Decentralization of Forest Administration in Indonesia, Implications ...

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Fiscal Balancing and the Redistribution of Forest Revenues
The frustration that officials in timber-producing districts and provinces have
expressed over how the DAK-DR have been allocated has been exacerbated by the
non-transparent and often irregular manner in which the new framework has been
implemented thus far. In particular, officials in many districts have complained that
DAK-DR disbursements over the past three years – as well as transfers of PSDH
and IHPH – have occurred quite late in each budget year. 22 During 2001-2003, the
Ministry of Finance allocated the regions’ shares of the DAK-DR to the provinces
late in the year, between September and November. 23 Moreover, in 2002 DAK-DR
allocations were made and transferred to the regions in two stages, with the first
transfer occurring in November 2002 and the second transfer only occurring in June
2003 (Resosudarmo 2004b). MoF officials have attributed the delays to difficulties
in reconciling the amount of fees that producing regions reported and the amount
actually received by the central government. 24
As DAK-DR allocations (and PSDH transfers) are important components of
many district budgets, the late disbursement of funds complicates fiscal administration
at that level. In addition, it can adversely affect the implementation of forest
rehabilitation and district development projects. This is of particular importance
when those involve seasonal activities such as tree planting, which may need to be
conducted in the dry season during the early and middle months of the year. It should
be noted, however, that whilst many district stakeholders were dissatisfied with the
timing of DAK-DR transfers, they are nevertheless allowed to roll over the funds
to the following year. That is, DAK-DR redistributed to the regions in a particular
budget year can be used to finance forest and land rehabilitation activities in the
following budget year, if necessary.
In practice, DAK-DR for a particular budget year are typically used to finance
rehabilitation and reforestation activities in the following year. For example, in two
case study districts in Kalimantan, these funds were recorded in the following budget
year due to uncertainties over the magnitude and the timing of their actual allocation/
disbursement. For example, DR for 2002 were used to finance rehabilitation and
reforestation activities in the year 2003, and 2003 funds were used to carry out
activities implemented in 2004. Allocations for year 2003 were recorded as a revenue
component in the districts’ 2004 budgets, rather than the 2003 budgets.
During 2001 and 2002, dissatisfaction with the manner in which the DAK-
DR and other forestry revenues were redistributed under decentralization led some
district governments to temporarily circumvent the fiscal arrangements specified
in Law 25/1999 and its implementing regulations. Instead of adhering to the fiscal
balancing law’s requirement that forestry royalties and reforestation funds be paid
directly to the central government’s accounts in Jakarta, some district governments
instructed logging companies to pay all or a portion of their PSDH and DR obligations
directly to them. These district governments then sought to retain these fees rather
than submit them to central government accounts. 25
The MoF has actively warned these district governments to comply with
national regulations and to transfer the PSDH and DR payments they have retained.
In addition, the MoF has worked closely with the Ministry of Home Affairs, the
Judiciary and the Regional Monitoring Agency (Badan Pengawas Daerah, or