Institutional Arrangement: A Crucial Solution to Improve the Implementation

of Medium Term of Expenditure Framework (MTEF) in Indonesia

Presentation held Post Graduate Research (PGR) Conference: Institutions in International StudiesSchool of Social and International Studies, University of Bradford October 31, 2014

Mohammad Roudo PhD Program in International Development Department, The University of BirminghamPhone: +44 (63597096), E-mail: mxr338@bham.ac.uk

Outline Main Argument MTEF and 3 Elements of

PEM/PFM Problems Solutions and Challenges Conclusion

Main Argument

Elements of PEM/PFM (Schick 1998; World Bank, 1998)

Main Focus of Discussion1.Significant and interesting development and challenges2.Significant and direct contribution to the improvement of the quality of life of Indonesian people.

This Element is not discussed in this paper

MTEF in Indonesia

MTEF and 3 Elements of PEM/PFM(Ministry of Finance, 2012; The World Bank, 2008).

This Element is not discussed in this paper

MTEF and Allocative Efficiency

Why do the role and power of MoF become weakened?

Dual Budget InstitutionThe Fact: 1.Currently, coordination is only made occasionally in particular events (e.g Trilateral Meeting)2.A ‘white elephant project’ issue3.Different perceptions to determine priority programmes4.Check and balance mechanisms can still be set internally or by using external auditors

Increasing Roles of ParliamentThe Fact: 1.Sometimes, this is not followed by an increase in capacity of parliament members on financial/budget issues 2.The discussions focus on the level of inputs , only in few cases, the budget allocation justification/judgement is made by parliament based on national priorities3.Allocation based on national priorities becomes more difficult and MTEF becomes ineffective at dealing with allocative efficiency

Solution 1: Integration planning and budget institutions

Solution 2: Introduction of financial and performance information

Conclusion• MTEF is the most important and progressive change in Indonesia’s

PEM/PFM reforms. • Positive attainments in maintaining aggregate fiscal discipline: smaller

deficits in the total budget, more accurate projection of future incomes, Less spending on unnecessary expenditure

• The roles of MTEF in dealing with allocative issues are still challenging: there is significant money still allocated to non-priority programmes , less certainty and miscalculations in recurrent budgets.

• The Problems of Institutions: Weakness of the Indonesian MoF, A weak link between policy and the budget , Ineffective MTEF when dealing with allocative efficiency issues.

• Recommendations in Future Reforms• Integration of the budget institutions • The introduction of FMIS to parliament

• What is required• Consider some constraints and challenges • Learning some lessons from international practices • Political support and commitment from political elites or even people pressure.

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