Completing decentralization

INDONESIA RISING. Policy Priorities for 2010 and Beyond 53471 Completing Decentralization Key Messages Sub-National Governments (SNGs) in Indonesia lack the technical experience to improve expenditure management, enjoy limited `own-source' revenues, and face central government subvention systems that fail to adequately address local needs and capacities. To complete the decentralization process, the Government of Indonesia (GoI) needs to adjust its funding models to support the efforts of SNGs to deliver services. Key Action 1. Enhance the intergovernmental finance system. Reformulate the DAU by removing the basic allocation. Improve the management and usage of the DAK. Transfer deconcentration funds to DAK as mandated by Law 33/2004, Article 108. 2. Increase SNGs' own-source revenues by devolving land- and building tax (PBB or pajak bumi dan bangunan) authority to the districts, while building the capacity of SNG institutions dealing with PBB. 3. Strengthen sub-national finances by creating creditworthy SNGs that are able to issue debt in the form of municipal bonds, for example. This can be done as a pilot project involving two SNGs and one local water supply utility or PDAM (Perusahaan Daerah Air Minum). 4. Improve center-local relations by clarifying functional assignments. Define clear and comprehensive divisions of authority and tasks (norms, standards, procedures, and criteria