Public spending on infrastructure development in Indonesia is not optimal. Sofyan Djalil, Indonesia's National Development Planning Minister as well as Head of the National Development Planning Agency (Bappenas), says immature and non-integrated planning between ministries and other government agencies as well as between the central and regional governments cause inefficient and non-optimal infrastructure spending. Non-optimal infrastructure development implies that Indonesia's overall economic growth as well as social development cannot achieve its full potential.
Djalil spoke these words when opening the Musyawarah Perencanaan Pembangunan Nasional event ("National Development Planning Deliberation") on Wednesday (20/04) in Jakarta.
In the 2016 State Budget the Indonesian government set aside IDR 313.5 trillion (approx. USD $24 billion) for government spending on the nation's infrastructure development. This amount accounts for nearly 15 percent of total envisaged public spending set in the 2016 State Budget. Since Joko Widodo became Indonesia's seventh president in October 2014 the Indonesian government has been able to allocate an increasing amount of funds to infrastructure spending. This was (partly) made possible by reforming the nation's costly fuel subsidy program. In January 2015 the Indonesian government basically scrapped gasoline subsidies, while imposing a fixed IDR 1,000 per liter subsidy for diesel.
Efforts to improve government spending on infrastructure are on the way. Djalil said that - starting from 2017 - the central government will adopt the Money Follows Program system, meaning that those ministries and government agencies that do not have a well designed priority program will not receive a substantial amount from the infrastructure development budget. In fact, Djalil threatened that those ministries and agencies that not come up with well designed priority programs at all may not even obtain operational funds.
Next year the central government will receive all priority programs of the relevant ministries and agencies and - if approved - state funds will be transferred to fund these programs. In case the funds allocated in the State Budget are not enough to finance all priority projects, then the government will need to make a selection among the programs.
As an example of immature planning (that will not be eligible for funds from the state budget next year) Djalil said "for instance, if there is a plan for the establishment of an industrial zone. What about the infrastructure around this zone? What about land acquisition? If such matters are not orderly dealt with, then the central government will not disburse funds from the budget as this will only lead to inefficient usage of state funds." Particularly land acquisition is a notorious obstacle to infrastructure development in Indonesia and can lead to a multi-year delay of the project or to the cancellation altogether.
Funds Allocated to Infrastructure Spending in the Government's State Budget:
Indonesian Deputy Finance Minister Mardiasmo added that there should be a higher degree of cooperation and coordination between the central government and regional governments in order to optimize the productivity of state funds. It would also help considerably if local governments focus on better budgeting, especially regarding expenditures, while ministries and government agencies should cut spending on non-infrastructure spending such as the procurement of officials' cars, and redirect such funds to infrastructure development as this will cause a multiplier effect and benefits the society as a whole.
Another issue is the rising number of villages (in Indonesian: desa), or the lowest level of government administration. By law it is stipulated that each (official) desa should obtain at least IDR 1 billion (approx. USD $76,000) from the annual state budget. However, the mushrooming of new desas puts pressure on the central government's budget. Therefore, Mardiasmo proposes to impose a moratorium on the establishment of new desas. In the 2016 State Budget the government allocated IDR 46.9 trillion (approx. USD $3.6 billion) for the village funds.