Decentralization of Forest Administration in Indonesia, Implications ...

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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,
66 Fiscal Balancing and the Redistribution of Forest Revenues for example, activities related to fulfilling needs in transmigration areas, investment in new infrastructure, road development in isolated areas, construction of irrigation and primary drainage channels (Art. 8, Elucidation). These ‘special needs’ can also include ‘national commitments or priorities’. However, the DAK is allocated from the central budget depending on the availability of fiscal resources. Notably, Law 25/1999 specified that the Reforestation Fund is to be administered under the DAK, and specifically used for activities related to forest and land rehabilitation (Rehabilitasi Hutan dan Lahan, RHL). Law 25/1999 stipulated that 40% of DR monies shall be made available to the region(s) in which these revenues were generated. The remaining 60% is allocated to the central government. The allocation and uses of DR are described in the next section. Under Law 33/2004, the Reforestation Fund was reclassified so that it would be administered as ‘Shared Revenues’ (Dana Bagi Hasil). As such, it is now no longer treated as part of the DAK. The share of the central government and region(s) remain the same. Shared Revenues from Land and Natural Resource Taxes In addition to establishing the system of inter-governmental transfers involving the DAU and DAK, Indonesia’s fiscal balancing law substantially revised the manner in which natural resource royalties and land-related taxes are shared among the central government, provinces, districts, and municipalities. These revenues range in scale from the relatively modest Land and Building Tax (Pajak Bumi dan Bangunan, PBB) and Transfer Fee on Land and Building Rights (Bea Perolehan Hak atas Tanah dan Bangunan, BPHTB) to a host of far more substantial royalties associated with natural resource extraction, including forestry. The legislation explicitly seeks to address the demands of resource rich regions to enjoy a larger proportion of the revenues derived from the resources extracted within their boundaries. As indicated in Table 4.3 below, the law sets out the specific percentage of revenues generated from oil, gas, mining, forestry and fisheries exploitation to be divided among the national, provincial, and district governments. Under this formula, the regions’ share of royalties associated with most types of natural resource extraction has significantly increased since the fall of the New Order regime. In the case of royalties associated with petroleum and gas, the national government now retains 85% and 70% respectively - compared to 100% during the New Order period. In the forestry sector, both the HPH License Fee (IHPH) 10 and the Forest Resource Rent Provision (PSDH) are divided so that 20% goes to the national government and 80 % is returned to the regions. With respect to the IHPH fee, the 80% earmarked for the regions is divided between the province (16%) and the district/municipality in which the timber concession is located (64%). Similarly, the regions’ share of the PSDH is divided among the province (16%), the producing district or municipality (32%), and other districts or municipalities in the province (32%). In 2001, the Indonesian government approved a special natural resource sharing arrangement for the provinces of Nanggroe Aceh Darussalam (NAD, formerly Aceh) and Papua (formerly Irian Jaya). Law 18/2001 on Special Autonomy for NAD
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Decentralization of Forest Administ
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National Library of Indonesia Catal
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iv 4.5 Forest Revenue Sharing 69 4.
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Preface Indonesia is currently ente
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Acknowledgements This study is base
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Abbreviations AAC ACIAR ADEKSI APBD
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IPHHBK IPHHK IPJL IPK IPKR IPKMA IP
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Glossary Adat, customary or traditi
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Forests and Decentralization in Ind
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10 Forests and Decentralization in
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12 Forests and Decentralization in
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Page 33 and 34: Chapter 2 Forest Administration and
Page 35 and 36: 20 Forest Administration and Forest
Page 47 and 48: 32 Origins and Scope of Indonesia
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116 The Impacts of Decentralization
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122 Decentralization and Recentrali
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References Agrawal, A., Ostrom, E.
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136 References Casson, A. 2001a. De
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138 References GFW/FWI. 2002. The S
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140 References Manurung, E. G. T.,
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142 References Ribot, J. C. 2002. L
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144 References Van Zorge Report. 20
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146 Annex 1. Timeline of events tha
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148 Annex 1. Timeline of events tha
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Annex 2 Indonesian Laws and Regulat
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152 Annex 2. Indonesian Legislation
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154 Annex 2. Indonesian Legislation
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156 Annex 3. Distribution of Shared
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Since the collapse of Soeharto’s
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