PUBLIC EXPENDITURE MANAGEMENT REFORM IN INDONESIA: AN ASSESSMENT OF THE ROLES OF THE TREASURY AND OTHER INSTITUTIONS

Author: Noor Faisal Achmad

Achmad, Noor Faisal, 2012 PUBLIC EXPENDITURE MANAGEMENT REFORM IN INDONESIA: AN ASSESSMENT OF THE ROLES OF THE TREASURY AND OTHER INSTITUTIONS, Flinders University, School of Social and Policy Studies

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Abstract

The success of governments is often defined and judged by their management of public expenditure because it shows the policies, priorities and actions which they have taken. In view of the importance of sound expenditure management, the Government of Indonesia reformed the PEM system in 2003 and incorporated international best practices into its laws as a form of institutional isomorphism. This study has assessed the roles of the Indonesian Treasury and other key institutions in formalizing and internalizing these approaches for the period 2004 to 2009. In particular, it has examined the roles of the Treasury in supporting and applying performance-based budgeting, treasury single account, and accrual accounting. By using a modified Bennett's (1975) hierarchy model and Allen et al's (2004) PEM assessment instruments, the processes and outcomes have been explored. Interviews with the reform initiators, policy makers and related stakeholders were conducted and questionnaire surveys to policy implementers were undertaken. The findings show that although the process contributed positively to the outcomes, generally the outcomes were less optimal due mainly to incomplete institutional arrangements, poor connectedness between functions, and uneven empowerment of key actors. The study reveals that a concurrent linear iterative approach is essential when applying contemporary approaches to PEM. It is different from other proposed approaches to PEM, such as the two-pronged approach prepared by the World Bank (1998), a torto-hare approach developed by Campo and Tommasi (1999), the platform approach by Brooke (2003), and Peterson's (2007) evolutionary approach. Moreover, the study suggests the importance of getting the changing control arrangements right instead of Schick's (1998) sequential vertical controls. Control is not eliminated but shifted to other stages in the system, whether it is put as ex-ante control or ex-post control; the flexibility can be delivered to an entity, a unit, or an officer after certain controls have been developed. To effectively change, attention needs to be paid to the boundaries and functions of entity, the roles of the Treasury, the nature of financial transactions, and the delegation of authority from the Treasury to other financial officers or institutions. The role of the Treasury as a change agent is particularly significant during reform, not only to deliver treasury services but also to issue treasury regulations covering new institutional arrangements and to train related actors. The roles of other institutions in PEM will depend on the Treasury. Therefore institutional isomorphism in the form of mimemis will not be successful if it only changes laws without also promoting wider understanding of the related concepts and practices. An indigenous developing country model, as identified by McCourt (2001), will be difficult to find. Nevertheless, legacy effects, as identified by Painter and Peters (2010), are likely to continue, particularly when awareness of the proposed changes is low and when the key actors are indifferent to reform. The most salient factor is the continuity of reform as a culture.

Keywords: Public Sector Reform,Public Expenditure Management,Control arrangements,Indonesia,Evaluation research
Subject: Policy and Administration thesis

Thesis type: Doctor of Philosophy
Completed: 2012
School: School of Social and Policy Studies
Supervisor: Dr. Noore Alam Siddiquee