Best Paper: Parliament Intervention regarding Special Transfer DAK has led to Regional Disparity

Minister of National Development Planning / Head of National Development Planning Agency Bambang Brodjonegoro gave awards to Best Paper IDF 2018 winner Luthfi Muhammad Iqbal

Law No. 33/2004 concerning Regional Government governs that the special transfer DAK is a part of the national budget allocated to certain regions to conduct special activities that are categorized as local government policies and  support to national priorities. The aim of the DAK is to assist regions with their special needs, and to meet their needs for public services, and stimulate regional development acceleration to achieve national priority targets.

In 2018, there are three types of DAK namely regular, affirmative which is used for disadvantaged areas, borders, islands, and transmigration areas, as well as DAK Assignments which aim to support the achievement of National Goals.  Since 2016, there have been significant changes in DAK policy. First of all, DAK is divided into physical and non-physical.

Non-physical DAK consists of regional transfer funds allocated in the State Budget  to help regions fund special Non-Physical activities such as the School Operational Costs, Health Operational Costs, and others. Physical DAK is a fund allocated in the State Budget provider for certain regions  to help fund physical specific activities which are regional affairs and in accordance with national priorities.

Every year, DAK allocations are determined through planning and setting national priorities in December before the Draft State Budget (RAPBN) is passed. Because the RAPBN discussion involves the House of Representatives and the Regional Representative Council, parliament has a role in determining and endorsing DAK.

Initially, the budget was discussed by the Minister of Finance and the Governor of Bank Indonesia. After that, the DAK budget is reviewed in a smaller work committee in the parliament called the Working Committee (Panja). Then, this budget is discussed at the DPR Budget Agency and ends at the plenary session for approval.

This legislative intervention is evident in the form of the addition of a new column, namely the Regional Priority Special Allocation Fund in several sectors that influences local government proposals regarding development needs.

Staff of the Directorate of Regional Autonomy, Ministry of National Development Planning Lutfi Muhammad Iqbal and his team conducted a study to explore the extent to which "participatory" interventions from the DPR against DAK affected inter-regional fiscal disparities. The paper is titled “Disparity By Design”: The Portrait of the House of Representatives' (Dpr) Intervention For Specific Allocation Funds - Regional Priority (Dak-Pd) 2017-2018 Fiscal Year managed to become one of the winners for the Best Paper in the Indonesia Development Forum 2018.

Inadequate Allocation of Programs

To facilitate the preparation, the National Development Planning Agency and the Ministry of Finance started an electronic based application called DAK e-planning in 2017. This application was later modified in 2018, known as the KRISNA-DAK application.  One of the advantages of this application is that it facilitates data monitoring and measures how precisely the allocation is prepared and approved by the parliament. By comparing the proposals and allocation data in 2018, any allocation deviation will be detected.

For example in the Regular DAK, the market sector is only vulnerable to large deviations. Around 20.96% get a bigger allocation if compared to the proposed E-Planning proposals; 13.10% is allocated without proposal; and 48.72%  proposed programs but did not get an allocation. Another case in the health sector and family planning, 59 locations were allocated with more than their proposals, 9 locations were allocated without proposals, and 1 proposed programs did not get any allocation.

Similar to the Regular DAK, DAK assignment allocations show irregularities in almost all sectors, except for small-scale energy, environment and forestry. The market sector received 73.81% of the allocation higher than what was proposed, 67.62%  received allocation but actually not proposed, and 58.43% are proposed programs but allocatiion was not granted.

The road sector is even stranger, 38 regions proposed  programs but received no allocation, 35 regions that proposed new roads without proposals ended up receiving the allocation. In the irrigation sector, 35 regions were allocated with fund higher than what they proposed , 1 region received an allocation without a proposal, while 23 regions proposed  but no allocation.

This deviation is certainly a big question for local governments that have complied with planning processes and procedures. The central government certainly feels that great efforts to approve and examine proposals from the local government are of no use after parliamentary intervention.

Interventions conducted by the DPR resulted in a shift in the distribution of allocations from Java-Sumatra to other regions. However, only Sulawesi and Kalimantan benefited positively from regular DAK interventions, while other regions even showed a decrease in the total regular DAK allocations. This intervention clearly does not create a fairer and more equitable allocation, as it ends up widening thegaps.

However, the proportion of DAK redistribution assignments shows a better picture than those of the Regular DAK. Not only Sulawesi and Kalimantan, but also the Bali-Nusa Tenggara region received positive benefits from the intervention. Nonetheless, the intervention on the Regular DAK and DAK Assignments gives a disadvantage to the Maluku-Papua region that lacks allocation.

Another aspect that can be analyzed is the correlation between fiscal capacity and DAK allocation. There are some regions that have high fiscal independence, instead getting relatively large portions of DAK. For example, the level of fiscal independence of Lampung province in 2017 was around 42.35% - quite high compared to many other regions which were less than one digit - but the DAK-PD 2018 allocation reached Rp 149, 57 billion. Not only at the provincial level, several cities and districts such as Makassar, Kendari and Semarang also get high allocations even though they are considered independent.

In contrast, 9 out of 10 regions with the lowest levels of fiscal independence in Indonesia did not receive DAK. In addition to Arfak Mountain, the nine regencies include Membramo Raya, Membramo Tengah, Manokwari, Deriyai, Tembrauw, Tolikara, Maybrat, Intan Jaya, South Manokwari, and Dogiyai. This finding denies the assumption that DAK is allocated to help regions with weak fiscal capacity.

By allowing this intervention model to continue to be practiced, DAK is difficult to become an instrument to reduce inequality. Therefore, the DPR must consider the aspect of inclusive development when intervening in the distribution of DAK allocations. Here, the Corruption Eradication Commission needs to monitor so that no illegal transactions affect the DPR's decision regarding DAK. **