Decentralization of Forest Administration in Indonesia, Implications ...

Ida Aju Pradnja Resosudarmo, Christopher Barr, Ahmad Dermawan, and John McCarthy 65
The General Allocation Fund – DAU
The core of Indonesia’s new system of inter-governmental transfers, as defined by Law
25/1999, is the DAU. This fund is allocated from the national government budget,
according to a specified formula, “with the objective of equalizing the financial
capacity across regions to fund their respective expenditure needs within the context
of implementing decentralization” (Art. 1). The fiscal balancing law requires the
DAU to amount to at least 25% of total domestic revenues, as recorded in the national
budget (Art. 7). It also specifies that the central government will allocate 10% of the
DAU to provincial governments and 90% to district and municipal governments (Art.
7). For all practical purposes, the DAU has effectively replaced the SDO and Inpres
Umum block grants that the central government transferred to regional governments
during the New Order period, although the DAU is structured heavily in favour of
districts over provinces. The DAU is generally used by recipient governments to
cover routine expenditures, particularly the salary of civil servants.
Law 25/1999 and its implementing regulations have established a process that is
meant to ensure that revenues transferred through the DAU are distributed equitably
(though not necessarily evenly) among rich and poor regions. In principle, this is to
guarantee that resource-poor regions are also able to participate in development, in
spite of the fact that the country’s regional autonomy laws give resource-rich regions
greater control over the revenues generated within their jurisdictions. To this end, the
DAU is calculated in accordance with a ‘balancing formula’ in which each district and
province is given a weighting. The formula is designed to take into account the ‘fiscal
gap’ (celah fiskal), i.e. each region’s relative expenditure needs, on the one hand, and
its relative economic potential (or fiscal capacity), on the other hand. Indicators used
to assess a region’s relative needs include population, area, geographical location and
average income, with particular attention given to the poorer strata of the population.
Indicators used to assess the economic potential of a region include industrial base,
natural and human resources, as well as Gross Regional Domestic Product (Art. 7,
Elucidation).
In October 2004, the government made a number of changes to Indonesia’s
regional autonomy and fiscal balancing laws with the adoption of Law 32/2004 on
Regional Governance and Law 33/2004 on Fiscal Balancing Between the Central
Government and Regional Governments. Under Law 33/2004, the DAU will amount
to at least 26% of total domestic revenues as recorded in the national budget. The
amount of DAU each region will receive depends on the ‘fiscal gap’ and ‘base
allocation’ (alokasi dasar) - which depend on the number of civil servants in the
region.
The Special Allocation Fund – DAK
A second category of revenues under the Balancing Fund umbrella is the Special
Allocation Fund, or DAK. This consists of revenues from the central government
budget that are allocated to regional governments to assist in financing ‘special needs’
(Art. 8). In principle, these include needs that cannot be predicted using the general
allocation formula, as they are specific to a particular region. These may include,