10 Factors Contributing to Waste of Money on Bureaucracy: Pointing to Failed Civil Service Reform: Imposing a Moratorium Not Enough

10 Factors Contributing to Waste of Money on Bureaucracy: Pointing to Failed Civil Service Reform: Imposing a Moratorium Not Enough

The Minister of Finance recently admitted that spending on the civil service was becoming an increasing burden on budgets.  This is an undeniable fact. In 2011 spending on the central government bureaucracy blew out to Rp 126.5 trillion or 233% more than in 2005. But that level of expenditure did not lead to tangible improvement in services provided by bureaucrats. Sub-national governments in regions have followed the same pattern. Indeed, FITRA has found that 124 sub-national governments spend over 60% of their budgets on civil service costs; and in 16 regions the percentage is over 70%. If this situation is allowed to persist, the Constitutional mandate that Indonesia’s budgets be spent as much as possible to maximize public welfare could be breached.


In FITRA’s view, the following 10 factors are contributing to inflated civil service costs:

  1. The payment of additional remuneration:  These payments are part of bureaucratic reform and are based on the belief that low salaries lead both to corruption and low levels of performance within bureaucracies.  Starting in 2007 the Ministry of Finance trialed such payments by paying its top level officials additional remuneration of up to Rp 46.9 million per month.  The payments were then extended to other ministries including the National Police and the Supreme Court.  By the time the 2010 State budget appeared Rp 13.4 trillion was being budgeted for such payments.  But expenditure of that amount of money has not reined in corruption, as was evidenced by the cases of Gayus and Justice Imas.
  2. Civil service salary increases:  For five years in a row now government has increased salaries within the civil service, the Armed Forces and the National Police.  Increases have ranged from between 5% and 15% (in 2011).  The higher payments included increases in functional and structural allowances, payment of a 13th month end-of-year bonus, payment of meal allowances since 2007, adjustment of the basic pension and payment of 13th month bonuses to retirees.
  3. The Presidential Palace has contributed to an oversized bureaucracy: Unwittingly or not, the Palace has not been an agent of change in reform of the bureaucracy.  Following his re-election for a second term, the President installed a 34-member cabinet to accommodate the interests of his ruling coalition.   That was the upper limit set for the size of a cabinet in Law No. 39/2008 concerning ministries and agencies.  But the President was not content with that: he added 10 deputy ministers to the number.  And from that day to this the division of labor between those deputy ministers on one hand and ministers and top level officials on the other has not been clarified.
  4. A flood of committees:  It is precisely the institution of the presidency which is proving unable to set an example of bureaucratic reform for other ministries and agencies.  Indeed the structure of the Presidential office is becoming more and more over laden.  New layers of bureaucracy are forever being added: special staff, personal staff, spokespersons, work units, the Presidential Advisory Council, a “legal mafia” task force and most recently an overseas workers task force. And it is an irony that the effectiveness of not one of these units has been evaluated, despite the additional burden they place on the State budget. FITRA has noted that at least 9 agencies, committees, task forces and teams now exist within the Presidential Palace (see attachment).
  5. Civil service policies do not take account of cost implications:  As the keeper of the public purse, the Ministry of Finance should be able to predict the budgetary impact of every civil service policy.  Such predictions are particularly easy in the case of fixed costs. But the Ministry should also be able to predict the budgetary impact of sectoral polices involving civil service costs.  Examples of such policies are: making village secretaries permanent civil servants; the certification of teachers; and the appointment of temporary officials on an honorarium basis.
  6. Allowances for regional civil servants:  Government regulation PP No. 58/2005 on management of regional finances empowered sub-national governments to pay additional allowances to their civil servants.  This regulation enabled the government of the Special District of Jakarta, for example, to pay its top bureaucrats an additional Rp 50 million per month and its other staff extra amounts ranging from Rp 2.9 to Rp 4.7 million per month.  Differing levels of salary between regions have seen not just an increase in civil service costs but have also led unevenness across regional civil services as a result of people chasing higher salaries. As a result, regions paying higher civil service salaries will have ever higher civil service costs.  Lack of clarity on upper salary limits is also contributing to a blow out in sub-national civil service costs.
  7. Regional Fiscal Transfers Framework:  The framework for transferring funds from the center to regions is not yet set up in a way that brings greatest benefit to regions.  Since the introduction of regional autonomy 70% of government functions have been decentralized to regions, with the central government retaining control over five key functions.  But the reverse of those proportions applies on the fiscal side of the ledger: since 2005 regions have only been receiving around 31% of total State budget funds. The blow out in public service costs has also been attributable to the funding formula of the General Allocation Fund (known as DAU).  As currently structured the DAU does not encourage regions to perform well, because it is based on a “basic funding allocation” (to cover civil service costs) plus the difference between local fiscal need and local fiscal capacity.  Under this formula sub-national governments that achieve efficiencies in public service spending and/or increase their local fiscal capacity will automatically have their DAU allocations reduced.  Such a situation makes regions lazy about streamlining their bureaucracies and increasing their own source revenue.
  8. Politicization of bureaucracies:  Politicized bureaucracies and civil service recruitment processes in regions are still commonly laden with corruption, collusion and nepotism. Although the central government maintains overall control over recruitment and training of civil servants, it cannot be denied that recruitment processes have a corrupt feel about them.  Political forces are also at work, especially in pre-election periods when heads of local government augment civil service ranks to widen their support base.  Also, after elections, supporters of elected heads of government are often rewarded by being appointed as local civil servants without due process being followed.
  9. Local bureaucracies do not correlate with local conditions:  Thus far the central government has not set ratios between the number of civil servants required to provide a given level of public services.  The lack of such ratios leads to unrelenting recruitment of civil servants with no attention being paid to need.
  10. Formation of new autonomous regions:  The formation of new autonomous regions out of existing regions also stimulates higher levels of expenditure on local civil services.  When a new autonomous region is formed, a new bureaucracy is a must and recruitment processes favor locals rather than professionals.  A side-effect of this process is that DAU allocations fall.  For example, the number of autonomous sub-national governments rose from 477 in 2008 to 481 in 2009.  As a result the average DAU allocation per region fell from Rp 358 billion in 2008 to Rp 351.7 billion in 2009.

Because of all these factors the central government intends to impose a moratorium on public service recruitment.  Seknas FITRA supports such a moratorium, but stresses that of itself it will not be sufficient. The real problem is not just the number of public servants. FITRA’s research has established that total civil service numbers have grown by 2% over the past 5 years, but civil service costs have risen much more sharply, by 20%.  Thus civil service costs, not just numbers, are the nub of the problem.

The mere imposition of a moratorium will not significantly reduce the burden the civil service places on the public purse.  From the point of view of civil service reform, a recruitment freeze must be regarded as a first step in addressing a number of factors contributing to inflated civil service costs.  Other steps that need to be taken include:

  1. Reviewing the appropriateness of additional remuneration.  Unless civil service remuneration systems also include penalties, they will not lift the performance of the civil service or reduce levels of corruption.  Revelations surrounding the cases of Gayus and Justice Imas have shown that additional remuneration within the Ministry of Finance and the Supreme Court was unable to stem the tide of bureaucratic corruption;
  2. Using the “reverse burden of proof” principle in the case of civil servants who possess inappropriate levels of wealth;
  3. Calculating ratios for civil servants on the basis of variables like total population, geographic characteristics, fiscal capacity and functions;
  4. Reform of the regional fiscal transfers system in such a way that it offers incentives to  regions that achieve bureaucratic efficiencies, and discourages the formation of new autonomous regions;
  5. Regulating the payment of allowances for regional officials and permanent civil servants.
  6. Streamlining and placing limits on the formation of ad hoc arrangements (teams, task forces, committees, boards, councils, commissions) and other off-line public institutions.

Yuna Farhan

Secretary-General

Seknas FITRA

Jakarta

24 July 2011

Tel +62 (0) 8161860874

Table: Committees, Task Forces/Teams/Boards within State Secretariat of President and Vice President

No

Institution

Budget      (Rp billions)

1

National Law Commission (State Secretariat)

11.7

2

Presidential Advisory Council

48.8

3

National Team for Reduction of Poverty (Vice Pres)

14.7

4

Task Force on Bureaucratic Reform (Vice Pres)

1.1

5

Presidential Work Unit on Oversight and Control of Development

79.6

6

Task Force for Eradication of Legal Mafia

10.8

7

Team for Reducing Emissions from Deforestation and Forest Degradation in Developing Countries

3.1

8

Center-Regions Synergy Team

2.2

9

Defense Regulations Streamlining Team

2.4

No. Civil Servants                                Civil Service Spending                    Capital Spending

Civil Service Spending, Capital Spending & Total Civil Servants

 

Note:  In the above chart LKPP = central government annual financial report; APBN = State budget as approved by the House of Representatives (DPR); and APBN-P = mid-year amended State budget as approved by the DPR. 

 
Detail

Subject 10 Factors Contributing to Waste of Money on Bureaucracy: Pointing to Failed Civil Service Reform: Imposing a Moratorium Not Enough
Author Yuna Farhan
Publisher SEKNAS FITRA, Jakarta
Publish year 2011
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