Optimization Funds To Be Used for Priority Programs

Finance Minister Bambang Brodjonegoro said in Jakarta on Wednesday (22/6/2016) that optimization funds set to be allocated to ministries, state institutions and local administrations would be used for priority programs.

The Finance Ministry and the House of Representatives Budget Agency (Banggar) will formulate criteria to ensure the funds are used to finance priority projects.

"Not all ministries and state institutions will get extra funds because the amount is limited. Thus, the allocation is only for priority programs. So far, the allocation has not yet been decided. Later the government and the legislature will set the criteria," Bambang added.

The government and the House are discussing the draft of the revised 2016 state budget. A change in the assumption of oil prices and net oil production has resulted in extra funds of Rp 49.9 trillion. The additional funds are called optimization funds.

The Finance Ministry and Banggar agreed to allocate the largest part of the optimization funds, about Rp 18 trillion, to increase the spending of certain ministries and state institutions. About Rp 7.4 trillion will be used to increase the special allocation fund (DAK) for local administrations.

As much as Rp 16.6 trillion will be used to reduce the budget deficit from Rp 313.3 trillion, 2.48 percent of gross domestic product (GDP), to 296.7 trillion or 2.35 percent of GDP in the draft of the revised 2016 state budget. The remainder will be used to increase expenditure for education and health, as well as for debt interest payments.

The Rp 18 trillion allocated for ministries and state agencies, Bambang said, could be used for new programs or to revive programs that have been cancelled due to budget cuts, as long as they are categorized as priority projects.

Proposal

The director general of budgets at the Finance Ministry, Askolani, said the allocation of optimization funds would be decided by Banggar and the ministry. "The detailed allocation of the funds will be based on proposals from ministries and state agencies as well as a proposal from the House's commissions," said Askolani.

The director general of fiscal balance at the Finance Ministry, Boediarso Teguh Widodo, said about Rp 7.4 trillion of the optimization funds would be used to increase special allocation funds for local administrations.

Previously, the Finance Ministry aimed to cut the special allocation funds by Rp 6 trillion. Thus, the total special allocation funds will increase from Rp 85.5 trillion to Rp 86.9 trillion.

Detailed allocations, according Boediarso, will be determined jointly by Banggar and the Finance Ministry. The mechanism should be based on proposals from local administrations and be submitted to the relevant ministries as well as the Finance Ministry and the National Development Planning Agency.

"Will all regions receive funds? We don't know yet. Details of the allocations will be discussed by the working committee on local transfers," Boediarso added.

Separately, executive director of the Institute for Development of Economics and Finance, Enny Sri Hartati, said using funds obtained from a change in the assumption of oil prices and oil production was risky because the target could be missed.

As world oil prices are very volatile, the government could miss the new price assumption of US$40 per barrel in the revised state budget. The new oil production target could also be missed because oil production has showed a declining trend in the last 10 years.

"It's risky. The target can be missed. The optimization funds are actually a form of a bargaining powerf rom the legislature against the government. It could be a form of barter from the government so that the House will pass the tax amnesty bill," Enny said.

source Kompas, Thursday, June 23, 2016