OECD Economic Surveys: Indonesia 2016 (eBook)

Oecd (Autor)

eBook Download: PDF

2016 | 1. Auflage
138 Seiten
OECD Publishing (Verlag)
978-92-64-26506-6 (ISBN)

Infos

This 2016 OECD Economic Survey of Indonesia examines recent economic developments, policies and prospects. The special chapters cover: Regional Development and Public Spending.

Inhalt

Table of contents 5
Basic statistics of Indonesia, 2015 10
Abbreviations 11
Executive summary 13
The policy framework has been improving rapidly 14
Economic growth has slowed 14
Boosting the efficiency of public spending would free up resources for more productive uses 14
The government is small 14
The performance of sub-national governments could be improved 14
Inequality across provinces is large 14
Main findings 15
Key recommandations 15
Assessment and recommendations 17
Recent macroeconomic outcomes and short-term prospects 18
Table 1. Selected indicators for Indonesia 19
Figure 1. Components of GDP growth 20
Figure 2. Current account balance 20
Figure 3. Prices of selected commodities 20
Figure 4. The market exchange rate and the real effective exchange rate 21
Figure 5. The components of CPI inflation and the inflation target 21
Figure 6. Official and long-term interest rates, nominal and real 22
Table 2. OECD economic projections for Indonesia 22
Table 3. Possible extreme shocks to the Indonesian economy 23
Figure 7. Central government revenue, expenditure and balance 24
Figure 8. Government debt, servicing costs and implicit interest rates 25
Figure 9. Change in government spending 25
Figure 10. Difference between projected and realised government revenues 26
Equality and inclusiveness 27
Advancing industrialisation by getting the fundamentals right 28
Figure 11. Indonesia’s services trade restrictiveness, 2015 30
Figure 12. Indonesia’s global competitiveness rankings, aggregate and subcomponents, 2016 30
Table 4. Economic reform packages, September 2015 to August 2016 31
Figure 13. Ease of Doing Business subcomponents and the cost of registering a property 32
Table 5. Ease of Doing Business rank and subcomponents for selected countries, 2016 32
Figure 14. Index of comparative quality of infrastructure, selected countries, 2016 33
Figure 15. Indonesia’s energy mix 34
Figure 16. FDI net inflows in selected countries, 2000-15 35
Figure 17. FDI restrictiveness for selected countries, 2015 36
Figure 18. The most problematic factors in doing business in Indonesia, 2016 37
Figure 19. Indonesia’s progress in public governance, 1996-2015 38
Figure 20. Labour market rigidities in selected countries 39
Promoting regional development 40
Figure 21. Per capita GDP across Indonesia's provinces, 2015 40
Figure 22. Public employment across Indonesia’s provinces, 2014 42
Improving public spending 42
Figure 23. Prevalence of stunting in children under five years and GDP per capita, 2013 44
Ensuring food resilience 45
Figure 24. Indonesian and international rice price 46
Deforestation and other environmental challenges 46
Figure 25. Environmental indicators 47
Figure 26. Indonesia's share and growth in world fisheries 48
Bibliography 49
Annex A.1. Progress in structural reform 53
Annex A.2. The ore export ban and mining sector divestment rules 56
Thematic chapters 59
Chapter 1. Decentralisation to promote regional development 61
Table 1.1. The levels of government in Indonesia, as of end-2015 62
Progress in regional development has been mixed 64
Figure 1.1. Per capita GDP of regions in selected countries, 2013 65
Figure 1.2. Poverty severity and convergence in poverty across Indonesian provinces 66
Figure 1.3. Provincial health care indicators, 2014 67
Figure 1.4. Treatment success rate of pulmonary tuberculosis, 2014 67
Figure 1.5. Variation in household access to safe water, 2013 68
Figure 1.6. Rural-urban student performance differentials, selected countries 69
Figure 1.7. Variation in expenditure on education across and within provinces, 2012 70
Regional infrastructure 70
Figure 1.8. Variation in household access to electricity across and within provinces, 2013 71
Figure 1.9. Road disrepair and road density by province 71
Existing government programmes for regional development 72
Figure 1.10. Minimum wages and nominal wage growth across provinces, 2015 74
Regional administrative fragmentation continues apace 75
Figure 1.11. Number of sub-national administrative units in Indonesia since 1955 76
Figure 1.12. Number of public servants by province, 2014 77
Figure 1.13. Village population size, 2010 78
Some fiscal aspects of decentralisation could be improved 79
Figure 1.14. Revenue and expenditure shares by level of government, 2015 79
Figure 1.15. Sub-national government revenues by source, 20151 80
Box 1.1. Formula for the distribution of the General Allocation Fund (DAU) 81
Strengthening revenue raising in the regions 83
Figure 1.16. Sub-national own-revenue as a share of total government revenue, 2014 84
Figure 1.17. Sub-national government own-source revenues (PAD), 2009 to 2015 84
Box 1.2. The principles of optimal regional taxation 85
Measures to improve the provision of infrastructure in the regions 86
Imprecise division of responsibilities across levels of government 87
A complicated regulatory environment for business 87
Figure 1.18. Variation in the cost of a construction permit across major Indonesian cities, 2012 88
Recommendations to refine decentralisation and boost regional development 89
Bibliography 90
Chapter 2. Improving the allocation and efficiency of public spending 95
Introduction 96
Figure 2.1. General government spending and real GDP, 2014 or nearest year 96
Figure 2.2. Government effectiveness in selected countries, 2015 97
Government’s role in development: huge improvements, but important gaps remain 97
Figure 2.3. Electricity indicators in selected countries 98
Figure 2.4. Selected indicators on health and education for Indonesia over a long period 99
Figure 2.5. Education outcomes by international comparison 100
Figure 2.6. Child mortality rate and GDP per capita, 2013 100
Raising revenues will take time 100
Figure 2.7. Tax effort versus GDP per capita, 2011 101
Government public finance 102
Figure 2.8. Public debt in per cent of GDP in selected countries, 2014 102
Box 2.1. Switzerland’s fiscal framework 104
Figure 2.9. Rule of law in selected countries, 2015 106
Box 2.2. The local government performance index 107
Figure 2.10. Statistical capacity in selected countries 107
Enhancing the decentralisation approach 108
Figure 2.11. Central government spending and transfers to the regions 108
Table 2.1. Breakdown of central government transfers to subnational governments by type 109
Figure 2.12. Provincial spending breakdown and public employment density 110
Improving public procurement 112
Streamlining subsidies 113
Figure 2.13. Share of government subsidies in total expenditures 113
Figure 2.14. Breakdown of government subsidies 114
Filling infrastructure gaps in a tight budgetary context 116
Figure 2.15. Infrastructure spending 116
Figure 2.16. Public-private partnership capital stock in selected countries, 2013 117
Strengthening the education system 119
Figure 2.17. Education spending over time 119
Figure 2.18. Education expenditures in selected countries, 2013 or nearest year 120
Figure 2.19. Spending by level of education in selected countries, 2013 or nearest year 121
Figure 2.20. Pupil-teacher ratios in selected countries 123
Expanding health care 124
Figure 2.21. Maternal mortality ratio in selected countries, 2015 125
Figure 2.22. Health spending in selected countries, 2014 125
Figure 2.23. Health service indicators in selected countries, 2012 or nearest year 127
Managing risks underlying the pension system 128
Optimising the social safety net 128
Figure 2.24. Poverty rate in selected countries, 2014 or nearest year 129
Figure 2.25. Public expenditures on social assistance in selected countries, 2012 or nearest year 129
Recommendations to improve the efficiency and allocation of public spending 130
Bibliography 132

Textauszug

Chapter 1. Decentralisation to promote regional development

In 1998 Indonesia embarked on an ambitious course of decentralisation. Over a period of a few years, facilitated by financial transfers from the central government, responsibility for many public services and administrative tasks were devolved to local authorities. This process is continuing. Regional development is now very much in the hands of the four sub-national tiers of government. However, the speed of the devolution means that much is being done without the required accompanying skills, technical capacities, resources and oversight. As a result, while good progress has been made nationally along a number dimensions, outcomes in health, education, infrastructure, corruption and the provision of other social services have not improved as quickly as was hoped, and the variance in results across the regions has been enormous. Rather than simply devolving more and more responsibilities to sub-national authorities, the central government needs to take a more strategic view of regional economic development. This includes monitoring the performance of sub-national governments, providing them with technical assistance where needed, encouraging them to emulate the best performers and in the short- to medium-term using grants to direct spending to priority areas. The inter-governmental transfer framework also would benefit from better oversight and a strategic vision. Moreover, the perverse incentives it embodies are driving rent-seeking and the fragmentation of local jurisdictions. In the longer term the objective should be tax autonomy and transfers based exclusively on block grants although this should be conditional on adequate oversight and administrative capacities within the sub-national authorities. Conflicting and overlapping laws and regulations across levels of government are also inhibiting regional development by obstructing private business development and investment.

Introduction

Indonesia is a vast and diverse country. An almost 2 million square kilometre archipelago spanning three time zones, it is made up of around 17 500 islands, of which around 1 000 are inhabited. Its population of 260 million people makes it the fourth most populous country in the world, and it has over 300 distinct ethnic groups. Moreover, the population is distributed very unevenly, with approximately 55% on the central island of Java, only 7% of the nation’s land mass. While Bahasa Indonesia is the national language and lingua franca, there are around 34 other languages spoken by at least half a million people and 726 spoken languages in total. Cultural and religious diversity is also striking. While Islam is the majority religion (87%), significant populations of Christians (10%), Hindus (2%) and Buddhists (0.7%) are spread across the country. On top of this, Indonesia has been undergoing an impressively smooth political transition to democracy over the past two decades.

This democratic transition has gone hand in hand with a policy of decentralisation. This process accelerated rapidly in response to the Asian economic crisis. The “big bang” decentralisations in 2001 and 2005 handed greater political autonomy to the regions and devolved substantial responsibilities for administration and public services provision from the centre to sub-national governments.

While Indonesia’s national motto, “Unity in Diversity”, binds the country together, the diversity and complexity of the country makes governing especially challenging. This is true not only in a political sense, but also in formulating economic and social policies that promote the well-being of all Indonesians. Since decentralisation, the nation’s diversity takes the political form of 34 provinces and 514 regencies/cities, each having its own government and legislative body (Table 1.1). A further level is 7 160 districts. Since 2005, four out of the five administrative levels of government have had directly elected leaders, the exception being districts, whose heads are appointed by the regencies/cities, one level above. The diversity across these sub-national entities is large. For instance, provincial populations range from 43 million in West Java to 525 000 in North Kalimantan – a ratio of 81:1. The variance in population across the regencies/cities is even greater, with the smallest (Tambrauw in West Papua) having just 6 144 residents, compared to the largest (Bogor in West Java) with 4.8 million. The variance in the size of villages is even greater (see below).

Table 1.1. The levels of government in Indonesia, as of end-2015

Type	Type (Indonesian)	Head of administration (English)	Head of administration (Indonesian)	Number

Central

Central

President (elected)

Presiden

1

Province

Provinsi

Governor (elected)

Gubernur

34

Regency & City

Kabupaten & Kota

Regent & Mayor (elected)

Bupati & Wali kota

416 & 98

District

Kecamatan

Head of district (appointed)

Camat

7 160

Village

Desa & Kelurahan

Chief (elected for village, appointed for Kelurahan)

Kepala desa / Lurah

83 184

Source: Statistics Indonesia (based on Ministry of Home Affairs, Regulation no.56/2015).

The objective of regional development is to improve the well-being of all – to promote national development by assisting lagging regions to catch up with those at the frontier – not only in terms of just economic growth, but also education, health and environmental outcomes. Indeed, these are all co-requisites for sustainable and inclusive development – especially for a developing country like Indonesia (OECD, 2012d). In the Indonesian context this means not only giving sub-national governments the resources required to make the investments needed to enhance the competitiveness of their jurisdictions, but also the necessary resources to improve the provision of basic services and the capacity to put in place appropriate social, structural and regulatory policies.

With decentralisation, the goal of regional economic development is now very much in the hands of sub-national entities who are responsible for the delivery of public services, the rationale being better accountability and service delivery through increased responsiveness to local needs (Faguet, 2014), often called “subsidiarity”. Indeed, the politics of decentralisation in Indonesia has meant that regencies/cities and districts have been favoured over provinces in terms of receiving downward devolved responsibilities (Malley, 2009). Decentralisation can improve performance by promoting competition between regions in the efficient provision of services and attracting businesses. Regions can also draw lessons from each other and benefit from best practice (OECD and KIPF, 2016).

In Indonesia regional autonomy has not delivered the improvements that were expected when launched in 2001, in terms of the provision of public services or in the management of natural resources (Resosudarmo et al., 2014; Buehler, 2010; Moeliono et al., 2009; World Bank, 2009). This is despite a steady increase in transfers from the central to sub-national governments – these now make up about half of the central government budget (net of subsidies and interest payments; about 6% of GDP), and in 2015 over 65% of this amount accrued to the regencies/cities (kabupaten/kota). Furthermore, despite some evidence of convergence across the regions, the variance in social-economic outcomes remains large. This includes fundamentals such as education, health, infrastructure, the rule of law (including corruption), the quality of business regulation and the capacity of sub-national governments to administer the provision of public services competently and efficiently. Indeed, research finds that fiscal decentralisation tends to increase regional disparities in poorer countries, while it is either neutral or tends to reduce disparities in richer countries (Rodríguez-Pose and Ezcurra, 2011; Lessmann, 2012). Institutional quality is an important factor: decentralisation seems to foster convergence when institutional quality is high, while it tends to exacerbate disparities in a low-quality environment, fuelling local capture (Kyriacou et al., 2015; Bartolini et al., 2016). This is first and foremost where policymakers’ efforts need to focus. Without these fundamentals in place, the blossoming of economic activity in the regions will be constrained, and they will become increasingly dependent on central government funding.

This chapter looks at the challenges Indonesia faces in regional development from the perspective of decentralisation. Even though impressive progress has been made in improving the well-being of its citizens, advances have not been even across the archipelago, with a variance in outcomes considerably greater than in other countries at similar levels of development. The chapter will examine why regional development is particularly challenging, given Indonesia’s geographical, historical and political context. The process of democratisation and...

Produkt-Details

• Erscheint lt. Verlag: 24.10.2016
• Sprache: englisch
• Themenwelt: Sozialwissenschaften ► Politik / Verwaltung ► Staat / Verwaltung
• Themenwelt: Wirtschaft ► Volkswirtschaftslehre ► Wirtschaftspolitik
• ISBN-10: 92-64-26506-6 / 9264265066
• ISBN-13: 978-92-64-26506-6 / 9789264265066