MIMBAR, Vol. 35 No. 2nd (2019) Local Financial Performance and Its Impact on Border Community Welfare SRI SUARTINI Faculty of Economics and Business, University of Singaperbangsa Karawang, Ronggowaluyo Street Telukjambe Timur, Karawang, Indonesia email: [email protected] Abstract. The capability and creativity of financial management conducted by the foremost and outermost local governments should support the orientation of the central government in developing the nation border areas. It needs to be carried out to able to accelerate the development of the areas and to implement regional autonomy policy and fiscal decentralization nowadays. Accordingly, this research aims to discover the local financial performance in Indonesian outermost and foremost areas based on the various calculating indicators. This research also intends to reveal the local financial independence impacts of outermost and foremost areas on their people’s welfare. The analysis results indicate that most of the outermost and foremost local governments in Indonesia possess a very low financial independent ratio. Those areas still prioritize their government expenditure to fulfill the indirect purchase which is not paying attention to develop their areas. Overall, the financial performance of those areas until now does not contribute a real impact on improving the border people’s welfare. Keywords: national border, local financial performance, regional autonomy Introduction neighbor states. Some of the provinces are Aceh, North Sumatera, Riau, Kepulauan Riau, Raising Indonesia from the edges West Kalimantan, North Kalimantan, East by enhancing areas and villages in the Kalimantan, North Sulawesi, Maluku, North frame of unitary state is the third vision Maluku, East Nusa Tenggara, Papua, and West in a Medium-Term National Government Papua (Bappenas, 2010). Development Plan 2014-2019 (Nawacita). This commitment reflects the attention of central The nation border areas have certain government prioritizing the development in characteristic problems, such as cross-culture the underdeveloped, outermost, and foremost problems among residents, trafficking, illegal regions. As a manifestation that the state is logging, poverty, abandonment, isolated, and present and protect its all citizenships, regions other social problems. These problems possess becoming the face of Indonesia should be huge impacts on the image of Indonesia in ameliorated and encouraged towards progress the eyes of the international community. (Bappenas, 2016; Ditjen PDT, 2018). A minimum facility of basic infrastructure bolstering the economic activities and logistics Geographically, sovereignty and has deteriorated this condition such as roads, juridical territories of Indonesia are bordered ports, and airports. This limitation makes the with 10 (ten) neighborhood countries both at socio-economic conditions of people in some land and sea, namely Malaysia, Singapore, border areas are still not shifting yet to be Thailand, India, Vietnam, Australia, Papua better. This situation induces the happening New Guinea, Philippines, Timor Leste, and socio-economic gaps of people in the areas Palau. At least 13 (thirteen) provinces of highly compared to the same areas of the Indonesia which are being the national borders neighbor countries (Bappenas, 2010). Based and foremost small islands are directly facing on the data released by the Central Bureau of to the sovereignty and juridical territories of Received: 2019-08-19, Revised: 2019-10-05, Accepted: 2019-12-25 Print ISSN: 0215-8175; Online ISSN: 2303-2499. DOI: https://doi.org/10.29313/mimbar.v35i2.5027 Accredited Sinta 2 based on the decree No.10/E/KPT/2019 until 2024. Indexed by DOAJ, Sinta, Garuda, Crossreff, Dimensions 402 MIMBAR, Vol. 35 No. 2nd (2019) Statistics in 2017, the majority of Indonesian Central Bureau of Statistics, and the National outermost and foremost areas have the Border Management Authority. The collected Human Development Index less than the data consist of budget and realization of national average index namely 70.81. On the the Regional Government Budget, Human other hand, the poverty rate in some parts Development Index, poverty, expected of the areas is still higher than the national years of schooling, and expenditure per poverty rate (10.12 percent), especially the capita according to regency/municipality in areas in eastern Indonesia. Indonesia in 2017. Implementing the regional autonomy This research commonly applies a policy and fiscal decentralization conducting quantitative analysis method by calculating currently is expected to able to encourage financial ratios to carry out the analysis of the local creativity in driving the local income local financial performance. The calculating resources by putting the strength on the financial performances utilize formulations regional itself paying attention to competitive referring to Halim (2001), Fitriani and advantage and the existing potential revenue Dwirandra (2014), Nirwana et al. (2014), resource (Nuringsih, 2006; Baihaqi, 2012; Andirfa et al. (2016), Nugraha and Amelia Junarwati et al., 2013; Harteti et al., 2014; (2017), Pilat and Morasa (2017), and Prihastuti et al., 2015; Haryanto, 2018). Marayadnya et al. (2018) as follows. Regarding the mentioned matters above, Local Financial Independence Ratio. the outermost and foremost areas need to This indicator shows the capability of local exhibit good performance and accountability government in self-financing their own in financial management that can boost the government activities, development, and accelerating development of those areas public services. (Ratna, 2012; Fidelius, 2013; Pramono, 2014; Suryaningsih et al., 2015; Marlina et al., 2017). For this reason, research regarding the financial performance of the outermost and foremost areas of Indonesia is important to be conducted. Moreover, the research Table 1 provides assessment criteria of can demonstrate the ability of local financial local financial independence levels. independence to improve the welfare of Local Financial Dependency Ratio. border communities. This indicator shows the ability of the local Based on the explanation above, government in optimizing local government this research aims to analyze the local revenue to finance their local development financial performances of outermost and activities. foremost areas of Indonesia at regency or municipality level based on five calculating ratios (local financial independence, local financial dependency, fiscal decentralization, effectiveness, and expenditure suitability). Furthermore, this research aims to analyze Table 2 provides assessment criteria of the local independence impacts of outermost local financial dependency levels. and foremost areas on the welfare of border Fiscal Decentralization Ratio. This people, which are indicated by the poverty rate indicator is a measurement of local government and Human Development Index. The results capability to escalate local government of this research hopefully can contribute revenue for financing development. as inputs for central and local government in promoting the financial performance of outermost and foremost areas to accelerate the welfare of people in the border areas. The criteria to determine the fiscal Research and Methodology decentralization can be categorized according to Table 3. The type of data in this research is secondary data sourcing from various Effectiveness Ratio. This indicator institutions such as the Directorate General points out the capability of local government of Fiscal Balance Ministry of Finance, the in realizing the planned local government Accredited by Sinta Rank 2 based on Ristekdikti No.10/E/KPT/2019 until 2024 403 SRI SUARTINI. Local Financial Performance and Its Impact on Border Community Welfare Table 1 Assessment Criteria of Local Financial Independence Ratio Range Criteria of Local Financial Independence Relationship Pattern 0.00% - 25.00% Very Low Instructive 25.00% - 50.00% Low Consultative 50.00% - 75.00% Medium Participative 75.00% - 100.00% High Delegate Source: Mahmudi (2010) in Mahulae (2018) Table 2 Assessment Criteria of Local Financial Dependency Ratio Range Criteria of Local Financial Dependency 0.00% - 10.00% Very low 10.01% - 20.00% Low 20.01% - 30.00% Medium 30.01% - 40.00% Fair 40.01% - 50.00% High >50.00% Very High Source: Badan Litbang Depdagri RI and Fisipol UGM (1991) Table 3 Assessment Criteria of Fiscal Decentralization Level Ratio Range Criteria of Fiscal Decentralization 0.00% - 10.00% Very low 10.01% - 20.00% Low 20.01% - 30.00% Medium 30.01% - 40.00% Enough 40.01% - 50.00% High >50.00% Very High Source: Badan Litbang Depdagri RI and Fisipol UGM (1991) Table 4 Assessment Criteria of Effectiveness Level Ratio Range Criteria of Effectiveness <75.00% No Effective 75.00% - 89.00% Less Effective 90.00% - 99.00% Enough Effective 100.00% Effective >100.00% Very Effective Source: Mahmudi (2010) in Mahulae (2018) revenue compared to the assigned targets Expenditure Suitability Ratio. This based on the local real potency. indicator exhibits the ability of the local government in prioritizing its fund allocation on direct and indirect purchasing optimally. There were two calculations in this ratio that is written in the following formula. The criteria to specify the effectiveness Furthermore, the quantitative analysis level is able to be distinguished according to used in this research was multiple linear Table 4. regression. This analysis was taken to analyze 404 ISSN 0215-8175