Managing Resources to Build Back and Create a Better Future for Nias Nias Public Expenditure Analysis 2007 NPEA THE WORLD BANK OFFICE JAKARTA Jakarta Stock Exchange Building Tower II/12-13th Fl. Jl. Jend. Sudirman Kav. 52-53 Jakarta 12910 Tel: (6221) 5299-3000 Fax: (6221) 5299-3111 THE WORLD BANK The World Bank 1818 H Street N.W. Washington, D.C. 20433 USA Tel: (202) 458-1876 Fax: (202) 522-1557/1560 Email : [email protected] Website : www.worldbank.org First Edition printed in July 2007 Cover photographs Top left, top right and bottom right: Copyright © Aji Yahuti Ramyakim Bottom middle: Copyright © Eka Hasfi Adha Bottom left : Copyright © Enrique Blanco Armas Inside photos Copyright © Aji Yahuti Ramyakim: Executive Summary, Chapter 1 and Annexes. Copyright © Eka Hasfi Adha: Chapters 4 to 7. Copyright © Enrique Blanco Armas: Chapters 2 and 3. Managing Resources to Build Back and Create a Better Future for Nias is a product of staff of the World Bank. The fi ndings, interpretation and conclusion expressed herein do not necessarily refl ect the views of the Board of Executive Directors of the World Bank or the government they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomination and other information shown on any map in this work do not imply any judgement on the part of the World Bank concerning the legal status of any territory or the endorsement of acceptance of such boundaries. For any questions regarding this report, please contact Wolfgang Fengler, [email protected] or Cut Dian Agustina, [email protected]. Managing Resources to Build Back and Create a Better Future for Nias Nias Public Expenditure Analysis 2007 Nias Public Expenditure Analysis 2007 Foreword Already one of the poorest regions in Indonesia, the island of Nias was badly aff ected by the twin disasters of the 26 December 2004 tsunami and a devastating earthquake that struck three months later, on 28 March 2005. Almost 1,000 lives were lost in the two disasters and buildings and infrastructure were destroyed in coastal areas and across the island. The Government of Indonesia and the international community responded generously following the earthquake, with nearly US$500 million being allocated for reconstruction by December 2006 — slightly higher than the estimated value of the damage and losses caused by the two disasters. Now, more than two years after the disasters, and despite the signifi cant progress that has undoubtedly been made, some troubling trends are starting to emerge, of which this report takes stock. In particular, funds are not being disbursed at the desired pace as the reconstruction eff ort faces enormous implementation challenges. Although there seem to be suffi cient funds for the reconstruction of the island, there are still worrying geographical and sectoral gaps in the reconstruction process, creating unnecessary imbalances. Also, despite the involvement of the two district governments in the reconstruction process, their budget allocations for operations and maintenance are very small. This jeopardizes the longer-term sustainability of the reconstruction work that is being undertaken. The two district governments should be playing a key role in the current reconstruction eff ort and, more importantly, in the future development of the island. In view of this, this report also analyzes the district governments’ use of public fi nances since 2001, when decentralization was implemented in Indonesia. The island of Nias, as with the rest of Indonesia, experienced an increase in district government revenues and responsibilities after 2001. However, both districts in the island — Nias and Nias Selatan — have not benefi ted as much from decentralization as other poor regions, particularly until 2005. As a result, overall spending on social and infrastructure services is lower than in most other parts of Sumatra and Indonesia, despite a record 50 percent spending on education. The Nias Public Expenditure Analysis off ers recommendations on how to increase the amount of public resources going to the island, as well as how to improve the eff ectiveness of public spending — critical in the face of low per capita revenues and the developmental needs of the island. This report is the result of close collaboration between the World Bank, the Demographic Institute at the Faculty of Economics, University of Indonesia, and the BRR-Nias offi ce, as well as the two district governments on the island of Nias. The allocation of signifi cant resources for reconstruction, as well as the decentralization process, entails both opportunities and challenges for the development of Nias. We hope that this report assists in making use of those opportunities and overcoming the challenges by informing the planning and budgeting process of the two district governments in Nias, and analyzing constraints in public fi nancial management in both districts, as well as identifying key gaps in the reconstruction process. Christian Rey William Sabandar Coordinator of the Aceh and Nias Recovery Program, Head of Rehabilitation and Reconstruction Agency World Bank (BRR) Nias Managing Resources to Build Back and Create a Better Future for Nias i Nias Public Expenditure Analysis 2007 Acknowledgments This report was prepared by a team from the World Bank led by Cut Dian Agustina, together with Ahya Ihsan and Peter Rooney. The core team comprised Adrianus Hendrawan, Harry Masyrafah, Sukmawah Yuningsih and Sylvia Njotomihardjo. The team from the Demographic Institute at the Faculty of Economics, University of Indonesia, was led by Suahasil Nazara and included Mulia Hamonangan L. Tobing, Bernard Nazara and Triasih Djutaharta. Deni Friawan prepared the background of the report and managed the initial data collection and analysis. Enrique Blanco Armas and Wolfgang Fengler coordinated and oversaw the overall process. Arnold Lopulalan provided outreach and facilitation to the two district governments and donors in Nias. The team received guidance throughout the process from Victor Bottini (Resident Representative of the World Bank in Aceh) and Joel Hellman (Chief Governance Advisor and Aceh Coordinator, World Bank). The report benefi ted from valuable inputs from peer reviewers Kai Kaiser and Javier Arze from the World Bank. Valuable comments were also received from Bambang Suharnoko, Eleonora Suk Mei Tan, and Bastian Zaini. Thanks also go to Elvi Farida for logistical support. Special thanks go to Peter Milne for editing and Arsianti for assisting with formatting and production. Thanks also go to Aji Yahuti Ramyakim, Eka Hasfi Adha and Enrique Blanco Armas for allowing the use of their photographs. The team would like to express its gratitude to all those who participated in the seminar discussions in Nias and all the technical agencies (Dinas) involved in the data collection and analysis. The team is especially grateful to Bapak Binahati Baeha (bupati of Nias district) and Bapak Fahuwusa Laia (bupati of Nias Selatan district), and Bapak William Sabandar (Head of BRR-Nias offi ce) for their support and commitment. Thanks go the British, Dutch and Singaporean government, who provided substantial fi nancial support. ii Managing Resources to Build Back and Create a Better Future for Nias Nias Public Expenditure Analysis 2007 Map of Nias Gunung Sitoli KAB. NIAS KEPULAUAN HINAKO KAB. NIAS SELATAN Teluk Dalam KEPULAUAN BATU Banda Aceh Medan NORTH SUMATRA Pakanbaru PULAU NIAS Jambi Palembang Managing Resources to Build Back and Create a Better Future for Nias iii Nias Public Expenditure Analysis 2007 Glossary of Terms APBD Regional Government Budget (Anggaran Pendapatan dan Belanja Daerah) APBN State Budget (Anggaran Pendapatan dan Belanja Negara) Bappeda Regional Development Planning Agency (Badan Perencanaan Pembangunan Daerah) Bappenas National Development Planning Agency (Badan Perencanaan Pembangunan Nasional) BCG Bacillus of Calmette and Guerin BKD Regional Civil Service Board (Badan Kepegawaian Daerah) BPHTB Land and building transfer fee (Bea Perolehan Hak atas Tanah dan Bangunan) BPS Central Bureau of Statistics (Badan Pusat Statistik) BPS-SK Financial statistics from Central Bureau of Statistics (Statistik Keuangan Badan Pusat Statistik) BRR Rehabilitation and Reconstruction Agency (Badan Rehabilitasi dan Rekonstruksi) Bupati District Head DAK Special Allocation Fund (Dana Alokasi Khusus) D&L Damage and Loss DAU General Allocation Fund (Dana Alokasi Umum) Decon Deconcentration Funds Desa Village Dinas Local Technical Agency Offi ce DPRD Provincial House of Representatives (regional parliament) (Dewan Perwakilan Rakyat Daerah) DPT Combined vaccination against diphtheria, pertussis, whooping cough and tetanus FGD Focus Group Discussions GDP Gross Domestic Product GER Gross Enrollment Rate GoI Government of Indonesia GRDP Gross Regional Domestic Product HDI Human Development Index IDP Internally Displaced Person IOM International Organization for Migration Kabupaten District (regency) Kecamatan Subdistrict Kelurahan Urban village Kepmen Ministerial Decree (Keputusan Menteri) Keppres Presidential Decision (Keputusan Presiden) Km Kilometer Kota City (urban district) LG Local Government MDF Multi-Donor Fund MDG Millennium Development Goal MoF Ministry of Finance MoHA Ministry of Home Aff airs MoNE Ministry of National Education NGO Non-Governmental Organization O&M Operations and Maintenance PAD Own-Source Revenue (Pendapatan Asli Daerah) PBB Land and Building Tax (Pajak Bumi dan Bangunan) PDAM Local Water Supply Utility