Natural Resource Fund for Extractive Industries in Musi Banyuasin District: Strengths, Challenges, and Recommendations

Abstraksi

Natural resource governance in Indonesia remains to be a key priority for current and future economic development. Extractive industries represent a third of state export revenues and assist with job creation (NRGI, 2016). Although natural resources have fueled the economy, many regions suffer from the resource curse—the abundance of natural resources parallel to slow socioeconomic growth. As a result, countries have implemented Sovereign Wealth Funds (SWF) for improved development and revenue management. The Natural Resource Governance Institute cites more than 55 natural resource funds worldwide, collectively accounting for over USD $7 trillion (SWF Institute, 2016). In Indonesia the central government earns revenue from natural resources extraction, and transfers a portion to local governments. However, an assessment by the Ministry of Finance in 2015, showed a rising trend of local government budget surpluses; indicating unused capacity. This study examined the feasibility of a SWF in Indonesia, using financial analysis calculations and collecting qualitative data. The results show that 20 of 34 provinces possess the capacity to implement a SWF, with Musi Banyuasin showing strong stakeholder commitment. Musi Banyuasin ranks highest amongst districts with natural resource reserves, but this abundance has not led to proportional development. Poverty and inequality remain quite high, and human development relatively low, however, a SWF can optimize unused funds for improved development. Indonesia does not posses a SWF, but if successful in Musi Banyuasin, SWFs can be replicated in other resource rich areas in Indonesia as a means for improved development and resource and revenue management.