Village fund and regional disparities in Indonesia: preliminary assessment on the impact of three years program implementation

Abstraksi

Government of Indonesia has decided to extend its decentralization to village level. Law No. 6 Year 2014 on Village Government stipulated that government will allocate grants to all villages in Indonesia. The objectives of the program are to reduce disparities among regions and social economy, improving prosperity, and reduce poverty. By transferring the Fund to autonomous village administrations, they are mandated to allocate and use it to improve village and its people. After three years implementation, it is important to understand the impact to the expected outcomes. The significance of the study is to provide essential input to related policy development, particularly on the strategic policy direction in which Village Fund could be utilized more efficient and effective. The study employed difference-in-difference approach using National Social Economy Survey (SUSENAS) 2013 and 2017 and Village Census (PODES) 2014 produced by National Statistical Agency (BPS). There are several findings from this study, which are: 1) village fund positively affect reduction of rural-urban disparities, but has no impact on inter-village gap; 2) village fund has no direct impact on reducing extreme poverty within village, but has indirect impact through increasing per-capita expenditure; 3) village fund has positive and significant impact on reducing poverty only to them who in just below poverty line, but did not has impact on the rest of people under 80% poverty line. The study suggests that village fund should be used more inclusive, for instance designing several social programs that are targeted to the people extreme poor.