Budget problems in Indonesian local governments in the decentralization era : a case of a developing country

Abstract

Budgeting is a substantial economic and political decision-making process for governments. This is because a budget is the life-blood of a government. A budget authorizes what the government intends to do and expects to do. However, many governments in developed and developing countries experience budget problems that will affect the government activities and services to its society. Thus, the negative consequences of budget problems need to be dealt with and overcome.
This study is about local budget problems in a developing country. The focus on local government budgets is important as many central governments around the world, especially in developing countries, have decentralized their fiscal, political, and administrative powers to lower-level governments and amplified the importance of local budgets. However, compared to the context of developed countries, few studies have been conducted in the context of sub-national government level in developing countries in the current literature. Therefore, the objective of this study is to address this lack of literature and make contribution in this area. This study aims to explore budget problems and the causes of those budget problems suffered by three local governments in Indonesia as case studies. Indonesia is an important case study as the country has not only changed from one of the most centralized countries in the world to be one that is relatively more decentralized among developing countries. However, the process also has substantially changed the factor that influence local budget including political conditions, fiscal conditions, and budgetary institutions at the local government level as well as the role of local government.
Underpinned by a constructivism-interpretivism research paradigm, this thesis conducted semi-structured interviews as the main data collection method. The data was then corroborated with document analyses to elicit the subjective meanings. Furthermore, the thesis uses multiple case studies by selecting three local governments in Indonesia, namely Blora Regency of the Central Java Province, Bengkalis Regency of the Riau Island Province, and Singkawang City of the West Kalimantan Province. Thematic analysis was employed for this thesis to uncover new emerging themes and categories in relation to the research questions. The first research question is “What budget problems are experienced by the three cases of local governments in Indonesia?” and the second research question is “What are the causes of those local budget problems?”.
This thesis finds that the three local governments suffered from interrelated budget problems of budget enactment delays, budget execution delays, and underspending of budget appropriations. The main budget problem was budget enactment delays which also drive budget executions delays. Budget execution delays were worsened by the procurement problems as well as some intrinsic problems related to the aspiration funds during the budget execution stage. These budget execution problems then caused underspending of budget appropriations and have led to substantial amounts of ending balances while at the same time, caused inability for these local governments to develop their infrastructure. The interrelationship of budget problems may not be a specific issue for these Indonesian local governments, but they have rarely been strongly linked in previous studies.
In terms of the causes of those interrelated budget problems, the three cases show that politics play the most important role in shaping budget problems. Money politics drove disagreements among the budget actors which then caused them to face difficulty reaching agreements in the budget process. In addition, nonpolitical factors also derail the budgeting process. These include rigid and complicated budget administration, uncertainty of budget revenues, fears and worries of corruption cases, and human resource management in the civil service.
By looking at budget problems in Indonesian three local governments and their causes, this study adds some information to the limited understanding of sub-national government budget problems in developing countries. It confirms that several typical budget problems such as budget delay and “underspending of budget appropriations” are suffered by sub-national governments in Indonesia. This is also the case with some of the common causes like politics. Nevertheless, some findings of this study also highlight differences between the result of studies in developed countries and developing countries. The way money politics leads to polarization among budget actors, the institutional fragmentation among the local council, the executive leader, and the bureaucracy as well as rigid budget administration are some of the examples of how the causes of budget problems in Indonesian local governments differ compared to the causes found in developed countries

Date of Award	2019
Original language	English
Supervisor	Chris Sadleir (Supervisor), Yogi VIDYATTAMA (Supervisor) & Wahyu Sutiyono (Supervisor)