The policy to impose a 16-month moratorium on civil service recruitment (up to 31 Dec 2012) came into force on 1 September 2011. The policy was put in place jointly by the Ministers of Finance, Home Affairs and Administrative and Bureaucratic Reform.
The beginnings of this policy go back to concern expressed by the Finance Minister about increasing burdens civil service costs were imposing on the public purse, both nationally and in regions. The Minister’s point was well received by those charged with bureaucratic reform who then proposed a freeze on public sector recruitment. That sais, it was the Finance Minster himself who, just a few months previously, had staunchly supported civil service pay increases after a complaint from the President that his salary never went up.
There is no denying that public service costs are weighing more and more heavily on State budgets. Thus, in the draft 2012 State budget, civil service funding is the biggest single item of expenditure (Rp 215.7 trillion), set to eclipse “subsidies” (the previous No. 1 expenditure item). Analysis by FITRA of regional budgets for 2011has found that 124 regional governments spent more than 60% of their 2011 budgets on civil service costs. Indeed, the percentage in 16 regions was as much as 70% and in one—the kabupaten of Depok, according to Finance Ministry analysis—it was as high as 89%.
This time bomb of civil service costs is bound up with policies that do not factor in funding when decisions are made. Thos decisions include: recruitment of additional civil servants; payment of end-of-year bonuses; increases in civil service salaries by between 5-20% (several times since 2006); and hikes in civil service allowances for such items as food. These decisions automatically place extra burdens on State budgets, but there’s more: Since 2009 State budgets have had to meet 100% of pension costs previously co-funded by Taspen pension offices (Government Financial Statement accompanying draft 2012 State Budget, IV-80).
One component of increasing civil service costs has been payment of extra remuneration to civil servants. Such payments were first introduced—as part of civil service reform— in 3 ministries/agencies in 2007 and extended to 14 in 2011. In 2010 Rp 13.4 trillion was allocated for extra remuneration payments.
Another issue has been mushrooming of off-line government agencies with potentially overlapping responsibilities. The government’s 2007 end-of-year financial report recorded the existence of 76 such agencies that cost the public purse Rp 483.3 billion. By 2010 the number had jumped to 101 and the cost to Rp 1.87 trillion.
The dismal condition of regional local government budgets (APBDs) is also bound up with central government policies—that are out of step with what is needed—on budgeting and civil service staffing. As is well known, regions depend on central government fiscal transfers for around 80% of their budgetary resources. But 68% of fiscal transfers to regions—in the form of General Allocation Fund (DAU) transfers and supplementary allowances for teachers—are spent almost exclusively on civil service costs. An added factor here is that the DAU’s main component is precisely designed to cover bureaucratic costs. The result is that no incentive exists for regions that streamline their bureaucracies or increase levels of local revenue.
The DAU is also doing nothing to dampen the pace with which regions are splitting up to form new autonomous regions. And, of course, a new local civil service is a must for each new autonomous region; and, in that process, locals are recruited ahead of professionals. Given that the DAU finances the formation of these new autonomous regions, it follows that the creation of additional regions indirectly reduces the average DAU allocation per region. For example, in 2008 Indonesia had 477 regions that received an average DAU allocation of Rp 358 billion; in 2009 the number of regions had risen to 281 and the average DAU allocation had fallen to Rp 351.7 billion (Government Financial Statement, 2011).
This is a zero sum game: Ballooning regional civil service costs automatically reduce funding available for spending in other areas such as capital expenditure. Another factor contributing to ever higher “service charges” in regions is lack of clear policies on payment of additional entitlements to regional government officials. Take the government of the Special District of Jakarta as an example: It is a rich area and benefits from being the nation’s capital; so it has paid additional allowances to its personnel ranging from Rp 2.9 million to Rp 4.7 million for less senior staff to Rp 50 million for top-level officials.
All this goes to show that the moratorium on recruitment will be ineffective so long as bureaucratic reform is piecemeal and amounts to no more than political window dressing. Thus, despite the moratorium, civil service costs have received the highest single level of additional funding in the draft 2012 State budget: as much as Rp 32.8 trillion, including allocations for new teachers (Government Financial Statement accompanying draft 2012 State Budget, IV-205).
The moratorium alone will also not significantly reduce the budgetary burden of civil service costs. FITRA’s research shows that, over the past 5 years, the number of civil servants has grown by 2%, but civil service costs have jumped by 20%. That means that the size of the civil service bill depends not so much on civil service numbers but on ever increasing costs of employing them.
The moratorium’s ineffectiveness and continuing high civil service costs are proof enough that bureaucratic reform strategies have failed because they have not factored in implementation costs. Self-interested policy making is clearly impacting on civil service staffing and placing extra demands on budgets. An increasingly oversized bureaucracy, mushrooming of off-line agencies and budgetary wastage in the form of extra remuneration and allowances for bureaucrats are all clearly inconsistent with the meaning of bureaucratic reform as the general public understands it.
Additional income and extra remuneration for civil servants should result in increased productivity. Unproductive and incompetent civil servants recruited by processes tainted with collusion, corruption or nepotism should be sacked; as should those who have built up unwarranted amounts of personal wealth. Savings achieved from such sackings could be used to fund payments of extra salary to others. This approach would lead to a streamlined and expenditure-efficient public sector.
A recruitment moratorium cannot be the flagship of bureaucratic reform. It can only be a starting point. It must be backed up with an appropriate mix of integrated policies: for example, revamping off-line agencies; shedding unproductive staff; putting in place appropriate staff ratios; having performance indicators for officials; setting clear standards of services to be delivered; reforming regional fiscal balance transfer mechanisms; and putting curbs on formation of new autonomous regions.
On its own the moratorium policy will only serve to lead us where we do not want to go: in the direction of a civil service costs time-bomb. And, in the process, resources for funding development will contract.
Indonesian Forum for Budget Transparency (FITRA)
7 September 2011
English Translator: Denis Fisher