The Ministry of Finance has converted the General Allocation Funds (DAU) for three provinces and three districts/municipalities from direct transfer to securities. The total value of the converted funds is IDR 359 billion. A number of issues have prompted the ministry to adopt this policy.
The ministry’s Director General of Financial Balance Boediarso Teguh Widodo said that the three provinces in question are West Java, Banten, and Riau. The funds involved amount to an estimated IDR 40 to 60 billion. West Java is the recipient of the largest amount funds (IDR 61 billion), and one of the districts/municipalities whose General Allocation Fund will be converted to bonds is Kutai Timur.
"That's the General Allocation Fund for April," said Boediarso after opening the "Workshop on Preparation, Submission and Assessment of Proposed Special Allocation Fund (DAK) for the Allocation for the 2017 Fiscal Year" in his office, Jakarta, Monday (2/5). (Read: Government to Cut Village Fund due to Lack of Report).
He added that there are three reasons for converting the funds. First, the cash position of the regions in question is unreasonable or exceeds the amount needed for three months’ of operating and capital spending. Second, the absorption of these funds is above the national average. Third, its position exceeds 100 percent of allocation in a year. After making selections based on the evaluation results, it was decided to convert the disbursement of General Allocation Funds to those six regions to securities.
In addition to changing the way these funds are disbursed, the government will cut the Special Allocation Fund (DAK) for regions with slow budget absorption. The decision will be made after the government receives village fund use reports for 2015 and 2016. The reporting will use innovative applications and will be submitted simultaneously in the second quarter of 2016. (Read: MoF Prepares Sanctions for Local Governments with Slow Budget Utilisation).
On the same occasion, Boediarso also announced changes to the management of Special Allocation Funds in 2017, by adopting three policies. First, an increase in the amount funds from IDR 58 trillion to IDR 85.4 trillion this year, and a proposed increase to nearly IDR 100 trillion in 2017. Second, strengthening of the Special Allocation Fund mechanism based on regional proposals. Third, improving Special Allocation Fund performance and reporting.
The government will improve regional and village fund transfers in 2017, and revise the weighting in the calculation of Special Allocation Funds to achieve equal distribution of the funds across regions by taking into account the fiscal condition and the challenges facing the regions. It will also improve the quality the disbursement of revenue sharing funds (DBH).
The next step is to strengthen the physical allocation based on regional proposals by taking into account village fund absorption performance and revenue in the previous year, as well as preparing incentives for regions that perform well in managing public funds. Also, increasing the village fund budget by up to 10 percent outside the regional transfer in accordance with the 2019 roadmap. (See also:Disbursement First Phase Village Has Not Completed).
Previously, the government planned to postpone the disbursement of village funds and regional transfers because only a few local governments had reported the use of these funds. If this continues, the government plans to reduce or even cut the village fund budget with low realisation.
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