AS Indonesia celebrated its 79 years of independence, poverty remained a persistent issue affecting millions.

On July 1, Statistics Indonesia (BPS) reported that 25.22 million Indonesians still lived below the poverty line, with an average monthly expenditure of just 582,932 rupiah per capita.

The poverty rate is particularly high in eastern Indonesia, especially in natural resources-rich Papua and Maluku, where 19.39% of the local population, or 1.51 million people, live in poverty.

This dire situation is reflected in the low Human Development Index (HDI) scores in these regions. According to BPS data released in May 2024, Papua and West Papua had the lowest HDI scores in the country at 63.01 and 67.47, respectively.

The National Medium-Term Development Plan or RPJMN for 2020-2024 highlighted several factors contributing to these low scores, including the suboptimal implementation of special autonomy, underdeveloped natural resource-based potential, inadequate infrastructure and connectivity, limited access to basic services and vulnerability to social inequality and poverty.

These issues underscore the poor quality of financial management at the regional government level.

One of the key problems in regional financial management is the inefficient allocation of spending by regional governments.

The 2024 regional budgets of all the 38 provinces show that personnel expenditure dominated government spending at 33.54% (464.5 trillion rupiah), followed by goods and services expenditure at 28.32% (392.2 trillion rupiah).

On the contrary, capital expenditures, which could drive infrastructure development in the regions, account for only 15.27% (217.7 trillion rupiah).

This budget structure indicates that much of the regional government spending is allocated to consumptive expenditures, which do not significantly impact public welfare.

To improve public welfare, spending must be directed toward infrastructure development. Infrastructure spending that enhances access to facilities and services can stimulate economic growth and productivity in the region.

The inefficient budget structure is partly due to the excessive number of regional government employees. According to the National Civil Service Agency, there are over five million regional government employees, including both civil servants and honorary workers.

Many of these employees were hired not based on organisational needs but due to nepotism or political patronage. In addition, regional governments face challenges in increasing their own source revenue to achieve an ideal budget structure.

In 2024, the total regional government expenditure budget is 1.38 quadrillion rupiah, largely supported by transfers from the central government amounting to 857.6 trillion rupiah.

The remaining funds come from local revenue (381.9 trillion rupiah) and other sources (78.2 trillion rupiah).

For 2025, the central government transfer is set to increase to 857.59 trillion rupiah from a total state budget of 3,613.1 trillion rupiah. Beyond the budget structure, regional financial management also lacks full accountability.

The 2023 Summary of Audit Results published by the Supreme Audit Agency (BPK) revealed that 45 out of 545 regional financial reports for the 2022 fiscal year did not receive an unqualified opinion.

Additionally, the BPK identified 10,961 issues related to financial reporting, performance and compliance with regulations in 2023 alone, issuing 31,824 recommendations for improving governance.

Many of these problems are well-known and often reported in the media, such as marked up or fictitious travel and meeting expenses, capital expenditure not meeting specifications or volumes, and manipulated procurement processes.

Other issues include missing assets, unauthorised honorarium payments, and capital expenditures without proper needs analysis. These recurring problems year after year highlight the inadequacy of internal control systems within regional governments.

To address these issues and improve the welfare of those still living in poverty, strategic efforts are needed to enhance the quality of regional government spending.

In 2022, the enactment of a law on financial relations between the central and regional governments aimed to optimise the budget for infrastructure and personnel spending.

Under this law, regional governments are required to allocate at least 40% of their total budget to infrastructure spending, excluding revenue-sharing and transfer funds. Personnel spending, meanwhile, is capped at a maximum of 30% of the total budget, excluding teacher allowances.

 - ANN