SUB‐NATIONAL GOVERNMENT CAPITAL SPENDING IN INDONESIA: LEVEL, STRUCTURE, AND FINANCING
| Published date | 01 August 2011 |
| Date | 01 August 2011 |
| DOI | http://doi.org/10.1002/pad.582 |
| Author | Blane D. Lewis,André Oosterman |
SUB-NATIONAL GOVERNMENT CAPITAL SPENDING IN INDONESIA:
LEVEL, STRUCTURE, AND FINANCING
BLANE D. LEWIS
1
*
,y
AND ANDRE
´OOSTERMAN
2z
1
National University of Singapore, Singapore
2
World Bank, Indonesia
SUMMARY
Sub-national government capital spending is important for both public service delivery and economic development. Currently,
Indonesian sub-national public capital spending appears barely sufficient to cover the annual depreciation of its fixed assets. A
substantial proportion of local government investment spending goes to create relatively unproductive assets, such as
administrative office buildings. Sub-national governments finance their capital acquisitions out of gross operating budgets
and have thus far not used, to any great extent, either borrowed funds or their significant cash reserves for such purposes.
Indonesian sub-nationals need to spend more on capital than they do now and also need to focus that spending on more useful
types of infrastructure. The major constraints to increasing capital spending at the sub-national level are not related to a dearth of
finance, but regulatory rigidities in budget preparation and implementation and, most importantly, a lack of capacity to plan,
design and implement investment projects. Copyright #2010 John Wiley & Sons, Ltd.
key words — local government; decentralization; capital spending; Indonesia
INTRODUCTION
Transactions in capital assets are of special significance for governments around the world. This is at least partly
because public spending on the acquisition of such assets requires comparatively large sums of money compared to
recurrent expenditures (Bland and Clarke, 1999; Nice, 2002). In addition, the disposal of assets, especially land,
may yield significant capital revenues in some countries.
1
Capital assets are important because they support both public service delivery and economic growth. The
delivery of most public services requires fixed assets. For example, the provision of health services needs health
centers, clinics and hospitals, whereas the delivery of education services needs schools, among other assets. These
facilities, in turn, need to be accessible to the public via a variety of transport and communication linkages (World
Bank, 1994). Other capital assets such as roads and highways, water and sewerage systems, and power may be more
important for economic development. Such assets can serve as: an ‘unpaid factor of production’, which directly
encourages increased output; an ‘augmenting factor’, which enhances the general productivity of private capital
and labor inputs; and in a more dynamic sense, an incentive for firm and household relocation and thus long-term
economic growth (Eberts, 1986, 1990; Duffy-Deno and Eberts, 1991).
2
public administration and development
Public Admin. Dev. 31, 149–158 (2011)
Published online 9 December 2010 in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/pad.582
*Correspondence to: B. D. Lewis, LeeKuan Yew School of Public Policy,National University of Singapore, 469C Bukit Timah Road, Oei Tiong
Ham Building, Singapore 259772, Singapore. E-mail: blewis@nus.edu.sg
y
Associate Professor.
z
Consultant.
1
Blondal (2006) demonstrates that the sale of land by the Government of Singapore results in very significant public revenues.
2
Other potential economic impacts of public infrastructure include those related to the multiplier effects of investment. In addition, social
impacts derived from infrastructure’s‘amenity value’ in improving the environment, for example, have been mentioned as important (Kessides,
1993).
Copyright #2010 John Wiley & Sons, Ltd.
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