Local Government Organization and Finance: Indonesia
237
Rp trillion at constant 1997 prices
percent in financial year (FY) 2000 to about 27 percent in FY 2001. In FY 2002, the subnational share rose to more than 30 percent of the total. If national spending on debt service is excluded, subnational expenditures accounted for more than 40 percent of government spending in FY 2002. In absolute terms, local government expenditures and revenues have also been on the rise. As can be seen from figure 7.1, local government expenditures more than doubled in 2001 in real terms and then rose by another 18 percent and 20 percent in 2002 and 2003. Law 33/2004 has increased the subnational share to a minimum of 26 percent of net domestic revenue beginning in 2008. Provincial and local government shares of the total pool are not fixed in these revisions but will be regulated in a government regulation. Perhaps more important than the quantitative changes are changes in the sources of finance. Before the recent decentralization initiatives, the central government relied heavily on earmarked grants to finance subnational recurrent and development expenditures.7 Transfers remain the main source of local government revenues, but the current system relies primarily on untied transfers over which local governments have full discretion. Specifically, the current revenue framework defines four principal revenue categories: (a) own-source revenues, consisting of tax and nontax revenues; (b) the balancing fund, consisting of the General Allocation Fund (Dana Alokasi Umum, or DAU) grant, the Special Allocation Fund (Dana Alokasi Khusus, 120 110 100 90 80 70 60 50 40 30 20 1997/98
1998/99 1999/2000 total expenditure
2001
2002
2003
total revenue
Source: Authors’ chart based on data from Lewis and Pradhan 2005. Note: In 2000 the Indonesian government changed the dates of the fiscal year to be consistent with the calendar year. Fiscal years now start on January 1 and end on December 31. Prior to this change, both calendar years were given for each fiscal year, thus FY 1999/2000 refers to the fiscal year starting on April 1, 1999, and ending on March 31, 2000.
F I G U R E 7 . 1 Local Government Expenditures and Revenues, FY 1997–FY 2003
