Govt will urge regions to spend on development

Urip Hudiono, The Jakarta Post, Jakarta

A minister says the government will help the regions secure the more expeditious approval of their budgets from their local councils, and is devising policies to ensure that development funds are actually spent on time, rather then being parked in central bank treasury bills.

"We acknowledge that a number of regions are experiencing technical problems in having their budgets approved by their local councils, and in disbursing the allocated funds. We will help them out," Coordinating Minister for the Economy Boediono said Monday.

He did not elaborate on how the government planned to do this, but said he expected that the period between the disbursement of government development funds to the regions and the approval of their local budgets could be shortened, thereby discouraging regions from parking idle funds in central bank treasury bills and government bonds.

This would also be in line with a new government policy of approving regional projects and disbursing the necessary monies out of the General Allocation Fund (DAU) by as early as possible at the beginning of the year.

Regional budgets -- many of which still rely to a large extent on assistance from the General Allocation Fund -- are usually approved by local councils only during the first quarter of the current year.

Several regions have, however, adjusted their budgetary cycle in line with the latest central government policy, including Jakarta province, whose council approved the 2007 local budget in December 2006, as opposed to April as had been the case in previous years. The national budget is usually approved in October of the previous year.

The government has since last year been speeding up project approvals and development fund disbursements to help spur higher economic growth from government spending.

By January 2, it had disbursed Rp 763.5 trillion (US$84.8 billion) under the 2007 national budget -- Rp 504.8 trillion in central government spending and Rp 258.7 trillion for the country's 34 provinces.

Growth in 2006 failed to get a kick-start after consumer spending was stymied by the 2005 fuel-price hikes, and government spending remained slow, despite the government having attempted to speed up project approvals and funding disbursements. Bank lending also remained lower than expected.

Bank Indonesia warned that many regions had parked funds -- totaling some Rp 43 trillion -- in central bank treasury bills through their regional development banks as a result of the fact that many projects were not fully ready to be rolled out. The antigraft drive also led to claims by officials that they were afraid to proceed with projects for fear of later being indicted for corruption.

The central bank currently issues one-month and three-month Bank Indonesia Certificate (SBI) treasury bills, the total amount of which currently stands at some Rp 200 trillion.

Separately, Finance Minister Sri Mulyani Indrawati said Monday that the government was also considering the putting in place of budgetary mechanisms that would prevent the regions from parking funds in treasury bills in the future so as to ensure that the money was actually spent on development projects.

"We are currently discussing such measures with the Home Affairs Ministry," she said, while declining to elaborate.

In the banking sector, BI Governor Burhanuddin Abdullah recently said that the central bank was considering a carrot-and-stick scheme to encourage the banks to disburse their excess liquidity as loans rather than investing it in central bank bills and government bonds.