BudgetRentSeekers Analysis by FITRA Sec-gen Yuna Farhan, 7 June 2011
Over the last few weeks the issue of undercover budget agents has once again been in the news. Two recent cases—involving construction of South East Asian Games athletes’ accommodation in Palembang and brokerage of infrastructure adjustment funding—have all the signs of being the tip of an iceberg.
Both budget cycles and the structure of budgets offer opportunities for the intervention of budget rent seekers. Right from the start of the budget cycle—the budget drafting process—they are sniffing around for target areas; and they carry forward their scheming into the budget discussion stage in the House of Representatives (DPR). Because those discussions occur behind closed doors, public information flows break down, leaving rent seekers free to conclude nefarious deals. For its part, the DPR has the power to make decisions on both proposed projects submitted to it by the Executive and fiscal allocations to regional governments.
This secret liaison between politicians in Senayan on the one hand and business people and bureaucrats in control of budget allocations on the other cannot be stopped from facilitating budget rent seeker activities. The DPR can agree to appropriations for a government projects with the proviso that they be implemented by specific entrepreneurs. Equipped with budgetary details and access to the authorities, rent seekers peddle their wares in what amounts to a feeding trough for entrepreneurs prepared to pay rent seekers a compensating benefit. Even if projects are tendered out in open processes, successful tenderers can be decided upon in advance. In the case of athletes’ accommodation in Palembang, the rent seekers’ target was clearly identified: a capital works project involving very large amounts of money.
So far as the structure of budgets is concerned, rent seekers focus both on capital expenditure items and fiscal transfers to regions. The Fund for Strengthening of Local Infrastructure (DPID)—for abuse of which DPR Budget Committee (Banggar) member Wa Ode Nurhayati has nee exposed—has long since been identified as a disguised form of “aspiration funding”: money allocated by the DPR for expenditure in DPR electorates on aspirations of constituents. And, of course, the DPID has been around since the 2010 revised State budget.
The DPID offers rich pickings for undercover budget agents for three main reasons. Firstly, it operates outside the ambit of law: It is not given any cognizance in Law No. 33/2004 concerning fiscal balance between the Center and regions. It is no surprise, therefore, that the DPID figures in adverse findings of the national Audit Board (BPK) on the Central Government Financial Report on Fiscal Year 2010. Indeed, the DPID was one of the contested issues in a judicial review submission on the 2010 revised State budget lodged with the Constitutional Court by FITRA and its Budget Coalition colleagues.
Second, the purposes of the DPID are not clearly defined. The parameters and criteria of all fiscal transfers to regions—specifically the General Allocation Fund (DAU), the Special Allocation Fund (DAK) and the Revenue Sharing Fund (DBH)—are set out in law. By contrast, the DPID is put in place by Minister of Finance regulation; and its funds are apportioned and allocated to recipients by fiat of the DPR’s Budget Committee. The result: DPID funding is mistargeted and is undermining the fiscal decentralization system. In its research on the 2010 revised State budget, FITRA found, for example, that well-off regions with fiscal capacity levels above the national average and small numbers of poor people obtained more adjustment funding than poorer areas with low levels of fiscal capacity. Moreover, receipt of adjustment funding depends on a region’s lobbying powers and its capacity to pay off members of Banggar or its intermediaries. Information conveyed to the writer by one region indicates that, in order to obtain adjustment funding, they had to pay commissions of between 5% and 7%.
Third, the DPID mirrors what the DAK does. All but one of the 19 sectors targeted by the DAK are also targeted by DPID. So the question arises: Why not just bring this source of funding under the umbrella of the DAK which has clear operating parameters and criteria? It comes as no surprise that a region receiving large DAK allocations for a particular sector is also allocated sizeable amounts of DPID funding for the same sector.
The time has come to abolish sources of fiscal transfers to regions like the DPID that are not sanctioned by law and are starting to get out of control. The lack of criteria for apportionment of such funds puts them in the same category as “aspiration funds” for DPR electorates (referred to above): pork barreling to enlist support from voters.
To borrow from an analysis made by Irene S Rubin in her book The Politics of Public Budgeting (1990), politicians always take pains to make sure that budgets serve their political interests. In the case of the DPR, money politics and poor political support systems have derailed its budgetary function making it hostage to pragmatism and the search for funds. This situation is fertile ground for budget rent seekers.
These are not the first cases to involve undercover budget agents. There was the case of Abdul Hadi Djamal and the construction of seaports in eastern Indonesia. But investigations into it only served to fragment the clique involved. Flaws in the underlying system that encourage further budget rent seeking have not been addressed.
Rent seeking must be stopped from the time the budget is formulated and throughout its discussion by the DPR. Open discussion of budgets in a conditio sine qua non for controlling the spread of activities of undercover budget agents in Senayan. The establishment of a DPR parliamentary budget office could also help to promote greater openness and bring the DPR’s discharge of its budget function more in line with what the electorate expects.
Yuna Farhan
Secretary-General
Indonesian Forum for Budget Transparency (FITRA)
17 June 2011
English Translator: Denis Fisher
Source: Kompas, 17 June 2011
Dalam beberapa minggu terakhir isu calo anggaran kembali merebak. Kasus pembangunan wisma atlet dan calo dana penyesuaian infrastruktur yang melibatkan anggota DPR mengonfirmasi praktik gelap ini sebagai puncak gunung es.
