The evolving role of the central government in economic planning and policy making in Indonesia

Abstract

This paper examines the changing role of the central government in the final years of the Soeharto era and since 1998. It argues that although economic policy making is now conducted in a very different political climate from that of the Soeharto period, there remains a powerful institutional legacy. In addition many old problems persist. The paper examines the evolving role of the national planning process and looks at the implications of the new law on national planning, especially for the division of labour between the national planning agency (Bappenas) and the Ministry of Finance. It also looks at some ongoing problems that are central to the economic policy process: the need for civil service reform and for a stronger audit process at all levels of government, and the issue of relations between the centre and the regions.

Notes

¹Throughout this paper, the term ‘district’ includes districts (kabupaten) and municipalities (kota, formerly known as kotamadya).

²It can be argued that this change was the result of the sharp decline in aid inflows after 1999, rather than of deliberate government policy.

³The fall in the ratio of debt to GDP after 1998 was due partly to the appreciation of the rupiah.

⁴For a summary of the main points of the law see Ginting (2003).

⁵See Abimanyu (2004) for a discussion of these changes. In the 2005 budget, development expenditures are estimated to be Rp 74.7 trillion, broken down under the new format into capital expenditures (Rp 42.7 trillion), social assistance (Rp 14.2 trillion), equipment (Rp 13.6 trillion) and salaries and ‘other’ (Rp 4.2 trillion). This makes it much clearer how much of the development budget is devoted to salary supplements.

⁶Early in 2005, the government announced its intention to increase the prices of some types of fuel by up to 40% (Soesastro and Atje 2005: 18); this still leaves domestic prices far below world prices, implying the continuation of very high subsidies.

⁷See Kompas, 18 August 2004, for an estimate of the net impact on the budget of an increase in the oil price from $22 to $35/barrel. The net loss was estimated to be Rp 1.91 trillion. By April 2005, the oil price had reached about $58 per barrel.

⁸For a detailed discussion of the role of officials in the Department of Finance and their foreign advisers in implementing the tax reform legislation, see Heij (2001).

⁹DIP is an acronym for Daftar Isian Proyek (roughly translated as ‘list of project contents’), the budget document drawn up for each development project, setting out details of expenditure disbursements.

¹⁰With the advent of direct elections for the presidency, some of these targets merely reflect campaign promises (Soesastro and Atje 2005: 7).

¹¹A good survey of criticisms of the Indian planning process is given in Sundrum (1983: 286–92).

¹²Government Decree 23/2003, paragraph 4, limited the total stock of government debt at the national and regional level to 60% of GDP; budget deficits, both national and regional, should not in sum exceed 3% of GDP.

¹³The full text can be downloaded from <www.bappenas.go.id>.

¹⁴All these documents can be found on the Bappenas website <www.bappenas.go.id>.

¹⁵The new minister in charge of Bappenas, Dr Sri Mulyani Indrawati, seems to be aware of the problem, and has urged greater cooperation between the two agencies (Indrawati 2004). Since the tsunami in late December 2004, Bappenas has taken a high-profile role in planning the reconstruction efforts in Aceh; one assumes it will be playing a similar role in the reconstruction of Nias following the devastating earthquake in March 2005.

¹⁶It has been suggested that the various planning agencies at the centre and in the provinces could play a useful role as policy think tanks, proposing and analysing policy reform initiatives for both central and local governments.

¹⁷This quote from Nigel Lawson is taken from Offer (2003: 4).

Additional information

Notes on contributors

Anne Booth

I am grateful to the Economics Division, Research School of Pacific and Asian Studies, Australian National University (ANU), and the Institute of Southeast Asian Studies, Singapore, who provided me with academic hospitality in December 2004 and January 2005, when most of this paper was written. A seminar to the Indonesia Study Group at the ANU in December 2004 helped me to sort out my ideas; I also received valuable comments from Peter McCawley and two referees.