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nets that could automatically be activated in an economicdownturn – an additional argument for having suchprogrammes in the future.It should be emphasized, however, that simplyincreasing social spending will not in itself improve socialservices. In the past public spending has often been oflow quality, compromised by widespread corruption andrent-seeking – though this inefficiency and the consequentdrain on public resources was masked by economicgrowth and by oil revenues that sustained public finances.In the current, more constrained environment thegovernment will have to pay much more attention towastage and cost effectiveness.It will also have to tackle corruption. Evidence fromcross-country comparisons suggests that corruption notonly reduces efficiency it also alters the composition ofgovernment spending – tending to reduced education andhealth investment, presumably because compared withother areas these expenditures offer fewer opportunitiesfor rent-seeking. 71 Fortunately in a more open anddemocratic environment fiscal policymaking can besubjected to greater scrutiny and the rigours of democraticdebate and can also be tailored to the new realities ofdecentralization.Social spending under fiscal decentralizationFollowing decentralization from 2001, Indonesia hasnow experienced nearly three years of regional autonomythat has shifted much of the responsibility for publicservices to the local level. And whereas in the past flowsof funds from the centre to the regions generally took theform of earmarked grants the new fiscal framework relieslargely on a general grant. Along side fiscal decentralization,the country has switched to a new accountability systemat the local level, with the head of the region being electedby regional parliaments, which in turn are elected bypopular vote.This new system entails certain risks but these shouldbe outweighed by the benefits. In place of the earlier topdowntechnocratic approach to resource allocation, thenew system allows available resources to be bettermatched to local needs. Chapter two of this report hasdemonstrated that regions differ not just in their overalllevels of human development but also in their patterns ofdeficiency in the different dimensions of humandevelopment. Each region will thus have its own priorities.In education, for example, some regions have an excellentrecord in primary enrolment, but have done rather poorlyin junior secondary enrolment. 72The new system fosters a rights-based approach tohuman development since it should allow local people toparticipate in decision making on resource allocation andprogramme implementation. This is not just a democraticimperative, it also has economic benefits. The differentareas of human development and poverty alleviation havesynergistic relationships –interventions in one can reinforcethe impact of another (Box 3.3, p. 28). For example, ifthe aim is to increase school enrolment, investment inbuilding more schools will be much more effective if it isaccompanied by efforts to reduce the extreme povertythat often keeps children away from school. However, itis difficult for planners to devise a combination ofinterventions based simply on economic criteria. Localpeople, with superior information about the complexitiesof local needs are in a better position to achieve this balance.Local governments can also be more flexible andresponsive when it comes to budgeting. When drawingup budgets, central planners tend to replicate previouspatterns of expenditure, making incremental adjustments.At the local level, on the other hand, there should be muchgreater scope for a fresh approach – starting again fromscratch with what is called ‘zero-based’ budgeting (seeBox 5.1). When the aim is to make a distinct break withthe past this approach helps reorient public spending muchmore towards human development.Decentralization does, of course, also entail risks. Thereis no guarantee that opportunities for local level flexibilitywill be used in a positive way. While some regions arealready forging ahead with innovations in service delivery,others have allocated only meagre amounts to health andeducation. One way to address this is by establishingminimum service delivery standards. However, thesestandards will need to be supported financially – throughequalizing grants from the central government to thepoorest districts.Another danger of decentralization is that corruptionand rent-seeking at the centre will be replicated, in aneven worse form, at the local level – again not only wastingresources but also jeopardizing the prospect of betterresource allocations. Corrupt local governments may, forexample, show a bias towards large construction projectson which it is easier to collect substantial bribes, ratherthan towards routine expenditure such as textbook supplyor teachers’ salaries. The spending priorities can thuseasily get distorted.Decentralization also requires stronger local institutions.People’s needs can be reflected in resource allocationsonly if there are institutional mechanisms that canarticulate such needs. Local people will need to worktogether in community-based organizations through whichthey, and not just local elites, can have a say overallocations. They can also better identify impact ofmisgovernance and corruption – whether in the poor qualityof schooling or health care or in the weak implementationof local development projects. They are therefore in abetter position to make well informed criticisms anddemand better governance.71 See Mauro (2002).72 For example, Bangkalan district in East Java has a high primary enrolment ratio of 98%, but its junior school enrolment rate is only about 40%, compared to the district averageof about 70%. The situation is similar in Pandeglang in West Java.54National Human Development Report 2004