaches to implement the new APBD budgeting process
(1f)
MOHA should prepare and disseminate guidance on implementing
Performance-Oriented Budgeting (POB) in the local governments. Such
guidance should include useful information regarding minimum service
standards (which will theoretically need to be complied with in order to
continue to receive DAU ) and standard spending assessments.
Government Regulation No. 25/2000 regarding the Functions of Central and
Provincial Governments (PP 25/2000 tentang Kewenangan Pemerintah dan
Kewenangan Propinsi sebagai Daerah Otonom) needs clarification and
socialization
PP 25/2000 specifies the functions and responsibilities of the central government
and of autonomous provinces. Responsibility for all “residual” functions is
devolved to the local governments. The lack of a clear “positive list” of local
government responsibilities, while consistent with the spirit of meaningful
decentralization, is causing confusion at the local government level. While some
local governments (e.g. Kota Malang) are taking the initiative to clearly define
their own responsibilities, others are not taking this initiative and are still waiting
for further guidance from central government (even though that is not in
accordance with the clarification of PP 25/ 2000).
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51
Without a clear definition of a local government’s functions, preparation of a
competent annual budget for Year 2001 cannot proceed effectively.
Recommendations
(2a)
3)
Central government (previously MNOD, now MOHA) should prepare and
disseminate general, non-binding information regarding a "Positive List"
of candidate "residual responsibilities" that local governments could
theoretically accept all or part of. This would be very helpful for local
governments in defining their own responsibilities in accordance with
Law No. 22/1999 and PP 25/2000. Direct short-term (2-3 day) assistance
from teams of central/provincial officials could be provided to local
governments which request such assistance to assist them to define their
residual responsibilities; especially responsibilities in providing basic
services that must not be interrupted.
Lack of clarity of PP 25 / 2000 regarding reallocation of local government
own source revenues by provinces
Local governments are profoundly confused by PP 25/ 2000 (articles 2.21 and
3.19) which give the autonomous Provinces the authority to collect
“concentrated” own source revenues (Pendapatan Asli Daerah) from all local
governments in their province and reallocate them to the local governments
within the province. Local government in the field survey with any substantial
OSRs argued that this concept was totally contrary to the concept of
decentralization to the local government level and that such a system would kill
any incentives for local governments to continue to collect own source revenues,
much less try to increase them.
Recommendation:
(3a)
4)
Central Government should review this policy and its practical
implications. Should central government proceed with this policy, it must
clarify the criteria to be used to identify local governments with unfairly
“concentrated” potential for owns source revenues that will be subject to
redistribution by the provincial governments under PP 25/2000. In those
effected local governments, the central government must socialize the
rationale for such reallocation in order to gain acceptance of the fairness
and justice of such reallocation.
Lack of clarity and specificity of the draft Government Regulation regarding
Equilibrium Funds (RPP tentang Dana Perimbangan)
Regarding shared revenues, local governments are concerned that the formulae
for sharing revenues be clear and the local governments have adequate access to
necessary information to ensure the transparency of the calculation of shares.
Particular concerns were expressed related to shares of gas and oil revenues
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
52
(which are calculated net of tax, dividends and other costs which are not clear),
cigarette duties (for which there is no locally available data) and personal income
taxes (PPH Perorangan for which there is no locally available data).
Recommendations:
4a)
The exact methods of calculation and the data sources to be used for
calculation of all shared revenues should be specified in detailed
regulations (prepared by MOF and/or Sekretariat PKPD/DPOD) , agreed
upon by the DPOD and socialized as soon as possible. Although such
detailed regulations will reduce the flexibility of the system, it will ensure
transparency and acceptance by the regional governments.
4b)
Data bases used to perform the calculations of the shared revenues must
be made available to the local governments; perhaps through an internet
website which local governments can access. The Sistem Infomasi
Keuangan Daerah (SIKD), now generally conceived as a system for local
governments to report specified data to central government, should be
modified to provide information flow back to the local governments on
such topics as shared revenue calculations.
4c)
Training of local governments finance officers on the detailed allocation
methods and systems must be provided so that local governments accept
the fairness and transparency of the system and so local government
finance officers can act as watchdogs of the system.
4d)
The allocations, or at least estimates of the final allocations of shared
revenues should be provided to local governments by October, 2000 to
support preparation of the 2001 APBD.
Local governments in the field survey were very confused by the terminology
“Dana Alokasi Umum (DAU)” and “Dana Alokasi Khusus (DAK)”. Under the
existing grants system, the Dana Pembangunan Kota / Kabupaten is divided into
two portions; the block grant portion called DAU and the specific grants lumped
together as DAK. Thus, local governments have difficulty grasping that the new
DAU will consist of a combination of the old SDO, the old DAU and a large
portion of the funds that previously flowed through the old DAK portion of Dana
Pembangunan Kota/Kabupaten. As the new DAK mechanism is not yet clearly
defined even at central level, one can easily understand the lack of comprehension
by local government officials.
Regarding the new Dana Alokasi Umum, socialization of the RPP to-date has
broadly disseminated the general concept of the DAU and the major variables that
will be used for calculation of DAU allocations (population, area, number of poor
and local cost factors to calculate needs for funds; less local potential to generate
own source revenues based on gross regional domestic product or some proxy).
However, local government finance officials remain concerned that the
weightings of these factors will not be done in a transparent or absorbable
manner, thus leading to a lack of credibility of the fairness of the system. In
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53
particular, they remain skeptical of whether the three representatives of the local
government associations and the six representatives of the DPRDs who sit on the
DPOD will be competent to participate fully in the review of recommendations
to be submitted by the Sekretariat PKPD to the DPOD and to represent the
interests of regional governments.
Recommendations:
4e)
Completion, approval and socialization of the RPP Dana Perimbangan
should be give second priority after the RPP Pengelolaan dan
Pertanggungjawaban Keuangan Daerah.
4f)
There must be early and open dissemination of the detailed rationale and
formulae for DAU once they are proposed by the Sekretariat PKPD to the
DPOD. Open access to technical reports on the options and supporting
scenarios must be provided to all concerned.
4g)
Technical assistance should be provided to the Association and DPRD
representatives on the DPOD to conduct independent analyses so they can
participate as equals and have a voice in the meetings.
4h)
Broad socialization of the finally accepted rationale and formulae for
DAU and open access to the supporting data base. Again, the Sistem
Informasi Keuangan Daerah and/or an internet website could provide the
mechanism for this information flow from Sekretariat PKPD to the
regional governments.
4i)
DAU allocations, or at least estimates of the final allocations, should be
provided to local governments by October, 2000 to support preparation
of the 2001 APBD.
In addition to a lack of clarity in the methods of calculating the shared
revenues and dana alokasi umum, local government are not yet aware of
any guidelines for the exact mechanisms for the transfer of funds from the
Ministry of Finance to the Kas Daerah.
4j)
5)
Guidelines for the exact mechanisms for transfer of shared revenues and
DAU / DAK allocations and any associated reporting requirements should
be issued as soon as possible so local governments can prepare the
mechanisms for implementation prior to January, 2001.
Lack of clarity of the draft Government Regulation regarding Regional
Borrowing ( RPP tentang Pinjaman Daerah)
The RPP regarding Regional Borrowing is also not widely disseminated to local
governments or well understood by those who have received it. In particular, the
rationale for increasing the Pemda minimum debt coverage ratio (DCR) from 1.3
to 2.5 appears to them to be unfairly constraining their future ability to use debt
financing for infrastructure investments. In fact, while the new formula for
calculating the DCR appears almost identical to the old formula, the new system
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54
of grants has the effect of increasing the DCR from 1.3 to 2.5 for an equivalent
level of constraint of indebtedness. This needs to be socialized.
Of greater concern is the fact that this RPP does not cover BUMD borrowing
which in the past comprised a major portion of local SLA and RDA borrowing.
There does not yet appear to be another draft in circulation to regulate BUMD
borrowing.
Recommendations:
6)
5a)
Given the small number of debt-worthy local governments at the present,
completion and socialization of this RPP regarding Regional Government
Borrowing could be given a lower priority.
5b)
The new Law on BUMD currently being drafted should specify that
BUMD borrowing will be regulated by an RPP regarding BUMD
Borrowing and such an RPP should then be prepared. The RPP should
clearly address the role of the regional government (DPRD and/or KDH)
in approving any borrowing by their BUMDs. As with the RPP tentang
Pinjaman Daerah, this RPP tentang Pinjaman BUMD should provide the
possibility for BUMDs to issue bonds.
Lack of specificity of the draft Government Regulation regarding
Information on Regional Finance (RPP tentang Informasi Keuangan Daerah)
Local government finance officials observe that this RPP essentially leaves the
detailed types and format of financial and other information that must be reported
to the central government up to the discretion of the Minister of Finance who will
regulate the requirements by KepMen. Their concern is that such requirements,
if overly burdensome, may have a negative effect on the local budgeting,
accounting an reporting systems. These systems should be designed primarily to
meet local management needs, not central government reporting requirements.
In the past local governments were compelled to structure their budgets and
reporting systems in order to report development spending by 20 sectors which
was not useful for local management purposes.
Recommendation:
(6a)
APBD data that local governments will be required to report to central
government should not be in excess of those data elements already
specified by the RPP regarding Management and Accountability for
Regional Finance
(6b)
Design of the Sistem Informasi Keuangan Daerah should comprehend the
need for “two-way” exchange of data; while local government must report
specified data to central government, central government must make data
available to local government regarding calculations of shared revenues
and DAU allocations.
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55
7)
Conflicting central government guidance related to local government finance
All local governments in the field survey commented upon the lack of central
coordination in issuing regulations and guidelines, including guidance on local
government finance. Specifically, conflicting instructions from MOHA and
MNOD regarding allocations of Dana Rutin Daerah for Year 2000 confused the
local governments in budget preparation for Year 2000.
Recommendation:
(7a)
Strengthen the role of the KEPPRES 52 Tim Koordinasi Pokjas (or
whatever will replace Tim Koordinasi under the new Cabinet structure)
in coordinating draft regulations including both RPPs and any supporting
KepMen.
(7b)
KepMen and SK (which the local governments are compelled to follow
or at least feel compelled to follow) must by strictly minimized in favor
of Surat Edaran or suggestions/general guidelines. Thus, even if different
ministries issue conflicting Surat Edaran, it is up to the autonomous local
governments to decide which suggestions are most appropriate for them
to follow or not to follow.
(7c)
In the medium-term, laws and PPs should clearly define which ministries
are responsible for exactly which functions. The existing practice (for
example in PP 25 /2000 of specifying central government responsibilities
without clearly assigning these responsibilities to specific ministries)
encourages an unproductive and confusing competition among concerned
ministries to try to control and/or regulate these functions. This results in
the issuance of conflicting KepMen and other ministerial instructions
which confuse local governments. Capacity building to support the
drafting of more effective laws and government regulations should focus
on SekKab, SekNeg and the DPR legislative staff and consist of
international study tours for very senior officials as well as in-depth legal
drafting training courses based on international standards for mid-level
staff.
(7d)
Specifically with regard to guidance for local government finance, a clear
division of responsibilities between MOF, MOHA and the DPOD
(Sekretariat PKPD) must be established regarding detailed responsibilities
for:
preparing, announcing and transferring central government
allocations (shared revenues, DAU, DAK) to local governments
-
providing further implementation guidance for the new local
government finance system based on the RPPs
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-
8)
monitoring, evaluation and facilitation of local governments in
implementing the various aspects of the new regional government
finance system.
System for channeling foreign loan-financed project funds to local
governments must be changed to conform with regional autonomy
Both central officials and local governments in the field survey highlighted that
the existing Subsidiary Loan Agreement mechanism used to channel ADB and
IBRD funds to local governments for IUIDP programs, essentially under the
control of central ministries (BAPPENAS, MOF, Kimbangwil), was not
appropriate for a decentralized system. The Regional Development Account,
while originally designed to provide a responsive and transparent source of loan
funds for qualifying projects that originate from local governments, became
dominated by central ministries who controlled the allocation of scarce subsidized
loan funds.
Recommendation:
(8a) A new mechanism for central government on-lending to regional
governments and their enterprises should replace the existing SLA and
RDA systems. Under the new mechanism, the central government would
be responsible for defining the sectors and/or types of projects which are
of national priority and therefore should be supported by centrally
subsidized loan funds and define transparent criteria for evaluation of
projects. All project proposals would originate from the regional
governments and would be processed on a “first-come/first-served” basis.
Such a system would support national priorities, be accessible to local
governments without central ministry intervention and would be
transparent.
Many of the existing multi-year projects financed with foreign loans (especially
those in the urban infrastructure sector -- P3KT, P3DT, CLGS) have
implementation plans which do not conform to the new structure of
responsibilities under Law No. 22/ 1999 and Law No. 25/1999. In particular,
procurement of goods and selection of consultants previously done by central and
provincial authorities should clearly be done by the local governments. As many
of these projects represent a substantial proportion of local government spending
programs and the projects are scheduled to last for 3-5 more years, continuing to
use the existing implementation modalities (as typically contained in the loan
agreements with ADB, IBRD, OECF, etc.) represents a risk to meaningful
decentralization and local autonomy.
Recommendations
(8b)
The implementation modalities for existing foreign loan-financed projects
(e.g. P3KT, P3DT, CLGS, etc.) should be reviewed and altered to comply
with the new assignment of responsibilities.
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(8c)
9)
The remaining funds for foreign loan-financed activities under these
projects (previously budgeted as Dana Pembangunan Kota/Kabupaten Alokasi Khusus from BLN and Rupiah Murni Dana Pendamping) should
be allocated directly to the local government through the new Dana
Alokasi Khusus mechanism.
Need to ensure adequacy of transfers to fund salaries of transferred central
and provincial staff and to fund operations and maintenance of transferred
assets.
Local governments are uniformly apprehensive that the DAU allocations in 2001
will not be sufficient to cover the salaries of additional central and provincial staff
(PNS) they may be compelled to employ or pay for operations and adequate
maintenance of transferred assets.
Recommendation:
(9a)
For a transitional period of 2-3 years, the central government should
provide “on top” funds to local governments in addition to the DAU in
those cases where local government can demonstrate that they have been
compelled to accept unneeded staff and provide maintenance to unwanted
assets. This would give the local governments 2-3 years to address the
problem of reducing staff (a problem that is now being thrust upon them
by central government) and rationalizing/liquidating assets in an
economically sensible fashion.
5.1.2. Local Government level Policies and Regulation
10)
Need to immediately prepare Perda for Local Government Finance
Management
Under the new system, each local government must prepare a Perda in order to
establish the local financial management system including the new budget
process, accounting system, the reserve fund mechanism and loan management,
among others. When approved, this Perda will replace the PP 5/1975 and PP
6/1975 as the legal basis for the local government financial management system.
It appears extremely unlikely that many local governments will be able to
competently prepare and implement such Perdas before Year 2001. Therefore, it
is necessary to provide adequate capacity-building so that all local governments
can prepare the Perda and implement crucial portions of the new system during
Year 2001 so that they will in-place for Year 2002.
Recommendation:
(1d, above)
MOHA should prepare and disseminate an example Local
Government Regulation on Financial Management (Perda
Pengelolaan Keuangan Daerah) as general guidance to assist
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local governments in preparing their own Perdas.
(10 a)
11)
MOHA should conduct training courses on Perda preparation and
provide on-site consultations with local governments, as
requested, to assist local government to adapt the example Perda
to local conditions, priorities and capabilities.
Local Policies regarding Cost Recovery versus Subsidy for services are not
clear
Clear local policies regarding cost recovery and subsidies for services has been
absent in the past partly because the central government’s policy has also not been
clear. With decentralization, authority for setting this long-overdue policy will
clearly rest with the local governments. Local governments (KDH and DPRD)
should decide which services and which segments of the population can pay the
full cost recovery tariffs and which cannot. When subsidies are provided , they
must be provided through transparent subsidy mechanisms which ensure that
service providers are held accountable for their performance.
Partly as a result of this unclear policy, urban service tariffs are typically too low
to ensure the sustainable provision of the services without continuing subsidies.
Even if service providers were performing reasonably efficiently (which many are
not) they would legitimately need tariff increases to be closer to cost recovery
levels. Obtaining DPRD approval for these tariff increases has usually been
perceived as one of the main obstacles for cost recovery in urban services.
Therefore, it was surprising that in four of the five locations visited, the majority
of DPRD members interviewed agreed with the importance of cost recovery as
much as possible. Many of the DPRD members said only the poor should be
subsidized and some even had suggestions on how the poor could be identified
and targeted.
However, there were feelings of dissatisfaction and distrust; particularly regarding
the performance of PDAMs. This is understandable as requests for tariff increases
originate from the management of PDAMs and are based on historical costs
which include inefficiencies and KKN. DPRD members often said that there
should be improvements in service first before tariffs are increased.
Recommendations
(11a) Each local government should have a clearly stated policy regarding cost
recovery and subsidies for each service provided by the local government.
Customers who are able to pay the full cost of services should pay the full
cost. Cross-subsidy should be used to the extent practical without
distorting economic activities. When subsidies still need to be provided
by the local government, subsidies should be provided through
mechanisms that ensure that service providers are accountable for the
performance of these subsidies (e.g. performance contracts to PDAMs to
provide specified service to poor areas).
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(11b) Training should be provided as follows:
-
to DPRD members and local government staff regarding the need for
implementing full cost recovery tariffs and practical guidelines for
developing a cost recovery/ subsidy policy;
-
training of financial officers and all service units providing cost recovery
services regarding strategies and methodologies to calculate and apply full
cost recovery tariffs (especially PerMenDargi No. 2 / 1998 and
InMenDagri No. 8 / 1998 on Water Tariffs)
-
pilot projects, documentation and dissemination of subsidy mechanism
that provide transparent subsidies to targeted recipients (e.g. Voucher
systems, performance contracts to provide specified services to poor
resident, etc.) should be implemented.
-
outreach activities to the communities should be undertaken to get
meaningful input from the communities in the development of cost
recovery/subsidy policies and the policies adopted should be clearly
socialized to the communities.
(11c) Tariff increases should be tied to improvements in performance. In PDAMs for
example, tariff increases could be tied to reductions in Unaccounted Water
(UAW) which is a serious problem in most PDAMs (typically 35 – 50 percent).
Effort should be given firstly to low cost, visible service improvements that do
not require tariff increases and investments in distribution networks to generate
additional revenues from existing water production capacity. This is intended to
convince the DPRD and the public of the seriousness of service units in
improving services. The preparation of a PDAM corporate plan with a mediumterm plan which clearly links service improvements and reductions in UAW to
periodic tariff increases to compensate for inflation (as piloted in PDAM Kota
Malang) can be a valuable tool. A training program to introduce PDAM
Corporate Planning to a large number of PDAMs (as now being planned by DG
PUMDA and PERPAMSI) should be given a priority.
12)
Need for Performance Measurement and Accountability
Except for PDAMs, which already report on their performance based on a set of
MOHA indicators, none of the other dinases have applied performance
orientation in their programming, budgeting, or reporting. In the APBD, there is
typically no clear linkage between inputs and physical outputs to be achieved with
those inputs, except for the development side of the budget where the
construction of specific infrastructures may be specified. With no clear linkage
of inputs to outputs in the APBD, it thus becomes impossible to report the
performance in executing the APBD in a manner which relates expenditure of
inputs to accomplishment of physical outputs . In this environment, local
governments typically report the percent of the routine budget expended with
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absolutely no relationship to outputs achieved. However, they are able to report
development expenditures versus completion of physical activities for a portion
of the development program.
None of the officials interviewed in any of the local governments surveyed were
aware of the new requirement in the RPP Pengelolaan dan Pertanggungjawaban
Keuangan Daerah to implement Performance-Oriented Budgeting and reporting
approaches in the future. Based on the team's discussions on how performanceoriented budgeting and related performance indicators might be developed and
implemented, it is clear that the financial officers and dinas need capacity
building on this matter.
To help ensure accountability, information on the performance of service units
has to be made public. The RPP Pengelolaan dan Pertanggungjawaban
Keuangan Daerah requires that limited information on performance be published
at the end of the fiscal year as part of the organization's report to the head of the
region and head of region's accountability report to the DPRD. But none of the
financial officers or dinas surveyed knew of this requirement. Interestingly,
several DPRD members interviewed did not find this requirement to be
particularly useful; reasoning that the Indonesian public does not like to read and
this information would be better channeled to the public through them. Although
a patronizing opinion, there might be a reason for it. The public has been denied
access to information for a long time and is, therefore, not used to seeking
information.
Recommendations
(12a) In the local government APBD budgeting process, the budget committee
(panitia anggaran) should require all dinases making budget requests to
clearly link physical outputs to requested inputs (funds). If the dinas
request for funds is subsequently cut by the budget committee during the
budget development process, the related physical outputs must also be cut
to maintain the linkage between inputs and outputs in the APBD.
(12b) The central government should issue guidelines on how to develop useful
performance indicators, starting with the easiest to measure (typically
urban services). The guidelines would also recommend the use of national
standard indicators in addition to locally developed indicators. These
standard indicators could be tied to services that are required by the
minimum standards of service. National standard indicators will allow the
public, the central government, and local governments themselves to
compare performance between regions.
(12c) To allow for regional comparisons, develop a system of information
exchange of performance and, ideally, a data base. This system could be
developed by the central government, university networks, and/or local
government associations.
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(12d) In the longer term, develop benchmarks for all major local government
services similar to those now being developed for PDAMs under the
IBRD/PERPAMSI Benchmarking Project. Such benchmarks should allow
local governments to make meaningful comparisons of their own
performance versus local governments with similar topography, city sizes,
technical systems for service provision and cost structures.
(12e) Make the availability of information on performance widely known. Make
available the information in easily accessible places. The Information
Center for Social Safety Net Programs that are now available in all local
government BAPPEDAs have been providing information on budgets,
implementation guidelines, and performance and could be expanded to
include information on performance and budgets of public services.
Consumer groups, NGOs, and City Forums should be encouraged to
access the information and review it.
13)
Need for Upgraded Local Government Accounting Systems
Under PP5/1975 and PP6/1975 which establish local government accounting
principles and practices, local governments still use the cash basis of accounting
and single-entry book keeping. The main weakness of the cash basis of
accounting is that it does not provide for the recognition of substantial
expenditure commitments already incurred but not paid, thus giving an inaccurate
portrayal of the financial performance and condition of the local government.
Therefore, the RPP Pengelolaan dan Pertanggungjawaban Keuangan Daerah
recommends that local governments adopt the modified-accrual basis of
accounting in which selected expenditures can be recognized as commitments are
incurred. In the modified-accrual system, a limited balance sheet must be
maintained with linkage to the income statement. This limited balance sheet also
provides information which is not readily available now regarding selected assets
and liablilities of the local government.
The main advantage of the double-entry book keeping system over the current
single-entry system is that the double entry system is self-correcting. Errors are
immediately recognized and can be more easily identified.
However, the implementation of both the modified-accrual system of accounting
and the double-entry book keeping practice require that some of the local
government finance staff have a sound understanding of accounting. Of the field
visit sites, only Kota Malang appeared to have existing staff capable of
implementing these improved systems without extensive training. Therefore,
local governments should be made aware of the advantages of the new principles
and systems and encouraged to implement them based on the their own priorities
and capabilities. Clearly, some local governments are interested in introducing
these approaches while others do not think it is a priority or worth the sizeable
investment.
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Recommendations:
(13a) Stimulate the development of an association of local government finance
officers which would undertake to promulgate and maintain Generally
Accepted Accounting Principals and standards for local government.
(13b) Conduct workshops for local government finance professionals to
introduce the concepts of modified-accrual accounting and double-entry
book keeping practices and provide more in-depth training course to local
government finance officers who plan to implement these approaches in
the near future.
14)
Need to introduce a transparent and participative APBD budgeting process
The DPRD members at the local governments surveyed were particularly aware
of the need to implement a new APBD budget preparation process with
meaningful participation of the DPRD from the beginning of the process in order
to elaborate general policy guidance. The local government senior officials
interviewed (including the financial officers) were uniformly worried that DPRD
members would become inappropriately involved in preparation of the detailed
draft budget (RAPBD) , which should be the task of the executive.
Recommendations:
(14a) MOHA should prepare and disseminate more complete guidelines for the
new APBD preparation process outlined in the RPP Pengelolaan dan
Pertanggungjawaban Keuangan Daerah. These guidelines should be in
the form of a suggestion only and should clearly define the appropriate
role of the DPRD members, executive staff and the community in the
budgeting process.
(14b) MOHA should provide training for DPRD members, local government
executives and community representatives on the recommended
budgeting process and provide on-site consultations (as requested by local
governments) in designing a tailored process to be included in the local
Perdas regarding Financial Management.
5.2
5.2.1
Entity Level
Organization
15)
Local Tim Koordinasi Otonomi Daerah Needed for Advance Preparations for
Regional Autonomy
Local governments who have established Tim Koordinasi Otonomi Daerah have
visibly made more progress in preparations for regional autonomy than those who
have not. Some of the preparations include identification of functions that result
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63
from PP 25/2000 and proposals for new organizations to merger dinas with
deconcentrated agencies and/or to eliminate overlaps.
Recommendations
(15a) Disseminate information on success of the Tim Koordinasi Otonomi
Daerah to stimulate all local governments to establish a similar team.
(15b) Within Tim Koordinasi Otonomi Daerah, the Walikota/Bupati should
unambiguously empower the Bagian Ortala to recommend
reorganizations to implement the new tasks of local governments and
address the existing organizational overlaps.
16)
Need to introduce Local Government Finance Board
Under the existing organizational structure of local government, financial
management functions are segmented in a manner that hinders effective overall
financial management. The function of revenue collection is executed by the
Dipenda; the functions of routine budgeting, expenditure control and accounting
are executed by the Bagian Keuangan; the function of development budgeting is
executed by the BAPPEDA; and the function of treasury is executed by the Kas
Daerah. Both the segmentation of these functions and the lower Eselon of the
KaBagKeuangan relative to the KaDipenda and KaBAPPEDA contribute to the
poor coordination of financial management functions.
For this reason, the RPP Pengelolaan dan Pertanggungjawaban Keuangan
Daerah suggests the consolidation of these financial functions under a Local
Government Finance Board (Lembaga Pengelola Keuangan Daerah) structure
in the local government.
Of the four local governments surveyed, Kota Malang and Kota Makassar
welcomed the opportunity offered by the new RPP and had already started to
design a new Local Government Finance Board. Kabupaten Bima and Kabupaten
Kutai, upon learning of the new organizational option were enthusiastic about its
applicability but did not feel competent to implement such an organizational
structure without external support.
Recommendation:
(16a) In addition to explaining the concept of the Local Government Finance
Board during socialization of RPP Pengelolaan dan Pertangunjawaban
Daerah, MOHA should provide short on-site consultations to local
governments, on request, to assist them to design the appropriate structure
based on local financial management systems and capabilities.
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17)
Need for consolidation of the budget functions in one organization
Currently, preparation of the routine budget is the responsibility of the Sub
Bagian Anggaran (Belanja Rutin) while the development budget inputs are the
responsibility of the BAPPEDA (Belanja Pembangunan). This segmentation has
been a serious constraint in creating budgets with optimal coordination between
the routine and development sides of the budget. Especially with the introduction
of the new DAU which can be spent flexibly on O&M or development, and the
requirement for performance-oriented budgeting, the consolidation of the
budgeting functions is needed more than ever.
Recommendation:
(17a) In those local governments which do not implement a Local Government
Finance Board, they should still seriously consider consolidation of at
least the routine and development budgeting functions.
18)
Need for Local Government Finance Officers’ Association
Within the spirit of regional autonomy, intervention from central government will
be limited. Local government professionals themselves should develop and
maintain a system of generally accepted financial and accounting principles and
standards (e.g. pubic sector accounting standards, local government audit
standard, etc). Many of the local government finance officers interviewed
expressed an interest in the formation of such an association in order to provide
the much needed technical standards and to enhance professionalism and a
professional image.
Recommendation:
(18a) Local government finance professionals should create a professional
association. This could be facilitated, but not dominated by MOHA MOF,
Association of Public Accountants and others.
5.2.2. Management Systems
19)
Enhance the role of Dipenda as Coordinator of Tax Collection.
Although Dipenda are officially charged with the responsibility for coordination
of all taxes and user charges of the local government, they often focus only on the
collection of selected taxes and charges and neglect their role of coordination.
Ideally, Dipenda would assist all service units to enhance their identification of
revenue generating opportunities as well as enhancing the collection performance
of these service providers. One aspect that is particularly neglected is Dipenda
maintenance and dissemination of data bases that would be of value to different
service units in their efforts to increase revenues.
Recommendation:
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(19a) Workshops and training should be conducted to enhance the role of
Dipenda in coordinating collection of taxes and charges; especially in
maintaining and disseminating data related to taxes and charges.
20)
Need for Medium-Term Financial/Investment Planning Systems10
With the centrally-controlled planning system greatly diminished and the
introduction of the DAU, development and adoption of local government allsector, medium-term financial/investment planning systems that can be updated
annually by the local governments themselves becomes more important than ever
before.
A medium- term investment planning system was developed under IUIDP
(Integrated Urban Infrastructure Development Program). However, this system
was limited to the 7 Cipta Karya components only and focused on urban
infrastructure projects to be financed by foreign borrowing. Because the level of
detail required, not only to program investments but also to evaluate feasibility
of each sub-project to substantiate applications for SLA financing, the local
governments developed a dependency on consultants to prepare and even update
the IUIDP-PJMs.
The Ministry of Home Affairs, with assistance from USAID's Clean Urban
Project, has issued Program Dasar Pembangunan Perkotaan/Daerah (PDPP), a
guideline on all-sector medium-term investment planning that is simpler, updated
annually, and is based on an analysis of financial capacity of the local
government.
In the local governments surveyed, there was a general recognition of the
limitations of the existing IUIDP-PJM to meet the new needs of the local
government under the new local government financing system. However, their
understanding of future needs was limited due to the lack of clarity of the exact
financial system to be adopted (especially the DAU mechanism, the DAK
mechanism, and whatever will replace the obviously inappropriate
P5D/Rakorbang process.) In Kota Malang, however, the local government
executive and DPRD had already made a commitment to implement the new
PDPP process.
Related to the PDPP is the parallel PDAM Corporate Planning process, for which
an improved technical guideline on the process and content was recently issued
by MOHA. The objective of the PDAM Corporate Plan is to introduce integrated
medium-term planning of all important aspects of the PDAM (technical
operations, environmental protection, organization, HRD, customer
service/marketing, finance and investment) which is linked to the policy of the
local government and the annual work program and budget of the PDAM. PDAM
Kota Malang has already prepared an extremely competent Corporate Plan and
10 See also the Report No. FR/4 on Local Development Planning.
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66
is implementing it. PDAM Kab. Kutai Induk and PDAM Kota Makassar
recognized the urgency of implementing this management tool.
Recommendations
(20a) Broad dissemination of the new PDPP guideline and targeted training
(including a large component of on-the-job training) to local governments
requesting such support.
(20b) Broad dissemination of the new PDAM Corporate Planning guideline and
targeted training to PDAMs requesting such support. (PERPAMSI
training program for PDAM corporate planning will need external support
to be disseminated broadly and quickly.)
5.2.3 Human Resources Management
21)
Career system
There is total lack of career system for local government finance officers. In
particular, there are no clear career promotion paths/ladders, no position analysis
(analisa jabatan) for each officer, no linkage between job descriptions and
minimum qualifications , nor are promotions linked with the minimum training
courses completed or certifications.
Recommendation:
(21a) Clear career paths/ladders should be established within the environment
of local government finance. Especially with the introduction of the Local
Government Finance Boards, there should be ample opportunities for
financial staff to seek promotions within the financial environment.
(21b) Each local government finance position should have a job description
linked with minimum qualifications for that position.
(21c) Bagian Kepegawaian should reactivate the system of analisa jabatan that
had previously been in use in several local governments to evaluate (at
least annually) the level of skills and responsibility of each officer in order
to determine eligibility for promotions.
(22d) Use the completion of selected functional training course and/or
certifications as a prerequisite for promotions.
22)
Local government finance Training and TOT availability
The level of existing training modules and training materials for local government
finance available at Diklat Prop is typically quite poor if compared to the needs.
Competent trainers for local government finance in Diklat Prop are very rare.
Thus, the main source of existing competent training for local government
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finance are the Kursus Keuangan Daerah (KKD) and Latihan Keuangan Daerah
(LKD) taught at four regional universities. However, these courses are expensive
and lengthy (2-4 months) and not able to provide training to the massive number
of local government officials which will need training to implement the new
approaches to local government finance. The KKD and LKD courses themselves
will require substantial updating to make them conform to the needs of the new
local government finance system.
In addition to the lack of locally available training of adequate quantity and
quality, local government officials in the survey emphasized that the incentives
of the existing promotion system encouraged officials to take structural
training to the neglect of functional training.
There is a clear need to develop a national strategy; first, to address the priority
needs to make sure that decentralization can proceed as of January, 2001 and,
second, to develop a more competent local government training system over
the medium-term.
To support decentralization starting in January 2001, the short-term training
activities recommended in the above sections of this report should generally be
given a precedence over medium-term activities.
The medium-term strategy to develop a more competent training system should
build upon the existing training institutions, training capacities, and training
modules and materials to the extent possible in order to make improvements as
rapidly and economically as possible.
Recommendations:
(22a) Short-term training to socialize the new local government finance system
and its operational implications should be given clear priority over longerterm skills-building training.
(22b) Review existing KKD and LKD training materials and update to be in
accordance with the new laws and regulations.
(22c) Develop revised training modules and training materials for local
government finance training at Diklat Prop. This will require detailed
review of existing materials and updating to be in consistent with the new
laws and regulations and the skills/capabilities implied by the new local
government finance system.
(22d) Invest in Training of Trainers, especially at Diklat Prop, to quickly
improve of the number and quality of the trainers for local government
finance.
(22e) Due to the lack of competent trainers at Diklat Prop, local government
finance training should be conducted jointly with local universities, the
local government finance officer’s associations or other institutions
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6.
Recommendations by Priority and Possible Donor Support
In this section, the recommendations from Section 5 are prioritized and suggestions of
possible donor support are provided for each recommendation.
6.1 Immediate Priorities (Should be completed by Jan, 2001)
6.1.1 Systems Level
National policies, regulations and guidelines:
(1a)
Highest priority should be given to the completion, acceptance and broad socialization
of the RPP for Management and Accountability of Regional Finance. The other 5 RPPs
related to regional finance should follow as shortly thereafter as possible.
(1b)
Guidance (in the form of suggestions only) should be provided to regional governments
on how to make the transition from PP 5/1974 and PP 6/ 1974 to the decentralized system
embodied in the RPP regarding Management and Accountability for Regional Finance
based on local priorities and capacity to implement the new RPP.
(1c)
Socialization of the RPP regarding Management and Accountability of Regional Finance
should consist of:
-
an immediate program to socialize the main aspects of the new regional finance
system (and the operational implications) to DPRD Komisi C members, all senior
executives of the local government with substantial budgeting and/or finance
responsibilities (e.g. all KaDinas) , local universities, community groups and
tokoh masyarakat.
-
a more in-depth program of training of all senior and mid-level financial officials
should be conducted in all local governments (± 400 Local Governments) to
explain the impact of each chapter of the RPP, their operational implications and
strategies for phased implementation.
Donor support:
(for 1a,1b,1c)
At a minimum, MOF/MOHA socialization teams should
conduct 1-2 day training sessions for local government staff on the
detailed contents and implications of the PP for Local
Government Financial Management as soon as possible after the
passage of the PP. Local staff should include members of DPRD
Komisi C, Sekda and staff from Bagian Keuangan, Dipenda, and
all service units with substantial budgets. This could be followed
up later with 1-2 day team visits to each local government
requesting additional short term support. Donor support would be
useful for training of team members and support of travel
expenses.
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(1d)
MOHA/MOF should immediately prepare and disseminate an example Local
Government Regulation on Financial Management (Perda Pengelolaan Keuangan
Daerah) as general guidance to assist local governments in preparing their own Perda.
(10 a) MOHA/MOF should conduct training courses on Perda preparation and provide on-site
consultations with local governments, as requested, to assist local government to adapt
the example Perda to local conditions, priorities and capabilities.
Donor support:
(for 1d and 10a)
Technical assistant already being provided by Clean-Urban to
develop and pilot test an example Perda and guideline. Donors
should support dissemination workshops and on-site 1-2 day
technical assistance for all requesting local governments and
provinces.
(1e) &
(14a) MOHA/MOF should prepare and disseminate more complete guidelines for the new
APBD preparation process outlined in the RPP Pengelolaan dan Pertanggungjawaban
Keuangan Daerah. These guidelines should be in the form of a suggestion only and
should clearly define the appropriate role of the DPRD members, executive staff and the
community in the budgeting process.
(14b) MOHA/MOF should provide training for DPRD members, local government executives
and community representatives on the recommended budgeting process and provide onsite consultations (as requested by local governments) in designing a tailored process to
be included in the local Perdas regarding Financial Management to all requesting local
governments and provinces.
Donor support:
(for 1e, 14a,14b)
(2a)
USAID/CLEAN Urban and ADB TA-3178 already providing
inputs to MOHA/MNOD/MOF to develop guidelines. Donors
should support dissemination workshops and on-site 1-2 day
technical assistance for Technical assistance already being
provided by USAID/CLEAN Urban.
Central government (previously MNOD, now MOHA) should prepare and disseminate
general, non-binding information regarding a "Positive List" of candidate "residual
responsibilities" that local governments could theoretically accept all or part of. This
would be very helpful for local governments in defining their own responsibilities in
accordance with Law No. 22/1999 and PP 25/2000. Direct short-term (2-3 day) assistance
from teams of central/provincial officials could be provided to local governments which
request such assistance to assist them to define their residual responsibilities; especially
responsibilities in providing basic services that must not be interrupted.
Donor support:
Immediately expand donor support to the Facilitations Teams
recently formed in each Province by the former MNOD with
UNDP funding. In order to expedite the rapid expansion of
facilitation, the teams need funding now of honorariums and
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70
travel expenses of the Facilitation Teams.(see Final Report Urban
Services B 3.1 6.1.1 system level)
4a)
The exact methods of calculation and the data sources to be used for calculation of all
shared revenues should be specified in detailed regulations (prepared by MOF and/or
Sekretariat PKPD/DPOD) , agreed upon by the DPOD and socialized as soon as possible.
Although such detailed regulations will reduce the flexibility of the system, it will ensure
transparency and acceptance by the regional governments.
Donor support:
4d)
The allocations, or at least estimates of the final allocations of shared revenues should be
provided to local governments by October, 2000 to support preparation of the 2001
APBD.
Donor support:
4e)
Technical assistance could be provided by the donors to
the associations and /or DPRD representatives. Better if done
independently from existing donor assistance to MOF/MOHA.
DAU allocations, or at least estimates of the final allocations, should be provided to
local governments by October, 2000 to support preparation of the 2001 APBD.
Donor support:
4j)
Not applicable
Technical assistance should be provided to the Association and DPRD representatives
on the DPOD to conduct independent analyses so they can participate as equals and have
a voice in the meetings.
Donor support:
(for 4f and 4g)
4i)
Technical assistance already being provided.
There must be early and open dissemination of the detailed rationale and formulae for
DAU once they are proposed by the Sekretariat PKPD to the DPOD. Open access to
technical reports on the options and supporting scenarios must be provided to all
concerned.
Donor Support:
4g)
Technical assistance already being provided.
Completion, approval and socialization of the RPP Dana Perimbangan should be give
second priority after the RPP Pengelolaan dan Pertanggungjawaban Keuangan Daerah.
Donor support:
4f)
Technical Assistance already being provided to MOF. Donors
could support dissemination workshops.
Current technical assistance can support
Guidelines for the exact mechanisms for transfer of shared revenues and DAU / DAK
allocations and any associated reporting requirements should be issued as soon as
possible so local governments can prepare the mechanisms for implementation prior to
January, 2001.
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Donor support:
(7d)
Current technical assistance can support.
Specifically with regard to guidance for local government finance, a clear division of
responsibilities between MOF, MOHA and the DPOD (Sekretariat PKPD) must be
established regarding detailed responsibilities for:
-
preparing, announcing and transferring central government allocations (shared
revenues, DAU, DAK) to local governments
-
providing further implementation guidance for the new local government finance
system based on the RPPs
-
Monitoring, evaluation and facilitation of local governments in implementing the
various aspects of the new reqional government finance system
Donor support:
Not applicable.
(12a) In the local government APBD budgeting process, the budget committee (panitia
anggaran) should require all dinas making budget requests to clearly link physical
outputs to requested inputs (funds). If the dinas request for funds is subsequently cut by
the budget committee during the budget development process, the related physical
outputs must also be cut to maintain the linkage between inputs and outputs in the APBD.
Donor support:
Not applicable
6.1.2 Entity Level
(15a) Disseminate information on success of the Tim Koordinasi Otonomi Daerah to stimulate
all local governments to establish a similar team.
Donor support:
Ongoing donor activities (projects and programmes) in the
regions should be used as additional channels of information.
(15b) Within Tim Koordinasi Otonomi Daerah, the Walikota/Bupati should unambiguously
empower the Bagian Ortala to recommend reorganizations to implement the new
tasks of local governments and address the existing organizational overlaps.
Donor support:
Not Applicable
6.1.3 Individual Level
None
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6.2 Must be Started Now but Implementation will Take Time
6.2.1 Systems Level
(1c)
Detailed socialization of the RPP regarding Management and Accountability of Regional
Finance should (in addition to the activities listed under Immediate Priorities above)
consist of:
-
more in-depth training to be available on demand to support those regional
governments with limited capacities to implement the approaches embodied in
the RPP.
Donor support:
(1f)
MOHA should prepare and disseminate guidance on implementing Performance-Oriented
Budgeting (POB) in the local governments. Such guidance should include useful
information regarding minimum service standards (which will theoretically need to be
complied with in order to continue to receive DAU ) and standard spending assessments.
Donor support:
4b)
Support capacity-building of the Sekretariat PKPD/DPOD. Invest
in information system at central and local governments.
Training of local governments finance officers on the detailed allocation methods and
systems must be provided so that local governments accept the fairness and transparency
of the system and local government finance officers can act as watchdogs of the system.
Donor support:
4h)
Technical assistance to design a practical methodology, pilot test
in several local government, assist MOHA to develop guidelines,
disseminate concepts and provide broad training after the system
is accepted. This is a medium-term undertaking, not a short term
TA activity.
Data bases used to perform the calculations of the shared revenues must be made
available to the local governments; perhaps through an internet website which local
governments can access. The Sistem Informasi Keuangan Daerah, now generally
conceived as a system for local governments to report specified data to central
government , should be modified to provide information flow back to the local
governments on such topics as shared revenue calculations.
Donor support:
4c)
Support to training programs specifically designed to train local
governments in the new approaches such as the new budget process.
This is not basic financial skills training but rather training that is
designed to support existing capacity to implement new approaches.
Support workshops and 1-2 day training courses.
Broad socialization of the finally accepted rationale and formulae for DAU and open
access to the supporting data base. Again, the Sistem Informasi Keuangan Daerah and/or
an internet website could provide the mechanism for this information flow from
Sekretariat PKPD to the regional governments.
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Donor support:
5a)
Given the small number of debt-worthy local governments at the present, completion and
socialization of this RPP regarding Regional Government Borrowing could be given a
lower priority.
Donor support:
5b)
Donors should provide technical and management support to the
relevant central government team coordinating the
implementation of Laws No. 22 and 25 /1999.
KepMen and SK (which the local governments are compelled to follow or at least feel
compelled to follow) must by strictly minimized in favor of Surat Edaran or suggestions
/ general guidelines. Thus, even if different ministries issue conflicting Surat Edaran, it
is up to the autonomous local governments to decide which suggestions are most
appropriate for them to follow or not to follow.
Donor support:
(7d)
see 4b, above
Strengthen the role of the KEPPRES 52 Tim Koordinasi Pokjas (or whatever will replace
Tim Koordinasi under the new Cabinet structure) in coordinating draft regulations
including both RPPs and any supporting KepMen.
Donor support:
(7b)
Technical assistance already being provided by
USAID/CLEAN Urban.
Design of the Sistem Informasi Keuangan Daerah should comprehend the need for
“two-way” exchange of data; while local government must report specified data to
central government, central government must make data available to local government
regarding calculations of shared revenues and DAU allocations.
Donor support:
(7a)
Not applicable
The new Law on BUMD currently being drafted should specify that BUMD borrowing
will be regulated by an RPP regarding BUMD Borrowing and such an RPP should then
be prepared. The RPP should clearly address the role of the regional government (DPRD
and/or KDH) in approving any borrowing by their BUMDs. As with the RPP tentang
Pinjaman Daerah, this RPP tentang Pinjaman BUMD should provide the possibility for
BUMDs to issue bonds.
Donor support:
(6b)
See 4b, above.
Not applicable
Specifically with regard to guidance for local government finance, a clear division of
responsibilities between MOF, MOHA and the DPOD (Sekretariat PKPD) must be
established regarding detailed responsibilities for:
-
monitoring, evaluation and facilitation of local governments in implementing the
various aspects of the new regional government finance system.
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
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Donor support:
Not applicable
(8a)
A new mechanism for central government on-lending to regional governments and their
enterprises should replace the existing SLA and RDA systems. Under the new
mechanism, the central government would be responsible for defining the sectors and/or
types of projects which are of national priority and therefore should be supported by
centrally subsidized loan funds and define transparent criteria for evaluation of projects.
All project proposals would originate from the regional governments and would be
processed on a “first-come/first-served” basis. Such a system would support national
priorities, be accessible to local governments without central ministry intervention and
would be transparent.
(8b)
The implementation modalities for existing foreign loan-financed projects (e.g. P3KT,
P3DT, CLGS, etc.) should be reviewed and altered to comply with the new
assignment of responsibilities.
(8c)
The remaining funds for foreign loan-financed activities under these projects (previously
budgeted as Dana Pembangunan Kota/Kabupaten - Alokasi Khusus from BLN and
Rupiah Murni Dana Pendamping) should be allocated directly to the local government
through the new Dana Alokasi Khusus mechanism.
Donor support:
(8a, 8b,8c)
(9a)
All donors supporting such existing programs (IBRD, ADB, OECF,
etc) should pro-actively address this problem with existing loan
programs as well as designing new mechanisms for near term
future loans. In particular, IBRD and ADB loans programs for the
urban sector and water sector currently being designed must be
designed appropriately. Donors should work actively with the
relevant GOI agencies (like BAPPENAS, MOF, MOHA-OD) in
developing new cooperation mechanisms between regions and
donor agencies.
For a transitional period of 2-3 years, the central government should provide “on top”
funds to local governments in addition to the DAU in those cases where local government
can demonstrate that they have been compelled to accept unneeded staff and provide
maintenance to unwanted assets. This would give the local governments 2-3 years to
address the problem of reducing staff (a problem that is now being thrust upon them by
central government) and rationalizing/liquidating assets in an economically sensible
fashion.
Donor support:
Technical assistance for preparing the studies of impact /
problems of transferring central and provincial staff and assets
to local governments.
(11a) Each local government should have a clearly stated policy regarding cost recovery and
subsidies for each service provided by the local government. Customers who are able to
pay the full cost of services should pay the full cost. Cross-subsidy should be used to the
extent practical without distorting economic activities. When subsidies still need to be
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
75
provided by the local government, subsidies should be provided through mechanisms that
ensure that service providers are accountable for the performance of these subsidies (e.g.
performance contracts to PDAMs to provide specified service to poor areas).
(11b) Training should be provided as follows:
- to DPRD members and local government staff regarding the need for
implementing full cost recovery tariffs and practical guidelines for
developing a cost recovery/ subsidy policy;
-
training of financial officers and all service units providing cost
recovery services regarding strategies and methodologies to calculate
and apply full cost recovery tariffs (especially PerMenDargi No. 2 /
1998 and InMenDagri No. 8 / 1998 on Water Tariffs)
-
pilot projects, documentation and dissemination of subsidy
mechanism that provide transparent subsidies to targeted recipients
(e.g. Voucher systems, performance contracts to provide specified
services to poor resident, etc.) should be implemented.
-
outreach activities to the communities should be undertaken to get
meaningful input from the communities in the development of cost
recovery/subsidy policies and the policies adopted should be clearly
socialized to the communities.
Donor support:
(11a and 11b) Technical assistance and sponsorship of extensive
training, starting with training and technical assistance for water
tariff reform based on the new water tariff regulations.
(11c) Tariff increases should be tied to improvements in performance. In PDAMs for example,
tariff increases could be tied to reductions in Unaccounted Water (UAW) which is a
serious problem in most PDAMs (typically 35 – 50 percent). Effort should be given
firstly to low cost, visible service improvements that do not require tariff increases and
investments in distribution networks to generate additional revenues from existing water
production capacity. This is intended to convince the DPRD and the public of the
seriousness of service units in improving services. The preparation of a PDAM corporate
plan with a medium-term plan which clearly links service improvements and reductions
in UAW to periodic tariff increases to compensate for inflation (as piloted in PDAM Kota
Malang) can be a valuable tool. A training program to introduce PDAM Corporate
Planning to a large number of PDAMs (as now being planned by DG PUMDA and
PERPAMSI) should be given a priority.
Donor support:
(13a)
Technical assistance and sponsorship of extensive training.
Stimulate the development of an association of local government finance officers which
would undertake to promulgate and maintain Generally Accepted Accounting Principals
and standards for local government.
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Donor support:
Seed-funding for start up of the association and/or contract the
association (once founded) to conduct donor-sponsored training
courses. Technical assistance on generally accepted accounting
principles and standards.
.
6.2.2. Entity Level
(16a) In addition to explaining the concept of the Local Government Finance Board during
socialization of RPP Pengelolaan dan Pertanggungjawaban Daerah, MOHA should
provide short on-site consultations to local governments, on request, to assist them to
design the appropriate structure based on local financial management systems and
capabilities.
Donor support:
Support 1-2 day on-site training/technical assistance sessions of
MOHA/MOF staff to assist local governments to design
appropriate Local Government Finance Board organizational
structures.
(17a) In those local governments which do not implement a Local Government Finance Board,
they should still seriously consider consolidation of at least the routine and development
budgeting functions.
Donor support:
Where donors work directly with local governments, they
should support improving the local budget process accordingly.
(18a) Local government finance professionals should create a professional association. This
could be facilitated, but not dominated by MOHA MOF, Association of Public
Accountants and others.
Donor support:
see 13a, above
(20a) Broad dissemination of the new PDPP guideline and targeted training (including a large
component of on-the-job training) to local governments requesting such support
Donor support:
While USAID is planning to extend the PDPP pilot
implementation from the current 8 local governments in East Jawa
to provide extensive training to up to 8 additional local
governments on 2001-2, the needs for additional donor support to
other local governments are huge. Only limited resources
currently available under Clean-Urban to expand in East Java.
(20b) Broad dissemination of the new PDAM Corporate Planning guideline and targeted
training to PDAMs requesting such support. (PERPAMSI training program for PDAM
corporate planning will need external support to be disseminated broadly and quickly.)
Donor support:
Provide support to PERPAMSI to conduct broad training
program.
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(22)
Upgrade Local Government Finance Training System:
(22a) Short-term training to socialize the new local government finance system and its
operational implications should be given clear priority over longer-term skills-building
training.
(22b) Review existing KKD, LKD and other training materials and update to be in accordance
with the new laws and regulations.
(22c) Develop revised training modules and training materials for local government finance
training at Diklat Prop. This will require detailed review of existing materials and
updating to be in consistent with the new laws and regulations and the skills/capabilities
implied by the new local government finance system.
Donor support:
To build upon this report and the Interim Report of ADB TA-3178
report on Training Needs Assessment, technical assistance of a
medium-term duration is required to assist the GOI to develop
an inter-ministerial strategy to upgrade the deficient system that
currently exists. This would require an initial in-depth review of
the existing regional finance training institutions and courses in
order to identify what parts of the exisiting system can be
upgraded and expanded in oreer to quickly and efficieintly
improve the system.
There are massive needs for donor support in implementing such
training but there must first be a rational strategy for making this
investment so that it does not negatively effect the near-term
dissemination of the new laws and regulations.
6.2.3 Individual Level
(21a) Clear career paths/ladders should be established within the environment of local
government finance. Especially with the introduction of the Local Government Finance
Boards, there should be ample opportunities for financial staff to seek promotions within
the financial environment.
Donor support:
Support pilot project to develop career paths (similar to the
CBUIM career mapping project in Urban Services)
(21c) Bagian Kepegawaian should reactivate the system of analisa jabatan that had previously
been in use in several local governments to evaluate (at least annually) the level of skills
and responsibility of each officer in order to determine eligibility for promotions.
Donor support:
There is a need to strengthen skills and expertise of local
governments to use analisa jabatan and other instruments of
organisational analysis as a basis for making more rational
Capacity Building Needs Assessment for Local Governments and Legislatures Regional Finance (August 2000)
78
decisions regarding their organisational structure.11
(22d) Use the completion of selected functional training course and/or certifications as a
prerequisite for promotions.
Donor support:
see 22c, above
6.3 Important but Start-up can be delayed
6.3.1 System Level
(3a)
Central Government should review this policy and its practical implications. Should
central government proceed with this policy, it must clarify the criteria to be used to
identify local governments with unfairly “concentrated” potential for owns source
revenues that will be subject to redistribution by the provincial governments under PP
25/2000. In those effected local governments, the central government must socialize the
rationale for such reallocation in order to gain acceptance of the fairness and justice of
such reallocation.
Donor support:
(6a)
Technical assistance to evaluate the risks of implementing this
policy.
APBD data that local governments will be required to report to central government
should not be in excess of those data elements already specified by the RPP regarding
Management and Accountability for Regional Finance
Donor support:
see 1a,1b,1c, above
(12b) The central government should issue guidelines on how to develop useful performance
indicators, starting with the easiest to measure (typically urban services). The guidelines
would also recommend the use of national standard indicators in addition to locally
developed indicators. These standard indicators could be tied to services that are required
by the minimum standards of service. National, standard indicators will allow the public,
the central government, and local governments themselves to compare performance
between regions.
Donor support:
Technical assistance to MOHA to develop and pilot test practical
indicators that are tied to the performance-oriented budgeting
concept. Following successful pilot test, support development of
guidelines and training.
(12c) To allow for regional comparisons, develop a system of information exchange of
performance and, ideally, a data base. This system could be developed by the central
government, university networks, and/or local government associations.
11 See also Report FR/7 on Organisational Development.
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Donor support:
12d)
A medium term technical assistance and training project is needed
to support the design of a practical and useful performance
indicators system based on some work already done in this field
and appropriate to the needs and capacities of local governments.
After pilot testing, training should be supported to introduce the
concepts in a number of local governments interested to
participate. (see Final Report Urban Services B3.1 donor support
no 11c)
In the longer term, develop benchmarks for all major local government services similar
to those now being developed for PDAMs under the IBRD/PERPAMSI Benchmarking
Project. Such benchmarks should allow local governments to make meaningful
comparisons of their own performance verses local governments with similar topography,
city sizes, technical systems for service provision and cost structures.
Donor support:
The next phase after 12c would be to support the establishment of
a database at some sustainable institution.
(12e) Make the availability of information on performance widely known. Make available the
information in easily accessible places. The Information Center for Social Safety Net
Programs that are now available in all local government BAPPEDAs have been providing
information on budgets, implementation guidelines, and performance and could be
expanded to include information on performance and budgets of public services.
Consumer groups, NGOs, and City Forums should be encouraged to access the
information and review it.
Donor support:
Expansion of 12c, if warranted
(13b) Conduct workshops for local government finance professionals to introduce the concepts
of modified-accrual accounting and double-entry book keeping practices and provide
more in-depth training course to local government finance officers who plan to
implement these approaches in the near future.
Donor support:
The next phase after 13a, the technical assistance should introduce
the concept of modified-accrual basis and double-entry book
keeping practices and more in-depth training .
(22d) Invest in Training of Trainers, especially at Diklat Prop, to quickly improve of the
number and quality of the trainers for local government finance.
Donor support:
The next phase of 22c, technical assistance should continue to
create the trainer in each Diklat Prop, Universities and other
associations.
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(22e) Due to the lack of competent trainers at Diklat Prop, local government finance training
should be conducted jointly with local universities, the local government finance officer’s
associations or other institutions
Donor support:
see 22d, above.
6.3.2 Entity Level
(19a) Workshops and training should be conducted to enhance the role of Dipenda in
coordinating collection of taxes and charges; especially in maintaining and disseminating
data related to taxes and charges.
Donor support:
see 22c. above especially in maintaining and updating the data
related to taxes and charges.
(21b) Each local government finance position should have a job description linked with
minimum qualifications for that position.
Donor support:
Not applicable
6.3.3 Individual Level
None
6.4 Secondary Priority (Impact will only be realized in medium-to long-term)
6.4.1 Systems Level
(7c)
In the medium-term, laws and PPs should clearly define which ministries are responsible
for exactly which functions. The existing practice (for example in PP 25 /2000 of
specifying central government responsibilities without clearly assigning these
responsibilities to specific ministries) encourages an unproductive and confusing
competition among concerned ministries to try to control and/or regulate these functions.
This results in the issuance of conflicting KepMen and other ministerial instructions which
confuse local governments. Capacity building to support the drafting of more effective laws
and government regulations should focus on SekKab, SekNeg and the DPR legislative staff
and consist of international study tours for very senior officials as well as in-depth legal
drafting training courses based on international standards for mid-level staff.
Donor support: Support legislative training programs, as describe above.
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