Windraty Ariane Siallagan, Jakarta – The government has ended the 2021 fiscal year on a high note with Rp 2.74 quadrillion (US$195.7 billion) in disbursements, or 99.7 percent of the budget, achieving a tax-to-gross domestic product (GDP) ratio of 9.11 percent, compared to 8.33 percent in 2020.
It also booked a deficit of 4.62 percent of GDP, down from 6.14 percent in 2020, with the poverty rate down to 9.7 percent from 10.2 percent the previous year, while it recorded a Gini ratio of 0.381, up from 0.004 in 2020 to indicate reduced wealth inequality.
Despite this positive performance, the government still needs to improve its mechanism for transferring and distributing administrative funding to provinces, regencies and villages.
The government allocated Rp 68 trillion in the 2021 village funds (Dana Desa/DD) to 74,960 villages across the country in accordance with the 2014 Village Law for a cumulative total of Rp 468.65 trillion disbursed from 2015 to 2021, reflecting the significant role villages play in economic growth. The per village allocation increased 3.4 times over that period, from Rp 280.27 million in 2015 to Rp 960.5 million in 2021, is set to increase to Rp 907.1 million this year.
The government recorded that the 2015-2021 village funds were used to build 306,490 kilometers of roads, 1,580 km of bridges as well as other rural infrastructure. Unfortunately, there were also many cases of misuse and corruption involving the village funds, as well as poor institutional and administrative capacity to manage the funds.
The government therefore plans to improve the village funds in four areas: (1) allocation policy; (2) greater focus and priority; (3) synchronized, harmonized use; and (4) supervision.
Several points of improvement in the 2022 village funds program, based on last year's performance, need to be highlighted.
First, the village funds allocation will be increased to villages with the highest performance. The idea is to create an incentive for least developed villages to accelerate their development efforts.
Second is greater targeting and prioritization of the village funds by directing its use in social protection programs as unconditional cash assistance from village administrations. Moreover, the funds can also be used to support local food security programs and social safety nets.
Third is to modify relevant policies for synchronization and harmonization of the village funds by providing better quality data, monitoring and evaluation.
Fourth, the government has increased the penalties for village funds misuse or corruption.
The policies on the allocation and disbursement of the village funds must be improved through a stricter carrot-and-stick mechanism. Many villages have not demonstrated any correlation between the village funds they receive and local development results.
[The writer works in the Treasury Directorate General at the Finance Ministry. The opinions expressed are personal.]