67534 2011 North Sulawesi Public Expenditure Analysis Sub-National Public Financial Management and Development in Bumi Nyiur Melambai* THE WORLD BANK OFFICE JAKARTA Indonesian Exchange Building Tower II. 12th-13th Fl. Jln. Jenderal Sudirman, Kav. 52-53 Jakarta – 12190 Phone.(+6221) 5299 3000 Fax. (+6221) 5299 3111 Printed in August 2011 Cover Photographs: Copyright ©Bastian Zaini: Background, Top right, Top left. Copyright © Guntur Sutiyono: Middle Photo. Inside photos: Copyright ©Bastian Zaini: Chapter 1, Chapter 2, Chapter 3, Chapter 4. Copyright © Guntur Sutiyono: Executive Summary, Chapter 6, Attachment, Pages inter chapters. Copyright © Indira Maulani Hapsari: Chapter 5. 2011 North Sulawesi Public Expenditure Analysis. Sub-national Public Financial Management and Development in Bumi Nyiur Melambai is a collaboration between the Sam Ratulangi University research team, the Sub-national Government of North Sulawesi and the World Bank. The findings, interpretation and conclusion herein do not necessarily reflect the opinion of either the Executive Board of World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this report. The limitations, colors, numbers and other information specified in every map in this report do not reflect the World Bank’s judgment on the legal status of any territory or constitute a recognition and acceptance of such limitations. For further questions about this report, please contact Bastian Zaini (bzaini@worldbank.org). * “Bumi Nyiur Melambai” refers to North Sulawesi Province. It means “The Land of the Swaying Coconut Palms”. 2011 North Sulawesi Public Expenditure Analysis Sub-National PublicFinancial Management and Development in Bumi Nyiur Melambai* Acknowledgements This report was prepared by the Government of North Sulawesi Province, in cooperation with the Economics Faculty of Sam Ratulangi University (UNSRAT), the Canadian government through CIDA and the World Bank. We express our gratitude to the research team led by Vekie Masinambow, the members of which included Veckie Rumate, Agus Tony Poputra, Lendy Siar, Margaretha Bolang, Richard Tumilaar, Caroline Pakasi, Magdalena Wullur, Victor Lengkong, Patrick Waurang and Bode Lumanauw. The data team of FE- UNSRAT coordinated by Bobby Hamenda, the members of which included Raymond Dirks, Feyne Kairupan, Meiggy Irooth and Gita Randang, assisted in preparing the fiscal data for the purpose of report writing. The Economics Faculty of Sam Ratulangi University (FE UNSRAT) under the coordination of Mr. David Paul E. Saerang assisted by Mr. Joy Elly Tulung managed the administration and reporting. The World Bank team was led by Guntur Sutiyono and Bastian Zaini, assisted by Erryl Davy, Ihsan Haerudin, Indira Maulani Hapsari, Chandra Sugarda, Magda Galingging and Adrianus Hendrawan. We convey our gratitude to the members of the Project Management Committee (PMC) who actively participated in providing inputs during the report preparation process, and to North Sulawesi’s district/ municipality governments and their agencies for contributing to data collection. The team especially expresses its gratitude and gives its fullest appreciation for the hard work and support of the Head of the Regional Development Planning Agency (BAPPEDA) of North Sulawesi Province as the Chairperson of PMC, Mr. Noldy Tuerah and Mr. Lucky Londong, as well as Head of Financial Bureau of North Sulawesi Province as the secretary of PMC, Mr. Praseno Hadi as well as Mr. Charles Kepel from Eastern Indonesia Region Forum Work Unit. Daan Pattinasarany and Amin Subekti directed the preparation process for this report. We express our gratitude to Wolfgang Fengler, Bill Wallace, Soekarno Wirokartono, Cut Dian Rahmi, Ahya Ihsan, Elaine A. Tinsley, as well as colleagues from the World Bank and CIDA for their suggestions and inputs. We also convey our gratitude to Sarah Sagitta Harmoun and Sandra Buana Sari for their logistic support. Last but not least, our appreciation also goes to Caroline Tupamahu and the BaKTI Foundation, which facilitated the Public Expenditure Analysis and Capacity Harmonization (PEACH) in North Sulawesi. ii North Sulawesi Public Expenditure Analysis 2011 Foreword North Sulawesi province is one of the most developed provinces in eastern Indonesia. Far-reaching development has taken place over the past ten years. Presently, North Sulawesi province has the second highest Human Development Index score in Indonesia, and its poverty rate is low in comparison with other provinces. Over the past decade, per capita gross regional domestic product (GRDP) has doubled and sub- national government spending has increased significantly. Nevertheless, there remain various development challenges to address as well as various potential resources and opportunities to pursue. North Sulawesi’s performance in regional financial management has been relatively good, but discrepancies remain in the performance and capacity of different work units within each regional government and also between different regional governments in the province. As available fiscal resources constantly increase, regional governments in North Sulawesi must ensure that their planning, implementation and supervision – as well as budget evaluation – accord with local developmental characteristics, needs and orientations. To address challenges, take opportunities, and increase development performance, sub-national governments in North Sulawesi, particularly the provincial government, need to better utilize their fiscal resources. Clearer vision, mission, indicators and development targets must be accompanied by greater efforts to prepare a more directed budget, and to formulate higher quality programs and activities more consistent with planning targets. This report is an effort to assist North Sulawesi’s sub-national governments to improve their regional financial management performance, to improve the quality of planning and budgeting, and finally to contribute to local development performance. The report results from strong cooperation between sub-national governments in North Sulawesi province, the Economics Faculty of Sam Ratulangi University, which was supported by CIDA, the Australian Agency for International Development (AusAID) and the World Bank. North Sulawesi Province BAPPEDA played an important role in facilitating the preparation of this report. It is expected that this report will benefit North Sulawesi’s sub-national governments, sub-national governments elsewhere in Indonesia and the central government by serving as a reference for efforts to improve sub-national financial management performance and the regional development process. Finally, we hope that this report can contribute to better and more effective sub-national financial management and governance. S.H. Sarundajang Stefan G. Koeberle Governor Country Director, Indonesia North Sulawesi Province The World Bank iii North Sulawesi Public Expenditure Analysis 2011 Table of Contents Acknowledgements ii Foreword iii Table of Contents iv Glossary xi Executive Summary 1 Chapter 1 Introduction 9 1.1 North Sulawesi Province at a Glance 10 1.2 Demography, Manpower and Poverty 13 1.3 North Sulawesi’s Economy 17 1.4 North Sulawesi’s Competitive Advantages in Eastern Indonesia 21 Chapter 2 Public Financial Management in North Sulawesi 23 2.1 Introduction 24 2.2 Regional Regulatory Framework 25 2.3 Planning and Budgeting 26 2.4 Cash Management, Procurement, Asset Management and Regional Debts and Investments 28 2.5 Accounting and Reporting, Internal Audit, and External Audit and Supervision 30 2.6 Recommendations 31 Chapter 3 Revenue and Financing 35 3.1 North Sulawesi’s Revenue 36 3.1.1 Overview of Revenue in North Sulawesi 36 3.1.2 Own-Source Revenue 39 3.1.3 General Allocation Funds (DAU) 42 3.1.4 Special Allocation Funds (DAK) 43 3.1.5 Revenue Sharing (DBH) 44 3.2 Financing 45 3.3 Conclusion and Recommendations 46 Chapter 4 Expenditure 47 4.1 Overview of Sub-national Expenditure 48 4.2 Expenditure by Economic Classification 50 4.3 Sectoral Expenditure 52 4.4 Relationship between Expenditure and Gender 55 4.5 Conclusion and Recommendations 58 Chapter 5 Strategic Sector Analysis 59 5.1 Health Sector 60 5.1.1 Analysis of Health Sector Spending 60 5.1.2 Health Sector Outputs and Outcomes 62 iv North Sulawesi Public Expenditure Analysis 2011 Table of Contents 5.1.3 District/Municipality Analysis in North Sulawesi 63 5.1.4 Public Response to Health Services 66 5.1.5 Conclusion and Recommendations 67 5.2 Education Sector 67 5.2.1 Education Expenditure 67 5.2.2 Education Sector Outputs and Outcomes 69 5.2.3 District/Municipality Analysis in North Sulawesi 72 5.2.4 Public Response to Education Services 74 5.2.5 Conclusion and Recommendations 74 5.3 Infrastructure Expenditure 75 5.3.1 Infrastructure Spending 75 5.3.2 Infrastructure Sector Outputs and Outcomes 76 5.3.3 District/Municipality Analysis in North Sulawesi 79 5.3.4 Public Response to Infrastructure Services 81 5.3.5 Conclusion and Recommendations 81 5.4 Agriculture and Plantation Sector 82 5.4.1 Agriculture and Plantation Sector Expenditure 82 5.4.2 Agriculture and Plantation Sector Outputs and Outcomes 83 5.4.3 Conclusion and Recommendations 85 Chapter 6 Development of North Sulawesi as Indonesia’s Gateway to East Asia and the Pacific 87 6.1 North Sulawesi’s Potentials 88 6.1.1 Geography and Accessibility 88 6.1.2 Service and Plantation Products 90 6.1.3 Quality of Human Resources 91 6.2 Gender and Development in North Sulawesi 92 6.3 Conclusion and Recommendations for Future Development Policies in North Sulawesi 95 Bibliography 97 Annexes 99 Annex A. What is the North Sulawesi Public Expenditure Analysis? 100 Annex B. Methodology Notes 101 Annex C. Matrix of Conclusions and Recommendations 103 Annex D. Budget Master Table 108 Annex E. Gender Indicators 116 Annex F. Strength, Weakness, Opportunity, Threat (SWOT) Analysis for North Sulawesi as the Growth Center of Eastern Indonesia 119 v North Sulawesi Public Expenditure Analysis 2011 Table of Contents List of Figures Figure 1 North Sulawesi develops along with the development of other provinces 2 Figure 2 Similar to other provinces in Indonesia, there are inequalities in North Sulawesi 3 Figure 1.1 North Sulawesi is in a strategic location 10 Figure 1.2 North Sulawesi develops along with the development of other provinces 11 Figure 1.3 The poverty rate decreased in almost all of North Sulawesi’s districts/municipalities between 2005 and 2009 12 Figure 1.4 As with other provinces in Indonesia, discrepancies remain in North Sulawesi 12 Figure 1.5 Although the unemployment rate has decreased, it remains relatively high 15 Figure 1.6 Poverty in North Sulawesi province is the lowest in Indonesia 16 Figure 1.7 Economic growth in North Sulawesi continues to increase 17 Figure 1.8 The agriculture sector remains the largest contributor to North Sulawesi’s economy 18 Figure 1.9 North Sulawesi’s real per capita GRDP is the highest of any province in Sulawesi 18 Figure 1.10 The construction, large and small-scale trade, and transportation sub-sectors contribute significantly to GRDP and growth 19 Figure 1.11 Since 2005, North Sulawesi has attempted to address its lower growth rate compared to other provinces in Sulawesi 20 Figure 1.12 Prices in Manado tend to be lower than prices in Sulawesi’s other major cities 20 Figure 2.1 Public Financial Management Score of Sub-national Governments in North Sulawesi Province 24 Figure 2.2 Regulatory Framework Performance of Sub-national Governments in North Sulawesi 26 Figure 2.3 Planning and Budgeting Performance of Sub-national Governments in North Sulawesi 27 Figure 2.4 Sub-national Government Performance in Four Areas of Budget Implementation 30 Figure 3.1 Per Capita Revenue by Province, 2009 36 Figure 3.2 Real Sub-National Revenue in North Sulawesi, 2005-2009 36 Figure 3.3 Composition of North Sulawesi’s Sub-national Revenue, 2005-2009 37 Figure 3.4 Difference in the Composition of Sub-national Revenues between North Sulawesi Provincial and District/Municipality Governments, 2008 37 Figure 3.5 Composition of Per Capita Sub-national Revenue, by District/Municipality in North Sulawesi, 2009 39 Figure 3.6 Composition of North Sulawesi’s Own-Source Revenue, 2005-2009 39 Figure 3.7 Comparison of Own-Source Revenue Composition of North Sulawesi Province and Districts/Municipalities, 2009 40 Figure 3.8 Comparison of Per Capita Own-Source Revenue, by District/Municipality in North Sulawesi, 2009 41 Figure 3.9 Comparison of Per Capita Own-Source Revenue (PAD) In Newly Formed and Parent Regions 42 Figure 3.10 General Allocation Fund (DAU) Transfers to North Sulawesi, 2005-2010, by Level of Government 42 Figure 3.11 Per Capita General Allocation Fund (DAU) Transfers in North Sulawesi, by District/Municipality, 2009. 43 vi North Sulawesi Public Expenditure Analysis 2011 Table of Contents Figure 3.12 North Sulawesi’s Special Allocation Funds (DAK), 2005-2009 44 Figure 3.13 Overall Revenue Sharing (DBH) Transfers to North Sulawesi, 2005-2009 45 Figure 3.14 Budget Surplus and Deficit in North Sulawesi Province 45 Figure 4.1 North Sulawesi’s Sub-national Expenditure (including Deconcentration and Co-administration Funds), 2005-2009 48 Figure 4.2 Real per capita Public expenditure by province, 2009 49 Figure 4.3 Per Capita District/Municipality Public Expenditure in North Sulawesi in 2009 49 Figure 4.4 Per Capita Expenditure of Newly Formed and Parent Districts, 2009 50 Figure 4.5 North Sulawesi’s Sub-national Expenditure by Economic Classification, 2005-2009 51 Figure 4.6 Share of North Sulawesi Province and District/Municipality Expenditure by Economic Classification, 2005-2009 51 Figure 4.7 North Sulawesi’s Sub-national Expenditure by Sector, 2005-2009 52 Figure 4.8 Categories of Gender Responsive Budgeting (Sharp and Budlender, 1985) 56 Figure 5.1 North Sulawesi’s health spending has increased while its dependence on central government transfers has decreased 60 Figure 5.2 Capital expenditure increased rapidly in amount and as a proportion of health spending 61 Figure 5.3 The majority of provincial spending was allocated to personnel, whereas the highest allocation at district/municipality level was to capital spending 61 Figure 5.4 The number of people in North Sulawesi using public health facilities was the lowest in Sulawesi 62 Figure 5.5 The proportion of low-income earners choosing modern medication exceeded the proportion choosing other treatments 63 Figure 5.6 Archipelagic districts have the highest per capita health spending 64 Figure 5.7 Archipelagic districts have the lowest morbidity in North Sulawesi 64 Figure 5.8 Patterns of access to free health care facilities and ratio of health workers do not correspond 65 Figure 5.9 Coverage of births assisted by medical workers is better in urban areas 66 Figure 5.10 Respondent perceptions of public health services in North Sulawesi 66 Figure 5.11 Education spending in North Sulawesi has constantly increased, and constitutes more than 20 percent of total expenditure 68 Figure 5.12 Personnel spending in North Sulawesi’s education sector is very high 68 Figure 5.13 The role distribution between the province and districts/municipalities in education is reflected in each level’s spending composition 69 Figure 5.14 Literacy rate in Sulawesi, 2003-2009 70 Figure 5.15 Literacy rate in Sulawesi, by age group 70 Figure 5.16 Net enrollment rates in Sulawesi, by education level 71 Figure 5.17 iteracy rates of women in Sulawesi, by age group 71 Figure 5.18 Net enrollment rates of women in Sulawesi 72 Figure 5.19 As with health expenditure, archipelagic districts dominate the list of the largest education spenders in North Sulawesi 72 Figure 5.20 Net enrollment rate in North Sulawesi, by district/municipality 73 Figure 5.21 Respondent perceptions of public education services in North Sulawesi 74 vii North Sulawesi Public Expenditure Analysis 2011 Table of Contents Figure 5.22 Infrastructure spending in North Sulawesi has increased fourfold in five years, driven mainly by district/municipality spending 75 Figure 5.23 The share of spending on personnel has decreased at both provincial and district/municipality level 76 Figure 5.24 Basic Infrastructure Outcomes in Sulawesi 76 Figure 5.25 Access to clean water and sanitation in Sulawesi, by income group 77 Figure 5.26 Goods traffic at North Sulawesi’s main port has increased, whereas passenger traffic has fluctuated 78 Figure 5.27 Newly established districts have the highest infrastructure expenditure 79 Figure 5.28 Disparities remain in basic infrastructure coverage between municipalities and districts in North Sulawesi 80 Figure 5.29 Some low income earners in North Sulawesi have access to sanitation 80 Figure 5.30. North Sulawesi respondent perceptions of infrastructure services 81 Figure 5.31 Half of agriculture spending in North Sulawesi derives from central government transfers 82 Figure 5.32 Personnel spending at district/municipality level has decreased, whereas capital spending has increased 83 Figure 5.33 Urban areas have the highest spending on agriculture 85 Figure 6.1 The contribution of the service sector to North Sulawesi’s GRDP has increased 90 Figure 6.2 Hotel occupancy rates and the contribution of the service sector in North Sulawesi (2000 constant prices) 90 Figure 6.3 Indonesian Gender-related Development Index, 2005-2008 92 Figure 6.4 Occupation type for women in Sulawesi 93 Figure 6.5 Comparison of Human Development Index (HDI) and Gender-related Development Index (GDI) in North Sulawesi, 2005 – 2008 93 Figure 6.6 Comparison of HDI and GDI in Sulawesi, 2005 and 2008 94 Figure 6.7 Indonesian Gender Empowerment Index, 2005-2008 94 viii North Sulawesi Public Expenditure Analysis 2011 Table of Contents List of Tables Table 1.1 North Sulawesi’s population is concentrated in urban areas 13 Table 1.2 Manpower by Main Employment Sectors, February 2006 – February 2010 14 Table 1.3 Manado municipality has the highest unemployment rate 15 Table 1.4 North Sulawesi has the highest HDI score in eastern Indonesia 21 Table 2.1 Public Financial Management (PFM) Score of Sub-national Governments in North Sulawesi Province by Strategic Area, 2010 25 Table 2.2 Respondent Perception Scores for Various Musrenbang Indicators, by Stage 28 Table 2.3 Results of BPK Audit of Sub-national Governments Financial Statements in North Sulawesi, 2007-2009 31 Table 3.1 Composition of North Sulawesi’s Fiscal Revenue, 2005-2009 38 Table 4.1 Provincial Government Expenditure by Sector (Billion Rp. and Proportion of Total Expenditure), 2005-2009 53 Table 4.2 District/Municipality Government Expenditure by Sector (Billion Rp. and Proportion of Total Expenditure), 2005-2009 54 Table 4.3 Allocations Related to Women’s Empowerment in North Sulawesi Provincial APBD, 2008-2009 57 Table 5.1 Basic Health Outcomes in Sulawesi 62 Table 5.2 Literacy rate in North Sulawesi, by district/municipality and age group 73 Table 5.3 Passenger and goods traffic passing through Sam Ratulangi Airport has increased 77 Table 5.4 The proportion of good-quality road in North Sulawesi has increased 79 Table 5.5 Area of harvested fields and production of agricultural commodities in North Sulawesi 84 Table 5.6 Area of harvested field and production of plantation commodities in North Sulawesi 84 Table 6.1 Distance between Bitung Seaport and several international ports in the Pacific 88 Table C.1 Agenda and Proposals for the Sub-national Public Financial Management Capacity Building Programs in North Sulawesi Province 103 Table C.2 Matrix of Conclusions and Recommendations of Revenue and Expenditure Chapters 104 Table C.3 Matrix of Conclusion and Recommendations for Sectoral Chapter 105 Table C.4 Matrix of Conclusions and Recommendations for North Sulawesi’s Development Policy 107 Table D.1.1 Revenue by Source (million Rupiah) 108 Table D.1.2 Spending by Economic Classification (Million Rupiah) 109 Table D.1.3 Spending by Sector (Million Rupiah) 110 Table D.2.1 Deconcentrated Central Government Spending for North Sulawesi (Million Rupiah) 111 Table D.3.1 Real Per Capita Sub-national Revenues by District/Municipality, 2009 (Rupiah) 112 Table D.3.2 Real Per Capita Sub-national Spending by Economic Classification, by District/Municipality, 2009 (Rupiah) 113 Table D.3.3 Real Sub-national Spending by Usage, by District/Municipality, 2009 (Rupiah) 114 Table E.1 Indonesian Human Development Index, 2005-2008 116 Table E.2 Indonesian Gender-related Development Index, 2005-2008 117 Table E.3 Indonesian Gender Empowerment Index 2005-2008 118 ix North Sulawesi Public Expenditure Analysis 2011 Table of Contents Table F.1 Opportunities (O) and Strengths (S) – Weaknesses (W) 119 Table F.2 Opportunities (O) and Strengths (S) 121 Table F.3 Opportunities (O) and Weaknesses (W) 123 Table F.4 Threats (T) and Strengths (S) – Weaknesses (W) 125 Table F.5 Threats (T) and Strength (S) 127 Table F.6 Threats (T) and Weaknesses (S) 128 List of Boxes Box 6.1 89 Box 6.2 91 Box 6.3 95 x North Sulawesi Public Expenditure Analysis 2011 Glossary APBD Sub-national Budget (Anggaran Pendapatan dan Belanja Daerah) APEC Asia-Pacific Economic Cooperation APM Nett Enrollment Rate (Angka Partisipasi Murni) ASB Analysis of Spending Standards (Analisis Standar Belanja) ASEAN Association of South East Asian Nations Bawasda Regional Supervisory Agency (Badan Pengawas Daerah) BIMP-EAGA Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area BKPRS Regional Development Cooperation Agency of Sulawesi (Badan Kerja Sama Pembangunan Regional Sulawesi) BLUD Regional Public Service Agency (Badan Layanan Umum Daerah) Bolaang Mongondow East Bolaang Mongondow (district) Timur Bolaang Mongondow North Bolaang Mongondow (district) Utara Bolaang Mongondow South Bolaang Mongondow (district) Selatan BPK State Audit Board (Badan Pemeriksa Keuangan) BP Kapet Integrated Economic Zone Managing Agency (Badan Pengelola Kawasan Ekonomi Terpadu) BUMD Sub-national Government-Owned Enterprises (Badan Usaha Milik Daerah) CTI Coral Triangle Initiative DAK Special Allocation Funds (Dana Alokasi Khusus) DAU General Allocation Grant (Dana Alokasi Umum) DBH Revenue Sharing (Dana Bagi Hasil) DPA Budget Entry Form (Daftar Pengisian Anggaran) DPPKAD Local Revenue and Financial and Asset Management Service Office (Dinas Pendapatan dan Pengelolaan Keuangan dan Aset Daerah) IHP International Hub Port IDG Gender Empowerment Index (Indeks Pemberdayaan Gender) IPG Gender Development Index (Indeks Pembangunan Gender) IPM Human Development Index (Indeks Pembangunan Manusia) KEK Special Economic Zone (Kawasan Ekonomi Khusus) KUA/PPA Budgeting General Policy/Budget Ceiling and Priority (Kebijakan Umum Anggaran/Prioritas dan Plafon Anggaran) MICE Meeting Incentives Convention Event xi North Sulawesi Public Expenditure Analysis 2011 Glossary Minahasa Utara North Minahasa (district) Minahasa Selatan South Minahasa (district) Minahasa Tenggara Southeast Minahasa (district) MLO Main Lane Operator Musrenbang Development Planning Meeting (Musyawarah Perencanaan Pembangunan) PBJ Procurement of Goods and Services (Pengadaan Barang dan Jasa) PDB Gross Domestic Product (Produk Domestik Bruto) PDRB Gross Regional Domestic Product (Produk Domestik Regional Bruto) Perda Regional Regulations (Peraturan Daerah) Perkada Regional Head Regulation (Peraturan Kepala Daerah) Pengelolaang Keuangan Subnational Public Financial Management (Subnational PFM) Daerah (PKD) PLTP Geothermal Power Plant (Pembangkit Listrik Tenaga Panas Bumi) Posyandu Integrated health services outlet (Pusat Pelayanan Terpadu) PUG Gender Mainstreaming (Pengarusutamaan Gender) Puskesmas Community health center at sub-district level (Pusat Kesehatan Masyarakat) Renja Working Plan (Rencana Kerja) Renstra Strategic Plan (Rencana Kerja) RKPD Sub-national Government Work Plan (Rencana Kerja Pemerintah Daerah) RPJMD Regional Medium-Term Development Plan (Rencana Pembangunan Jangka Menengah Daerah) SB Cost Standard (Standar Biaya) SDKI Indonesian Demography and Financial Survey (Survei Demografi dan Keuangan Indonesia) SiKPA Budget Utilization Deficit (Selisih Kurang Penggunaan Anggaran) SiLPA Budget Utilization Surplus (Selisih Lebih Penggunaan Anggaran) Sitaro Siau Tagulandang Biaro (district) SKPD Sub-national Government Task Force (Satuan Kerja Pemerintah Daerah) Susenas National Socioeconomic Survey (Survei Sosial Ekonomi Nasional) UMP Provincial Minimum Wage (Upah Minimum Provinsi) WDP Qualified (Wajar Dengan Pengecualian) WOC World Ocean Conference WTP Unqualified (Wajar Tanpa Pengecualian) xii North Sulawesi Public Expenditure Analysis 2011 Executive Summary Executive Summary North Sulawesi is one of the most developed provinces in eastern Indonesia. As a border province, North Sulawesi has a strategic location as a link to East Asia and to the Moluccas and Papua. The province is endowed with natural resources, particularly maritime natural resources. Its population of 2.2 million people is divided between mainland Sulawesi and archipelagic regions to the island’s north. The province also has better human resource capacity than other eastern Indonesian provinces. North Sulawesi has undergone rapid development in the past ten years. North Sulawesi’s economy has doubled in size over the past decade and sub-national government spending in the province has increased almost tenfold. This increase in sub-national government expenditure is a feature of the fiscal decentralization process. In 2009, although per capita income in North Sulawesi was lower than the national average, North Sulawesi’s poverty rate was below the national figure. These trends have been influenced not only by the proliferation of Gorontalo province – formerly a part of North Sulawesi as Gorontalo district – but also by advances made by the province itself. Figure 1 North Sulawesi develops along with the development of other provinces Per Capita Gross Regional Domestic Product (GRDP) 1999 Per Capita Gross Regional Domestic Product (GRDP) 2008 (2000 constant prices), (Million Rupiah) (2000 constant prices), (Million Rupiah) Per Capita Sub-national Government Spending 1999 Per Capita Sub-national Government Spending 2009 (in Million Rupiah) (in Million Rupiah) Source: North Sulawesi Public Expenditure Analysis Database Note: Poverty rate (BPS, 2009); Per capita GRDP (BPS, 2008); Consolidated Per capita spending by province (Ministry of Finance, 2008) Human capital is one of North Sulawesi’s advantages. North Sulawesi has the highest Human Development Index (HDI) score in eastern Indonesia and ranks second nation-wide after Jakarta. The province’s HDI score has consistently increased in recent years, reaching 75.7 in 2009. North Sulawesi’s poverty rate is below the average provincial rate in Indonesia and is the lowest in eastern Indonesia. Its HDI score and low poverty rate indicate North Sulawesi’s greater human capital than other parts of eastern Indonesia. North Sulawesi is undergoing an economic transition. On the one hand, economic growth in the province has increased steadily over the past eight years, increasing on average by 5.1 percent annually to a 2009 growth rate of 7.9 percent. The main contributors to this growth were the trade, hotel and restaurant sector as well as the communication and transportation services sector. On the other hand, the agricultural sector, which is the largest contributor to the economy and employs the most people, grew only modestly and employed less of the workforce. Uneven development remains a challenge for North Sulawesi. Similar to other provinces in Indonesia, development inequalities are evident between different districts/municipalities in North Sulawesi. Regions 2 North Sulawesi Public Expenditure Analysis 2011 Executive Summary with better access to economic activities are developing much faster than other regions with limited access. In general, districts/municipalities in North Sulawesi can be classified as having either high or low per capita sub-national government expenditure. High per capita spending does not equate to better development conditions, however. The poverty rate is higher in districts/municipalities with high per capita spending than in regions with low per capita spending. Figure 2 Similar to other provinces in Indonesia, there are inequalities in North Sulawesi Source: North Sulawesi PEA Database Note: The size of the circles and the numbers within them represent the poverty rates of districts/municipalities. North Sulawesi performs well overall in sub-national public financial management, but many disparities in performance and capacity remain. North Sulawesi’s public financial management performance is above average. Various aspects require improvement or enhancement, however, such as the regional regulatory framework, asset management and reporting. Comparison between different sub- national governments also reveals significant disparities in planning and budgeting capacity. Sub-national governments have varying amounts of revenue, and remain dependent on the central government. Sub-national governments’ revenue continues to increase in North Sulawesi, both in terms of nominal value and per capita amount. Most revenue derives from central government fund transfers. These central government fund transfers continue to increase, making the dependency of sub-national governments increasingly evident. As a region undergoing a transition from an agriculture-dominated economy to an orientation to trade and services, many potential sources of revenue are yet to be optimally utilized. In addition, disparities persist in the per capita revenue of each sub-national government in North Sulawesi. Archipelagic districts tend to have higher per capita revenue than southern regions on mainland Sulawesi, particularly newly established southern districts. 3 North Sulawesi Public Expenditure Analysis 2011 Executive Summary Much remains to be done to improve the quality of sub-national government expenditure. The spending mix is improving overall, with capital expenditure continuing to increase as a proportion of overall expenditure, but personnel expenditure remains the largest area of spending. A relatively small proportion of expenditure is allocated to strategic sectors. Sub-national governments allocate less than 5 percent of expenditure to the agriculture, maritime and fisheries, and tourism sectors, even though most of the population draw their livelihood from these sectors, especially those living in rural areas. Performance of strategic sectors Overall, North Sulawesi’s strategic sectors (health, education, infrastructure and agriculture) are performing better than in other provinces in eastern Indonesia. Health and education have been performing well for some time. Increased sub-national government spending is yet to yield optimal results although performance is improving, particularly with respect to sectoral outcomes. Health Health indicators in North Sulawesi are good in broad terms. Various health indicators demonstrate that circumstances in North Sulawesi are better both than in neighboring provinces in Sulawesi and than the national average. The challenge for the sector is to address differing service distribution between districts/municipalities. Outputs and outcomes are relatively consistent in urban areas. In larger districts and especially in archipelagic districts, however, outcomes are varied. Transportation and geographical problems often hamper access to health workers in archipelagic districts. Sub-national government spending for health has increased, but remains a low proportion of overall expenditure. Health spending increased twofold from 2005 to 2009, but remained below 10 percent as a proportion of overall spending (province and district/municipality). The provincial government allocates most health spending to personnel expenditure. At district/municipality level, personnel spending and capital expenditure dominate in equal proportion (49 percent). Per capita health spending in archipelagic districts is higher than in other regions in North Sulawesi province. Education North Sulawesi’s educational outcomes are the best in Indonesia, as evident in education indicators such as school net enrollment rate and literacy rate. Nor are these results concentrated in urban areas or the provincial capital. Their distribution is relatively even in each district/municipality in North Sulawesi. Ongoing improvements in education outcome now tend to be modest because of the relatively high base. Moreover, disparities in education indicators in North Sulawesi are relatively slight, whether between different districts/municipalities, different age groups or by gender. These consistent educational outcomes have long been a feature of North Sulawesi. Education sector expenditure in North Sulawesi has increased more than twofold in the last five years, and is consistently above 20 percent as a proportion of overall spending. At the same time as education expenditure has more than doubled, personnel spending has also doubled, however. Almost all districts/ municipalities spend more than 20 percent of expenditure on education, with two districts spending as much as 40 percent. It should be noted that North Sulawesi’s dependence on the central government for education spending is increasing, however, as evident in the increasing allocation of deconcentration funds to the education sector each year. 4 North Sulawesi Public Expenditure Analysis 2011 Executive Summary Infrastructure The availability of clean water is North Sulawesi’s main infrastructure problem. Of the three areas of basic infrastructure, clean water coverage remains below access to sanitation or electricity coverage. Discrepancies remain between districts/municipalities and between income groups. Such discrepancies are evident in several newly established districts such as Minahasa Tenggara, Bolaang Mongondow Utara and Kepulauan Sitaro. The availability of transportation facilities for archipelagic regions is another infrastructure challenge. North Sulawesi’s three archipelagos, which are among the outermost territories of Indonesia, are highly dependent on sea transportation, especially on scant and weather-sensitive pioneer shipping. Passenger numbers have decreased as air transportation begins to displace sea transportation, but sea transportation will remain crucial to communities in archipelagic regions. Sub-national governments realize that infrastructure is a crucial requirement for development in North Sulawesi. Their awareness is evident in a fourfold increase in infrastructure spending over the past five years. The proportion of central government spending in North Sulawesi allocated to infrastructure has also increased from year to year. Agriculture The performance of commodities in the agriculture sector varies. Rice production in North Sulawesi increased by almost 100,000 tons (24 percent) during the past five years, although productivity remained relatively unchanged at 4.9 tons per hectare. Maize production increased more rapidly, growing by 161 percent over the same period, during which time the productivity of maize fields increased by almost 50 percent. There were also increases in production of nutmeg and cacao between 2005 and 2008, each of which have high potential as plantation commodities. Clove production fluctuated, because the major clove harvest cycle takes longer than a year. Coconut production in 2008 exceeded the 2005 figure, but its trend since 2006 has been to decrease. Optimal use is yet to be made of increased agriculture spending. Agriculture spending in North Sulawesi more than doubled between 2005 and 2009, although almost half of this spending originated from central government deconcentration funds. Overall, agriculture spending accounts for 6 percent of total sub-national government spending. Half of agriculture expenditure is allocated to personnel spending, although personnel spending is decreasing while capital expenditure is increasing. The majority of capital expenditure is allocated to construct government buildings, however. Gender and Regional Development North Sulawesi’s high gender outcome scores do not provide the whole picture of gender in the province. North Sulawesi’s Gender-related Development Index and Gender Empowerment Index scores exceed those of other provinces in Sulawesi, as well as the national average. This result accords with the better state of human resources in North Sulawesi as compared to other provinces in Sulawesi. Stakeholder interviews revealed trafficking of women and children to be a problem, however. Data on the number of cases remains difficult to obtain, because few cases are detected or reported. The gender-responsive budget in North Sulawesi remains relatively small. There are relatively few gender-related problems in North Sulawesi, but the province faces the issue of trafficking. The provincial 5 North Sulawesi Public Expenditure Analysis 2011 Executive Summary government has allocated only limited funds to address trafficking and other gender-related problems. A greater spending allocation is required to promote women’s empowerment in North Sulawesi’s economic development so as to improve the standard of living of women. Regional Development North Sulawesi has the opportunity to lead development in eastern Indonesia, for three reasons: (i) North Sulawesi is strategically located as a link both to the Asia-Pacific region as well as between the Maluku and Papua regions with the rest of Indonesia; (ii) the province’s economy is currently making the transition from agriculture to be oriented to trade and service sectors; (iii) the quality of North Sulawesi’s human resources is more competitive than in other regions in eastern Indonesia. However, North Sulawesi is yet to make optimal use of this opportunity. Limited resources and capacity are not the only causes; regional development planning needs to reflect provincial characteristics and capabilities. With its strategic location, North Sulawesi must also consider whether its comparative advantage lies in acting as a growth center or as a hub. The switch of economic activities from agriculture to trade and services will also require different types of supporting infrastructure. Development Agenda North Sulawesi has several advantages and opportunities that policy makers can utilize to address various existing challenges. These advantages include human resources potential, geographic position, and the economy, which has started to shift towards trade and services. Meanwhile, North Sulawesi’s sub- national governments face three key development challenges: (i) improving the quality of sub-national public financial management with a focus on capacity, problematic areas and more effective planning and budgeting processes; (ii) improving the quality of the budget and public services by shifting focus towards improving the quality, access and distribution of services; and (iii) establishing a regional development strategy that reflects the strengths and characteristics of the province. Improving the quality of sub-national public financial management The provincial government needs to facilitate a capacity building process for sub-national financial management in North Sulawesi. The provincial government along with Sangihe, Minahasa and Kotamobagu district governments each have superior performance in one field or another of public financial management. Such performance provides base capital to promote mutual learning to reduce capacity disparities between regions in various aspects of sub-national public financial management. Bottom-up participatory planning and budgeting mechanisms at district/municipality level require improvement. Development Planning Forums (Musrenbang) at village, sub-district and district/municipality level are the available mechanism to encourage public participation in planning and budgeting. The quality and effectiveness of the Musrenbang mechanism requires further improvement. Improving the quality of public expenditures and services The spending mix of sub-national governments in North Sulawesi requires enhancement. The large proportion of spending allocated to personnel expenditure signals the need for a staged rationalization of the number of regional government employees. Steps to achieve this rationalization could include (1) a 6 North Sulawesi Public Expenditure Analysis 2011 Executive Summary reduction of the number of personnel through natural attrition, namely by recruiting fewer new personnel than the number of personnel retiring; (2) recruiting qualified personnel and providing appropriate training to enhance productivity; and (3) reallocating personnel from over-staffed to under-staffed divisions to avoid unnecessary recruitment. Improvements are required to the quality of and access to services in the education and health sectors. Development outcomes in health and education in North Sulawesi have been relatively good, but several policies require prioritization, such as: (i) increasing the number of health workers to enhance access to health for people in archipelagic and hinterland areas in North Sulawesi; (ii) improving the quality of education outcomes or graduates in accordance with North Sulawesi’s characteristics and development needs (for example, by revitalizing vocational education or training in the agriculture, tourism, trade and service sectors). Better access for the poor to sanitation and the provision of transportation facilities for archipelagic areas should be established as key infrastructure expenditure priorities. Sub-national governments’ commitment to infrastructure development is reflected in the fourfold increase in expenditure during the last five years. Moving forward, the following areas should be prioritized: (i) improving basic infrastructure access for low-income earners, in particular the provision of clean water and access to sanitation; (iv) supporting pioneer shipping services, since such routes are not attractive to private shipping lines. Priorities for agriculture expenditure require enhancement and improvement. A crucial issue in the agriculture sector is the high risk of harvest failure for agricultural commodities, such as rice and secondary food crops, which are vulnerable to climate change. Sub-national governments in North Sulawesi must prepare facilitation and awareness programs to assist farmers to adapt to such climate change. Sub-national governments should reduce capital expenditure on the construction of government buildings to allow a greater portion of expenditure to be allocated to agricultural facilitation and extension programs, which may have direct impacts on sectoral performance. Improvements to recording and reporting systems are required, as well as improvements in the system for the collection of data on victims of violence. Violence against women has received a very high level of public attention in North Sulawesi, but recording and data collection systems for victims of violence are not in place. These could be sited at the Women’s Empowerment and Child Protection Bureau (in cooperation with the police and public prosecutor’s office). More serious efforts are required to improve the reporting, recording and data collection systems to facilitate fast, accurate and periodic access for data and information users to feed into formulation of policies, programs and activities for the protection of women and children. A regional development strategy that reflects North Sulawesi’s characteristics and strengths An increase is required in sub-national government spending that relates directly to regional economy development. There is little sub-national government spending in the sectors in which North Sulawesi enjoys an advantage. Only 3 percent of overall expenditure is allocated to agriculture, 0.5 percent to tourism, and 1 percent to the fisheries and maritime sector. Appropriate efficient programs are required, including developing the skills and work ethics of workers in those sectors, and providing adequate finance to enable these advantageous sectors to accelerate the achievement of community welfare. An agro- industry policy should be pursued in tandem with these measures to add greater value to North Sulawesi ‘s plantation products. 7 North Sulawesi Public Expenditure Analysis 2011 Executive Summary The regional development strategy must reflect North Sulawesi’s comparative advantages. In view of North Sulawesi’s strategic location, the regional development strategy should focus on the province’s role as a hub, acting as a point of entry and exit for flows of goods and services to and from eastern Indonesia, especially the Maluku and Papua regions, and to the Asia-Pacific. An in-depth review is required of North Sulawesi’s natural resource potential and the potential to generate tax and charges revenue. Such a review must consider connectivity, namely the regional relationships between North Sulawesi as a province; North Sulawesi as a part of Sulawesi; and between North Sulawesi as a part of eastern Indonesia with other regions in Indonesia. 8 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction Chapter 1 Introduction 1.1 North Sulawesi Province at a Glance North Sulawesi was one of the first provinces to undergo Proliferation. North Sulawesi province was established through Law no. 13/ 1964 with Manado as its capital city. Until early 2000, North Sulawesi comprised five districts and three municipalities. In 2000, North Sulawesi proliferated under Law no. 38/2000 to become two provinces, namely North Sulawesi province and Gorontalo province with Manado municipality and Gorontalo municipality as their respective capital cities. Since this division, several of North Sulawesi’s remaining districts and municipalities have also proliferated. As of 2010, North Sulawesi comprised four municipalities - Manado, Bitung, Tomohon and Kotamobagu – and eleven districts, namely Minahasa, Minahasa Utara, Talaud, Sitaro, Minahasa Selatan, Minahasa Tenggara, Sangihe, Bolaang Mongondow, Bolaang Mongondow Utara, Bolaang Mongondow Selatan and Bolaang Mongondow Timur. Figure 1.1 North Sulawesi is in a strategic location Districts/Municipalities in North Sulawesi Minahasa Selatan District Bolaang Mongondow Selatan District Minahasa Tenggara District Bolaang Mongondow Timur District Minahasa Utara District Bolaang Mongondow Utara District Bitung municipality Kepulauan Siau Tagulandang Biaro (Sitaro) Kotamobagu municipality District Manado municipality Kepulauan Sangihe District Tomohon municipality Kepulauan Talaud District Minahasa District 10 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction Territorial Area 15,359 km2 (BPS, 2009) Population 2,228,856 (BPS, 2009) Poverty rate 9.79 percent (BPS, 2009) Per capita PDRB (basic year constant 2000) Rp6,987,000 (BPS, 2009) The number of Districts/Municipalities 11 districts/ 4municipalities North Sulawesi Province is a border province. The province is located at 0˚15’ - 5˚34’ N latitude and 123˚07’ - 127˚10’ E longitude. To the north, it borders the Sulawesi Sea, Philippines Sea and the Pacific Ocean; to the south it abuts the Gulf of Tomini. The Maluku Sea lies to its east, whereas Gorontalo province adjoins its western border. North Sulawesi’s overall territory spans 15,271 km². Bolaang Mongondow is the largest district at 3,547km², or 23 percent of North Sulawesi’s overall territory, whereas Manado municipality has the smallest area at only 1 percent of the province. As a border province, North Sulawesi is strategically located as a link to the Asia-Pacific and to the Maluku and Papua regions. Figure 1.2 North Sulawesi develops along with the development of other provinces Per Capita Gross Regional Domestic Product (GRDP) 1999 Per Capita Gross Regional Domestic Product (GRDP) 2008 (2000 constant prices), (Million Rupiah) (2000 constant prices), (Million Rupiah) Per Capita Sub-national Government Spending 1999 Per Capita Sub-national Government Spending 2009 (in Million Rupiah) (in Million Rupiah) rth Sulawesi Public Expenditure Analysis Database Note: Poverty rate (BPS, 2009); Per capita GRDP (BPS, 2008); Consolidated Per capita spending by province (Ministry of Finance, 2008) Following decentralization, North Sulawesi has developed over the past decade along with other provinces. During this period, North Sulawesi’s economy has doubled in size and sub-national government spending has increased almost tenfold. This increase in sub-national government expenditure is a feature of the fiscal decentralization process. In 2009, although per capita income in North Sulawesi was lower than the national average, North Sulawesi’s poverty rate was below the national figure. These trends have been influenced by the separation of Gorontalo province – formerly a part of North Sulawesi as Gorontalo district – but North Sulawesi’s improved performance also reflects advances made by the province itself. Consequently, North Sulawesi is often referred to as one of the most developed provinces in eastern Indonesia. Excluding Manado, the poverty rate in various districts/municipalities in North Sulawesi has decreased in the past five years. Although Minahasa Tenggara has the highest poverty rate of all districts/ municipalities in North Sulawesi, it has also succeeded in lowering its poverty rate more rapidly than in other regions (a decrease of almost five percentage points in the past five years). Manado municipality is 11 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction the only district/municipality in which the poverty rate has increased over the past five years. Most poor people live in districts/municipalities with mid to low poverty rates, where the poverty rate had decreased only modestly (or increased), such as Bolaang Mongondow, Manado municipality, Minahasa and Minahasa Selatan. Such a distribution illustrates the importance of affording attention not only to regions with high poverty rate, but also to regions with high number of poor people. Figure 1.3 The poverty rate decreased in almost all of North Sulawesi’s districts/municipalities between 2005 and 2009 4% 3% Minahasa Tenggara 22.2 4% 17.5 15% 16.8 4% Kep. Sangihe Talaud 13.2 Kep. Talaud 14.8 12.2 4% Kep. Sitaro 16.1 12.1 Minahasa Selatan 12.6 7% 13% 11.1 Bolaang Mongondow 12.7 2005 10.2 13.0 2009 8% Bolaang Mongondow Utara 9.9 Kota Bitung 10.4 12% 8.9 8% Minahasa 9.5 8.5 9.3 8% 10% Minahasa Utara 8.0 Kota Tomohon 7.9 7.2 Bolaang Mongondow Kota Manado 10.0 Minahasa Minahasa Selatan Kota Kotamobagu 7.2 Kep. Sangihe Talaud Minahasa Tenggara Kota Manado 5.8 Kota Bitung Minahasa Utara 6.3 Kep. Talaud Kota Kotamobagu Bolaang Mongondow Utara Kep. Sitaro Kota Tomohon Source: Central Bureau of Statistics Figure 1.4 As with other provinces in Indonesia, discrepancies remain in North Sulawesi Source: North Sulawesi PEA Database Note: The sizes of circles and the numbers inside them represent district/municipality poverty rates. 12 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction The development challenge for North Sulawesi is its unequal distribution of development. As with other provinces in Indonesia, disparities in development are evident between different districts/ municipalities in North Sulawesi. Regions with better access to economic activities are developing much faster than other regions with limited access. Manado and Bitung are the two most developed municipalities in North Sulawesi with their economic activities and ports. Manado municipality’s per capita GRDP is more than triple that of Kotamobagu municipality, although the poverty rates in these two municipalities were the lowest in 2009. Beyond Manado and Bitung, districts/municipalities in North Sulawesi can in general be classified as having either high or low per capita sub-national government expenditure. Where per capita spending is high, the reason is generally because the district/municipality in question has a relatively high poverty rate. 1.2 Demography, Manpower and Poverty North Sulawesi’s population growth is low. In 2009, the population of North Sulawesi province was 2.2 million people. Population growth has been approximately 0.7 percent per annum since 2004, below the national population growth rate of 1.3 percent. North Sulawesi’s population is concentrated in Manado municipality. Twenty percent of North Sulawesi’s population or 435,000 people live in Manado municipality, making it the district/municipality with the highest population in the province. By contrast, Bolaang Mongondow Selatan has the lowest population at only 2 percent of North Sulawesi’s overall figure (Table 1.1). Population density is uneven in North Sulawesi. In Manado municipality, 20 percent of the provincial population occupy 1 percent of North Sulawesi’s territory, whereas in Bolaang Mongondow Selatan district just 2 percent of the provincial population occupy 12 percent of the province’s territory. Table 1.1 North Sulawesi’s population is concentrated in urban areas Year No. Name of District/Municipality 2004 2005 2006 2007 2008 2009 01. Bolaang Mongondow 463,145 474,908 485,222 298,271 302,393 196,263 02. Minahasa 83,464 288,539 293,081 296,142 298,179 300,226 03. Kepulauan Sangihe 19,311 191,102 191,631 130,129 130,290 130,449 04. Kepulauan Talaud 78,944 74,512 74,660 74,786 74,892 74,997 05. Minahasa Selatan n.a 275,997 276,928 182,017 182,292 182,818 06. Minahasa Utara n.a 165,758 170,340 172,690 174,455 176,480 07. Bolaang Mongondow Utara n.a n.a n.a 79,042 80,134 80,508 08. Kepulauan Sitaro n.a n.a n.a 61,576 61,652 61,781 09. Minahasa Tenggara n.a n.a n.a 95,002 95,145 95,525 10. Bolaang Mongondow Selatan n.a n.a n.a n.a n.a 52,122 11. Bolaang Mongondow Timur n.a n.a n.a n.a n.a 59,401 71 Manado 416,771 405,715 417,654 424,111 429,149 434,845 72 Bitung 167,625 163,837 169,243 174,003 178,266 180,618 73 Tomohon n.a 80,649 81,882 82,684 83,200 83,718 74 Kotamobagu n.a n.a n.a 116,357 117,965 119,105 North Sulawesi 2,154,234 2,121,017 2,160,641 2,186,810 2,208,012 2,228,856 Source: North Sulawesi Central Bureau of Statistics 13 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction North Sulawesi’s productive-aged population continues to increase. North Sulawesi’s workforce has increased from year to year. Across all economic sectors, the province’s manpower increased from approximately 855,000 people in February 2006 to 962,000 in February 2010, an increase of approximately 1.5 percent per semester (Table 1.2). This increase is supported by North Sulawesi’s pyramid-shaped age structure. The largest age group is 5-9 year-olds, and there are more females than males in the province. The agricultural sector absorbs the most manpower, although the agricultural workforce has decreased over the past few years.1 Most manpower is employed in the agriculture (farming), plantation, forestry, livestock and fisheries sub-sectors. In February 2006, 47 percent of manpower worked in these sub- sectors. Overall manpower in the agriculture sector has decreased on average by 2 percent per semester, however, to a February 2010 figure of 37 percent. The decrease in the proportion of manpower employed in the agriculture sector has spurred an increase in other sectors. The greatest increase, of 26 percent per semester, was in the mining and quarrying sector (Table 1.2). Table 1.2 Manpower by Main Employment Sectors, February 2006 – February 2010 Economic 2006 2007 2008 2009 2010 Sector Feb Aug Feb Aug Feb Aug Feb Aug Feb Agriculture, 403,179 341,347 378,631 373,329 363,771 362,615 386,873 345,595 332,981 Plantation, Forestry, Livestock and Fisheries Mining and 4,756 10,402 18,229 8,703 14,806 12,804 19,048 18,301 31,052 Quarrying Processing 49,813 42,273 65,290 44,497 61,270 43,846 57,094 57,520 57,452 Industry Electricity, Gas 3,123 3,888 2,872 1,338 3,223 3,915 4,312 4,048 4,747 and Drinking Water Construction 40,168 65,268 54,819 61,209 56,406 67,121 53,091 68,843 57,296 Trading, Hotel 154,952 131,614 174,127 164,718 144,155 163,693 175,012 173,432 178,341 and Restaurant Transportation, 73,350 111,385 89,220 86,287 136,047 90,561 102,115 93,012 97,458 Warehousing and Communication Financial 12,254 12,021 12,900 15,627 10,127 13,850 14,496 16,546 19,300 Institution, Real Estate, Leasing Business and Company Services Community 113,705 110,352 148,547 152,795 127,558 153,757 150,586 162,876 183,021 Services, Social and Individual Total 855,300 828,550 944,635 908,503 917,363 912,198 962,627 940,173 961,648 Source: North Sulawesi Central Bureau of Statistics 1 The agriculture sector includes the agriculture (farming), plantation, forestry, livestock and fisheries sub-sectors. 14 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction Figure 1.5 Although the unemployment rate has decreased, it remains relatively high Source: North Sulawesi Central Bureau of Statistics North Sulawesi’s residents show no strong preference for self-employment or becoming an employee. Thirty-one percent of North Sulawesi’s population run their own businesses, whereas 30 percent work as employees. More of the urban population are employees (45 percent) than run their own business (31 percent). By contrast, more of the rural population run their own business (30 percent) than work as employees (21 percent). In gender terms, males show no preference for running a business (31 percent) as compared to working as an employee (29 percent). Women are more likely to work as an employee (35 percent) than run their own business (29 percent), however. Two perspectives may be relevant to this difference. First, in cultural terms women have limited opportunities to run their own business because they are expected to take responsibility for caring for the family. Second, women have limited of access to necessary sources of financing to run their own business. North Sulawesi’s unemployment rate has decreased, but remains high. The unemployment rate in North Sulawesi decreased between 2006 and 2009. Open unemployment in North Sulawesi decreased from 13.7 percent in 2006 to 10.6 percent in 2009. Such an unemployment rate exceeds the rates in Central Sulawesi, South Sulawesi, and the national average (Figure 1.3). Table 1.3 Manado municipality has the highest unemployment rate No. District/Municipality 2007 2008 2009 1 Bolaang Mongondow District 8.06 5.16 6.95 2 Minahasa District 11.46 10.49 9.45 3 Sangihe District 12.16 13.32 10.68 4 Talaud District 9.17 9.71 9.64 5 Minahasa Selatan District 9.34 9.54 9.30 6 Minahasa Utara District 13.68 13.20 11.95 7 Bolaang Mongondow Utara District - 7.47 7.77 8 Sitaro District - 8.46 6.20 9 Minahasa Tenggara District - 7.26 7.08 10 Manado Municipality 16.68 14.97 15.38 12 Bitung Municipality 13.85 12.91 11.86 12 Tomohon Municipality 9.84 8.45 10.29 13 Kotamobagu Municipality - 9.13 9.42 Source: North Sulawesi Central Bureau of Statistics 15 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction The high unemployment rate is also affected by other factors apart from limited employment opportunities. At the district/municipality level, Manado municipality has the highest unemployment rate at 15 percent in 2009. This figure resulted from a shift in employment opportunities from agriculture to other sectors, along with a decrease in the agricultural sector’s manpower absorption. Relatively high unemployment is a feature of structural change in the economy in which manpower switches from the agriculture sector to the manufacturing or production sector. In addition, the Manado municipality’s high unemployment rate was also affected by increasing urbanization and by flows of migrants from other provinces who have been attracted by the economic development reflected in the relatively high provincial minimum wage (UMP) and welfare standards. North Sulawesi’s high unemployment rate is not influenced by poverty levels. Various studies demonstrate a positive relation between unemployment rates and poverty rates, in that poor regions tend to have high unemployment rates. This trend does not apply to North Sulawesi province. Although the unemployment rate in North Sulawesi is higher than in other provinces, its poverty rate is the lowest (Figure 1.6). North Sulawesi’s poverty rate decreased from 10.8 percent in 2006 to 9.8 percent in 2009, lower than in Central Sulawesi or South Sulawesi and below the national rate. By contrast, North Sulawesi’s unemployment rate is higher than in these two provinces and than the national figure. The pattern of poverty and unemployment in North Sulawesi results from the province’s low dependence on agriculture. A lower proportion of manpower is employed in the agriculture, plantation, livestock, forestry and fisheries sub-sectors in North Sulawesi than in South Sulawesi or Central Sulawesi. Generally, these sub-sectors have a high hidden unemployment rate.2 Central Bureau of Statistics data reveals that in February 2009, 35 percent of manpower in North Sulawesi was employed in these sub- sectors, as compared to 51 percent in South Sulawesi and 68 percent in Central Sulawesi. Figure 1.6 Poverty in North Sulawesi province is the lowest in Indonesia Source: Central Bureau of Statistics 2 Manpower considered to be employed actually fail to utilize working hours optimally, resulting in a very limited revenues obtained. 16 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction 1.3 North Sulawesi’s Economy North Sulawesi’s GRDP has undergone a stable increase. Over the past eight years, North Sulawesi’s GRDP grew 53 percent in real terms or 5.1 percent per annum. North Sulawesi’s economic growth has also accelerated from about 4 percent in 2002 to almost 7.9 percent in 2009. The main contributors to this improvement in economic growth were the trade, hotel and restaurant sector, which grew by 7.4 percent on average from 2001-2009; the construction sector, which grew by 7 percent on average; and the transportation and communication sector, which grew 7.7 percent on average. Agriculture is the largest contributor to North Sulawesi’s GRDP, but growth of the sector is low. Agriculture grew on average by 4.1 percent per year between 2001 and 2009. Agriculture sector growth is associated with sectoral productivity increases deriving from agricultural extensification or intensification. The provincial and district/municipality governments face the challenge of devising a strategy for the slow- growing agriculture sector to make a greater contribution to North Sulawesi’s economy, for example by increasing the added value of agriculture sector commodities. Efforts to develop the agriculture sector should cover marketing and not just production increases. Strategies are needed to stimulate demand to absorb production outputs, and thereby encourage farmers and fishermen to increase production. Tourism, inter-island trade and exports are among the triggers of increased demand for agriculture sector products. Figure 1.7 Economic growth in North Sulawesi continues to increase Source: North Sulawesi Central Bureau of Statistics The low growth of the agriculture, plantation, forestry, livestock and fisheries sub-sectors has caused their workforce to shift to other economic sectors. Low growth has also led to a decreased contribution by these sub-sectors to GRDP, from 21.3 percent in 2001 to 19.3 percent in 2009, or 1.2 percent annually (Figure 1.8). This decreased contribution to GRDP, low growth and workforce migration to other sectors indicate the need for appropriate strategies and revitalization programs. That a third of North Sulawesi’s manpower remains in these sub-sectors underline the need for such initiatives. 17 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction Figure 1.8 The agriculture sector remains the largest contributor to North Sulawesi’s economy Source: Central Bureau of Statistics North Sulawesi is one of eastern Indonesia strongest economies. North Sulawesi’s real per capita GRDP is higher than that of Central Sulawesi and South Sulawesi and exceeds the average for all provinces in Sulawesi. Nevertheless, the province’s per capita GRDP is lower than the national figure, indicating that North Sulawesi’s economic performance remains below the national average. In 2009, North Sulawesi’s real per capita GRDP was Rp. 7.0 million, compared to the national per capita figure of Rp. 9.1 million. Figure 1.9 North Sulawesi’s real per capita GRDP is the highest of any province in Sulawesi Source: Central Bureau of Statistics Construction, trade and transportation are high-performing sub-sectors. To map North Sulawesi’s sub- sectoral economic potential, each economic sub-sector’s average growth and contribution to overall real GRDP were measured for the 2005-2009 period. This mapping exercise revealed construction, wholesale and retail trading, and transportation to be “star” sub-sectors in quadrant II making the greatest contribution to North Sulawesi’s real GRDP. On the other hand, the sub-sectors that encompass most people in North Sulawesi, namely food crops, plantation and fisheries, remain in quadrant III, which indicates a relatively large contribution to the GRDP but modest growth. To encourage faster economic growth in North Sulawesi, integration with agro-industry is needed to energize these sub-sectors. 18 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction Figure 1.10 The construction, large and small-scale trade, and transportation sub-sectors contribute significantly to GRDP and growth Contribution to Total GRDP (%) Low High Quadrant I Quadrant II 6.86 Quarrying (3.78:7.74) Building (15.98:7.29) Electricity (0.60:10.80) Whole & Retail trading (12.22:8.46) Hotel (1.52:16.47) Transportation (10.62:9.23) High Restaurant (1.44:6.86) Economic Growth (%) Communication (1.40:13.64) Bank (3.33:7.55) Financial institution non bank (0.34:8.77) Company Services (0.86:8.87) Quadrant IV Quadrant III Livestock and Its Products (2.06:6.67) Fisheries (4.50:4.60) Forestry (0.32:-0.59) Industry non Oil and Gas (7.82:6.18) Low Mining Other than Oil and Gas (1.3:-0.28) Food Crops (6.36:4.99) Clean Water (0.16:4.52) Plantation Plant (7.61:2.85) Building Leasing (2.04:6.09) Public Governance (10.02:3.49) Private Sector (4.71:6.79) 4.50 Source: Processed from North Sulawesi Central Bureau of Statistics data Remark: The first number in brackets is contribution to GRDP (%), The second number is economic growth (%). North Sulawesi’s economic growth exceeds the national average. In 2006, North Sulawesi’s growth remained below the national average and that of other provinces in Sulawesi. In subsequent years, North Sulawesi attempted to address this slower growth. In 2009, North Sulawesi’s economic growth increased to 7.9 percent. The main triggers for the high economic growth in recent years have been improvements in the quality of basic infrastructure on the part of the government and in trading infrastructure on the part of the private sector. Such improvements in infrastructure quality have resulted from administrative redistricting and the May 2009 World Ocean Conference (WOC) and Coral Triangle Initiative (CTI), each held in North Sulawesi. Other infrastructure challenges remain to maintain growth, however. Quality improvements in trade and basic infrastructure are core capital for North Sulawesi’s economic development because they can attract future investments to North Sulawesi. Nevertheless, the greatest infrastructure challenge is to establish adequate electricity supply to anticipate increased future investment. Another challenge that results from North Sulawesi’s status as an archipelagic province is the development of infrastructure on remote islands that struggle to achieve the desired economic scale. 19 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction Figure 1.11 Since 2005, North Sulawesi has attempted to address its lower growth rate compared to other provinces in Sulawesi Source: Central Bureau of Statistics North Sulawesi’s economic growth is relatively high, but inflation remains relatively controlled. From 2006-2009, North Sulawesi’s inflation rate was below that of Central Sulawesi, South Sulawesi and the national rate, except in 2007. North Sulawesi’s average inflation over this four-year period was 6.8 percent, compared to 8.2 percent in Central Sulawesi, 7.0 percent in South Sulawesi and the national average rate of 6.8 percent (Figure 1.12). Manado’s relatively low inflation indicates better price stability than in the capital cities of Central Sulawesi and South Sulawesi and compared to the nation overall. The price stability of the past few years derives particularly from price competition between the growing number of trade sector business actors in North Sulawesi, which has kept prices low. Price stability has also been aided by improvements and additions to transportation infrastructure, which have expedited goods and services distribution. North Sulawesi’s low inflation rate has meant that inflation has not significantly affected the local community’s purchasing power. A future challenge for North Sulawesi will be to suppress goods and services prices in archipelagic regions, however, given transportation infrastructure problems in these remote areas. Figure 1.12 Prices in Manado tend to be lower than prices in Sulawesi’s other major cities . . . . . . . . . . . . . . . Source: North Sulawesi Central Bureau of Statistics 20 North Sulawesi Public Expenditure Analysis 2011 Chapter 1 Introduction 1.4 North Sulawesi’s Competitive Advantages in Eastern Indonesia North Sulawesi’s competitive advantages have spurred the province’s rapid development: 1. North Sulawesi has the highest Human Development Index (HDI) score of all provinces in eastern Indonesia (Table 1.4) and nationally ranks second behind only DKI Jakarta. The provincial HDI score has continued to increase over the past few years, with the 2008 score being 75.2. North Sulawesi’s high HDI score reflects its advantageous human resources to support development activities in the province. Table 1.4 North Sulawesi has the highest HDI score in eastern Indonesia Province 2004 2005 2006 2007 2008 North Sulawesi 73.40 74.21 74.37 74.68 75.16 Southeast Sulawesi 66.70 67.52 67.80 68.32 69.00 Central Sulawesi 67.30 68.47 68.85 69.34 70.09 South Sulawesi 67.80 68.06 68.81 69.62 70.22 West Sulawesi 64.40 65.72 67.06 67.72 68.55 Papua 60.90 62.08 62.75 63.41 64.00 North Maluku 66.40 66.95 67.51 67.82 68.18 Maluku 69.00 69.24 69.69 69.96 70.38 West Irian Jaya 63.70 64.83 66.08 67.28 67.95 Gorontalo 65.40 67.46 68.01 68.83 69.29 Indonesia 68.70 69.57 70.10 70.59 71.17 Source: Central Bureau of Statistics 2. North Sulawesi’s geographic position is very strategic: (a) it lies in the center of Indonesia, Australia and other states in the Pacific region; (b) it is Indonesia’s outermost border province with respect to other nations in the Asia-Pacific. With this strategic position, North Sulawesi can become: (a) a transport hub between Indonesia and Australia to the south with developed Asia–Pacific nations to the north; and (b) “Indonesia’s Gateway to the Asia-Pacific”. 3. North Sulawesi has a natural deep-water harbor which can be further developed to become an International Hub Port (IHP) to support the economies of the eastern Indonesia region and Indonesia overall. 4. North Sulawesi’s community and organizational life does not feature gender discrimination, because a spirit of equality dominates the local culture. The heads of several sub-national governments in North Sulawesi are women. In addition, North Sulawesi is the first province in Indonesia to have enacted a Regional Regulation against the Trafficking of Woman. 21 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi Chapter 2 Public Financial Management in North Sulawesi 2.1 Introduction A sub-national public financial management capacity assessment survey was conducted as the basis for this chapter’s analysis. Sub-national public financial management encompasses a set of processes starting from planning, budgeting, budget implementation up to budget evaluation and accountability. The public financial management capacity assessment aimed to measure regulatory framework compliance and orientation to best practices in North Sulawesi’s sub-national governments’ public financial management practices. The North Sulawesi capacity assessment was conducted in June-July 2010, covering the provincial government and eleven district/municipality governments. The assessment employed the balanced scorecard assessment tool developed by the Ministry of Home Affairs and the World Bank, covering nine strategic areas of public financial management: regulatory framework; planning and budgeting; cash management; procurement; accounting and reporting; internal audit; public debts and investments; asset management; as well as external audit and supervision. In general, North Sulawesi’s sub-national governments have good public financial management capacity, although improvements remain necessary. Most sub-national governments have sufficient public financial management capacity (higher than 60 percent). The Government of North Sulawesi Province and Sangihe District Government registered the best performance, whereas Minahasa Utara and Talaud Districts achieved the lowest performance. Although public financial management performance was relatively good, the scores for each area revealed variations. On average, district/municipality governments still need to improve their performance, particularly in the areas of regulatory framework, asset management, and the management of public debts and investments. Figure 2.1 Public Financial Management Score of Sub-national Governments in North Sulawesi Province Regulatory Framework Districts/municipalities Average Internal Audit Source: 2010 North Sulawesi Public Expenditure Analysis (PEA) Database, Sam Ratulangi University Note: The length of bars in the diagram of each area is for illustrative purposes only (not indicating the actual score); the percentage value at the end of the bar is the total score for sub-national public financial management capacity. The provincial government score exceeded the average district/municipality government score in almost all areas of public financial management. The only area in which the provincial government scored below the district/municipality government average was external audit and supervision (Table 24 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi 2.1). Although it did not meet several indicators, the provincial government achieved a score of very good capacity (≥ 80 percent) in the areas of cash management, accounting and reporting as well as debt and investment management. The challenge for the provincial government in capacity building is to reduce public financial management performance disparities between districts/municipalities. Several districts/municipalities can serve as models of good practice in certain sectors for other regions. Sangihe district achieved the highest score of the twelve sub-national governments surveyed in the areas of regulatory framework, procurement, asset management, as well as external audit and supervision. Minahasa district achieved the highest planning and budgeting performance score and Kotamobagu municipality performed best in the area of internal audit. Although they too did not meet several indicators, these three districts/municipalities (along with the provincial government) can serve as a model for other sub-national governments in certain sectors of sub-national public financial management. Table 2.1 Public Financial Management (PFM) Score of Sub-national Governments in North Sulawesi Province by Strategic Area, 2010 Code of PFM Strategic Areas (%) PFM Sub-national government 1 2 3 4 5 6 7 8 9 Score Bitung 70 72 72 61 71 72 71 47 69 67 Bolaang Mongondow 58 39 88 66 46 63 67 58 61 61 Kotamobagu 18 64 81 66 73 84 43 53 61 60 Manado 42 76 87 66 81 56 22 83 69 65 Minahasa Utara 53 65 78 42 46 69 50 56 56 57 Sangihe 70 66 71 81 58 53 80 89 81 72 Talaud 53 53 62 67 81 53 57 28 75 59 Minahasa 68 83 77 66 65 63 83 43 74 69 Minahasa Selatan 63 82 65 67 69 78 67 59 75 69 Tomohon 53 41 73 61 77 75 50 53 66 61 Sitaro 53 71 76 66 63 81 40 69 44 63 Average of Districts/Municipalities 55 65 75 64 66 68 57 58 66 64 North Sulawesi Province 63 68 94 80 92 78 90 78 63 78 Notes on the Codes of PFM Strategic Sectors: 1 Regulatory Framework 4 Procurement 7 Public Debts & Investments 2 Planning & Budgeting 5 Accounting & Reporting 8 Asset Management 3 Cash Management 6 Internal Audit 9 External Audit & Supervision Source: 2010 North Sulawesi PEA Database, Sam Ratulangi University 2.2 Regional Regulatory Framework Regional autonomy requires sub-national governments to establish a sufficient legal framework to underpin their public financial management. The assessment measured sub-national government regulatory frameworks against three targets: (i) compliance with national laws and regulations; (ii) effective organization; and (iii) presence of regulatory framework for implementation of transparency and participation principles. 25 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi The regulatory framework area registered the lowest scores. Both at provincial and district/municipality levels, the regional regulatory framework score ranked the lowest, and saw the greatest capacity gap (70 percent vs. 18 percent). The causes of low performance in this area included the fact that most sub-national governments did not meet several indicators, such as: enactment of a regional regulation on regional capital investment; enactment of a regional regulation on the Regional Public Service Agency (BLUD); enactment of a head of sub-national government regulation on cost standards and unit cost analysis (ASB); as well as presence of a regulatory framework related to transparency and participation. Despite poor performance in the regulatory framework area, there were several quite positive developments, including: (i) all surveyed sub-national governments had enacted a Regional Medium- Term Development Plan (RPJMD); (ii) more than 90 percent of surveyed sub-national governments had also developed a general budget policy (KUA) and budget priority and ceilings (PPA), and enacted the local budget in a timely manner every year; and (iii) 80 percent of surveyed sub-national governments had also enacted a regional regulation on regional finance principles. In addition, seven out of twelve of sub-national governments had combined all public financial management-related organizations into one integrated organization (consisting of units responsible for revenue mobilization, budgeting, accounting and reporting, and asset and cash management). Two sub-national governments had undertaken only partial integration and three sub-national governments (Manado, Minahasa Selatan and North Sulawesi province) have not undertaken any integration measures. Figure 2.2 Regulatory Framework Performance of Sub-national Governments in North Sulawesi Districts/municipalities Average Source: 2010 North Sulawesi PEA Database. Sam Ratulangi University 2.3 Planning and Budgeting Broad capacity gaps remain between sub-national governments in planning and budgeting. Planning and budgeting was measured against three issues: (i) the availability of multiyear planning and budget; (ii) availability of feasible budget targets derived from a realistic budget preparation process; and (iii) a participatory monitoring and evaluation system as a part of the planning and budgeting process. Minahasa and Minahasa Selatan ranked the highest in this area with very good performance scores. By contrast, Tomohon and Bolaang Mongondow scored very lowly, illustrating that broad capacity gaps remain between regions in this particular area. 26 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi The quality of planning and budgeting documents requires improvement. Most sub-national governments already possess planning documents such as the regional medium-term development plan, strategic plan, and work unit annual plans. These documents contain specific programs/activities and their indicative ceiling, and take account of budget constraints. Nevertheless, most sub-national governments established standards for annual spending analysis (ASB). As a result, the ceiling set has not been based on efficiency, effectiveness and value for money to achieve performance targets. Figure 2.3 Planning and Budgeting Performance of Sub-national Governments in North Sulawesi Districts/municipalities Average Source: 2010 North Sulawesi PEA Database, Sam Ratulangi University In addition to the public financial management capacity survey, a survey of Musrenbang implementation quality was also conducted to assess planning and budgeting. The Development Planning Forum (Musrenbang) is a community stakeholder forum involving representatives from village to central-level held to agree upon a regional annual work plan (RKPD) for the next fiscal year. For the Musrenbang implementation survey, three respondents were interviewed at each of the three Musrenbang stages (village, sub-district and district/municipality) in each district/municipality. Each respondent was asked to give a score on a scale of 0 to 100 for fourteen indicators. At village level, the lack of involvement of all parts of the community in the Musrenbang stood out. At sub-district level; the main problems were insufficient duration of Musrenbang implementation and weak representativeness for various elements of the community. At district/municipality level, the insufficient duration of Musrenbang implementation was also a problem. Most respondents felt that local parliamentarians should attend the Musrenbang. Although planning and budgeting was perceived to be the domain of the executive, 80 percent of respondents felt that representatives from the local legislatures should be present during the Musrenbang process. Respondents felt parliamentarians needed to be present so that they could function as the community’s representatives to monitor the accommodation in budget deliberations and enactment of community aspirations voiced during the Musrenbang. Only 20 percent of respondents stated that local parliamentarians had actually attended their village Musrenbang, whereas 30 percent said parliamentarians had attended their sub- district Musrenbang. 27 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi Table 2.2 Respondent Perception Scores for Various Musrenbang Indicators, by Stage Indicator Village/ Sub-district District/ Ward Musrenbang Musrenbang Municipality Musrenbang Understanding of the Development Planning Process 72.73 74.12 81.25 Understanding of Subject Matter 77.05 75.29 77.50 Sense of Being Involved in Musrenbang 71.59 77.35 79.30 Involving All Elements of the Community 65.00 66.36 71.10 Proactively Involved and Participated in 68.64 72.21 76.10 All Elements of the Community are Proactively Involved 53.86 59.71 66.40 and Participated in Representing All Elements 72.27 67.35 69.60 Capacity/Ability of the Musrenbang Participants 63.41 64.41 65.70 Existence of Transparency (accessible by many people) 77.27 75.00 77.50 Freedom of Presenting Opinions 77.73 78.24 77.50 All Brainstorming are Accommodated 62.05 71.97 61.40 Agree with the Results of Musrenbang 77.05 67.35 77.50 Agreement of All Participants 68.64 58.94 62.30 The availability of Time for the Implementation of 54.55 56.03 57.90 Musrenbang Average 68.70 68.88 71.50 Source: Data processed from Direct Interview/Survey Results with Musrenbang Participants The bottom-up planning process is not functioning in optimal fashion; its implementation remains subject to the following constrains, amongst others: (i) some villages do not hold a Musrenbang because they do not have operational funds to do so; (ii) communities have only a weak understanding of government development priorities as set out in various planning documents; (iii) community aspirations voiced during the Musrenbang process are rarely accommodated in the budget; (iv) no clarification is provided when Musrenbang results are not accommodated in the budget; and (v) the duration of the Musrenbang process is insufficient.3 2.4 Cash Management, Procurement, Asset Management and Regional Debts and Investments Cash management registered the highest scores of any area in the capacity survey. Cash management is a set of processes starting from budgeting of the amount of cash to be allocated, followed by realization of the cash budget, and concluding with accountability for cash usage. The average sub-national performance scores for cash management were the highest of the nine areas of sub-national public financial management. Four sub-national governments exhibited very good capacity in this area, namely North Sulawesi province, Bolaang Mongondow, Manado and Kotamobagu. Sub-national governments score relatively highly in cash management because they have generally established proper cash management policies, procedures and management controls. 3 interviews with planning and budgeting stakeholders 28 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi Except for Minahasa Utara, sub-national governments generally perform relatively well in procurement. Presidential Decree no. 80/2003 (amended by Presidential Regulation no. 54/2010) regulates procurement, The guidelines established in these regulations require the government procurement process to be carried out in an efficient, effective, open, competitive, transparent, fair and accountable manner, free from discrimination. With the exception of Minahasa Utara, surveyed sub-national governments were able to meet more than 60 percent of procurement indicators. These scores do not necessarily mean that the procurement process comprehensively applies all of these principles. The survey covered only compliance with formal procedures, and did involve comprehensive investigations to identify the presence of inefficient practices in procurement such as corruption, collusion and nepotism. Broad capacity gaps remain between sub-national governments in asset management. Sub-national government asset management covers the entire asset management cycle, including: planning of needs, budgeting; procurement; utilization; maintenance; assessment; write off ; assignment; administration; as well as supervision/control. Only four of the twelve surveyed sub-national governments scored over 60 percent for asset management in the survey. Sub-national governments only infrequently met the following requirements: (i) a head of sub-national government regulation/decree on the status of utilization of goods; (ii) strict regulations to impose sanctions for any action inflicting financial loss upon a region on the part of asset managers, assistant managers, users, or users’ proxies; and (iii) location and goods codes for each regional asset. District/municipality governments need to complete various regulations related to debts, grants and public investments. The survey results showed the provincial government to have a much more complete regulatory framework on public debts and investments than the average district/municipality. The following illustrates regional performance in North Sulawesi related to public debts and investments management: 1. Regional Borrowing (Debt). Regional debt is an alternative source of APBD financing or can be used to cover cash shortfalls. To take out a loan, a sub-national government requires a debt management policy, as mandated by Government Regulation no. 54/2005. Of the six surveyed sub-national governments that had ever taken out a loan, only four had complied with this requirement to establish a policy. 2. Grants. If it is to receive a grant, a sub-national government must establish policies and procedures to manage grant revenues. Of the ten sub-national governments that received a grant in 2010, six had established a regulation on grant receipt, recording, management and reporting, whereas four did not comply with this requirement (Manado, Talaud, Tomohon and Sitaro). The grant management requirement least frequently met by sub-national governments was to include grant counterpart funding in the budget implementation document (DPA) of each regional government work unit (SKPD) 3. Regional Investments. To make an investment, a sub-national government most obtain approval from the local legislature and formulate regional investment policies, procedures and controls including risk calculations. The survey results revealed that Kotamobagu, Manado, Sitaro and Bitung need to strengthen their investment management policies in compliance with the national policy framework, incorporate investments in regional state-owned enterprises (BUMD) in their financial reports; and obtain the local legislatures’ approval for long-term investment transactions. 29 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi Figure 2.4 Sub-national Government Performance in Four Areas of Budget Implementation Source: 2010 North Sulawesi PEA Database, Sam Ratulangi University 2.5 Accounting and Reporting, Internal Audit, and External Audit and Supervision Accounting and reporting performance scores are good, but this area faces human resources constraints. The provincial government has the best accounting and reporting performance score of all surveyed sub-national governments. The provincial government achieved a score of very good (above 90 percent), whereas Sangihe, Bolaang Mongondow and Minahasa Utara districts scored below 60 percent. Adequate human resources, its integrated accounting information system, and documentation of all transactions and fiscal balances each contributed to the provincial government’s high accounting and financial reporting performance score. By contrast, districts/municipalities on average have weak human resources, as they lack staff with an accounting background to occupy important positions such as section heads in the Regional Revenue and Financial and Asset Management Office (DPPKAD), or to serve as financial administrator officer (PKK) for each government work unit). Qualified staff and resources are required to support the internal audit function. Most sub-national governments met internal audit indicators related to compliance with procedures and follow-up of internal audit results. Nevertheless, most regions encountered problems with operational support resources. Most sub-national governments allocate less than 1 percent of the APBD for the internal audit function, and also lack qualified staff in this area. In only one third of the twelve surveyed sub-national governments did more than 50 percent of staff at agencies such as regional internal audit board (BAWASDA) have functional audit capabilities of an accounting background. External auditors issued qualified opinions for the financial statements of most surveyed sub-national governments. Government external audit and supervision performance derives from their performance in their financial statement audit conducted by the State Audit Board (BPK); dissemination and follow- up of audit results; and the role of the regional legislatures in monitoring budget implementation. The survey found that in 2009, only the provincial government received an unqualified opinion for its financial statement, whereas eight other sub-national governments received qualified opinions, two regions received 30 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi adverse opinions, and one region received a disclaimer of opinion. In addition to their weak performance in the BPK audit, most sub-national governments also needed to take greater steps to enhance the regional legislature’s role in budget monitoring. Table 2.3 Results of BPK Audit of Sub-national Governments Financial Statements in North Sulawesi, 2007-2009 No. Sub-national 2007 2008 2009 governments 1 North Sulawesi Province Qualified (WDP) Qualified Unqualified (WTP) 2 Bolaang Mongondow Qualified Qualified Qualified District 3 Bolaang Mongondow Qualified Selatan District 4 Bolaang Mongondow Qualified Qualified Utara District 5 Minahasa District Qualified Qualified Qualified 6 Minahasa Selatan District Disclaimer (TMP) Adverse (TW) 7 Minahasa Tenggara Disclaimer District 8 Minahasa Utara District Disclaimer Qualified Qualified 9 Kepulauan Sangihe Disclaimer Qualified Adverse District 10 Kepulauan Siau Qualified Qualified Tagulandang Biaro District 11 Kepulauan Talaud District Disclaimer Disclaimer 12 Bitung Municipality Qualified Qualified Qualified 13 Kotamobagu Municipality Qualified Qualified 14 Manado Municipality Disclaimer Qualified Adverse 15 Tomohon Municipality Qualified Adverse Source: Summary of the State Audit Board’s First-Semester Audit Results, 2010 2.6 Recommendations The provincial government needs to facilitate a public financial management capacity building process for districts/municipalities in North Sulawesi. The provincial government and Sangihe, Minahasa and Kotamobagu district/municipality governments each exhibited superior performance in one area or another of public financial management. Their performance in these areas constitutes basic capital to encourage mutual learning to narrow the capacity gap between sub-national governments in various areas of public financial management. The following table summarizes elements of the required capacity building agenda: 31 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi Agenda and Proposals for the Sub-National Public Financial Management Capacity Building Programs in North Sulawesi Province Area Recommendations Program Proposal Regional Laws and  Complete various regulations to (i) Training on a comprehensive Regulations underpin proper public financial sub-national public financial management practices in compliance management regulatory the central government’s national framework regulatory framework, including, (ii) Technical assistance to ensure (i) Regional Regulation on Capital completion and enactment of Investment and Regional Public required regional regulations Service Agency; (ii) Head of Regional Government Regulation on Cost Standards and Analysis of Expenditure Standards in order to support performance-based budgeting; and (iii) other more technical regulations for sub-national public financial management  Prepare regional regulations to encourage the implementation of transparency and participatory principles Planning & Budgeting  Improving the capacity and (i) Training for the local legislatures involvement of the local legislatures in on Planning and Budgeting planning and budgeting process (ii) Training and TA on formulation  Formulation of measurable and target- of Cost Standards (SHBJ) and achievement oriented planning and Analysis of Expenditure Standards budgeting documents, as well as (ASB) enhancing the consistancy of among (iii) Training and TA on formulation them ofmeasurable indicators and  Preparing regulations on Cost targets for various planning and Standards and Analysis of Expenditure budgeting documents Standards Cash, asset and  Improving the capacity in revenue (i) Training and TA on revenue procurement management and mobilization administration and collection management  Maintaininggood performance system on revenue management, cash (ii) Completing the regulations management and control, and on procurement of SNGs in temporary cash surplus compliance with the new  Maintaining and improving the regulatory framework set by the performance in the area procurement central government Accounting & Reporting  Improving the capacity of human (i) Training and TA on accounting resource with accounting background area in PFM related strategic positions (ii) Training and TA for integrated  Maintaining the integrated accounting accounting information system information system in some regions, (iii) Increasing the number of human and encouraging the implementation resources with accounting of similar system in Bolaang background Mongondowdistricts 32 North Sulawesi Public Expenditure Analysis 2011 Chapter 2 Public Financial Management in North Sulawesi Area Recommendations Program Proposal Internal Audit as well  Improving the role of internal audit (iv) Training and TA to strengthen as External Audit and in Subnational PFM by increasing the internal audit function and Supervision budgeting resources as well as increasing the number of staff qualified human resource for with functional auditor capability functional auditors  Improving communication in order to support external audit as well as to follow-up the findings of external audit The bottom-up participatory planning and budgeting process at district/municipality level requires improvement. Village, sub-district and district/municipality Musrenbang are the available mechanism to encourage community participation in planning and budgeting. Musrenbang implementation requires the following improvements: (i) empowering the community to participate in Musrenbang (for example through information campaigns on the importance of Musrenbang and its advantages for district/sub-district/ village development); (ii) improving the certainty of budget ceilings to be used as a reference in village/sub- district planning before the Village/Sub-district Musrenbang is held (for example through an agreement between the district head/mayor and regional legislature on an indicative ceiling for the sub-district/village so that the amount of fund available for planning through Village and Sub-district Musrenbang is known beforehand); (iii) increasing the quantity and improving the quality of involvement of parliamentarians in Musrenbang in their electorate; (iv) establishing a mechanism to provide clarification to communities on proposed programs/activities that cannot be accommodated in sub-national government’s budget, as a form of transparency in policy. 33 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenue and Financing Chapter 3 Revenues and Financing 3.1 North Sulawesi’s Revenue 3.1.1 Overview of Revenue in North Sulawesi North Sulawesi’s per capita revenue exceeds the national average, reaching Rp. 2.8 million in 2009. Nevertheless, North Sulawesi’s per capita revenue is lower than the majority of other eastern Indonesian provinces such as Papua, West Papua, Maluku, North Maluku and Southeast Sulawesi. The 2009 national average for provincial per capita revenue was Rp. 1.5 million. Figure 3.1 Per Capita Revenue by Province, 2009 12 10 8 Millions 6 4 2 0 Prop. Jawa B arat Prop. Sumatera S elatan Nasional Prop. Sulawesi S elatan Prop. Kalimantan S elatan Prop. Kepulauan Bangka Prop. Kepulauan Riau Prop. Nusa T enggara Barat Prop. Sumatera U tara Prop. Jawa T imur Prop. Maluku Prop. Riau Prop. Sulawesi B arat Prop. Sulawesi T enggara Prop. Jambi Prop. Nanggroe A ceh Prop. Sumatera B arat Prop. Jawa T engah Prop. Papua Barat Prop. Papua Prop. Bengkulu Prop. Banten Prop. Sulawesi T engah Prop. Sulawesi U tara Prop. D I Yogyakarta Prop. Nusa T enggara Timur Prop. Kalimantan B arat Prop. DKI Jakarta Prop. Bali Prop. Lampung Prop. Gorontalo Prop. Kalimantan T imur Prop. Kalimantan T engah Prop. Maluku U tara Source: Directorate General of Fiscal Balance Data on Regional Budgets (APBD), 2009 North Sulawesi’s overall sub-national revenue has experienced stable growth over the past five years, with district/municipality governments managing most of this revenue. North Sulawesi total sub-national revenue increased from Rp. 3 trillion in 2005 to approximately Rp. 6.5 trillion in 2009, with average growth of 28 percent per annum. District/municipality governments manage most of this revenue, constituting 84 percent of North Sulawesi’s total sub-national revenue in 2009. Provincial revenue increased from Rp. 634 billion in 2005 to Rp. 1.02 trillion in 2009, with an average growth rate of 15.4 percent per annum, whereas district/municipality revenue increased from Rp. 2.45 trillion in 2005 to Rp. 5.5 trillion in 2009 (average growth of 31 percent per annum). Figure 3.2 Real Sub-National Revenue in North Sulawesi, 2005-2009 Source: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2005-2009 Note: Calculations Employ Revised Regional Budget (APBD-P) for Tomohon in 2009 36 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing General allocation funds (DAU) are North Sulawesi’s main source of sub-national revenue, both at provincial and district/municipality government level. In 2009, general allocation funds contributed 55 percent of provincial level revenue and 64 percent of district/municipality level revenue. Beyond this similarity, the composition of provincial and district/municipality level revenue differs significantly. Own- source revenue (PAD) is the second largest contributor to provincial level revenue at 32 percent, whereas special allocation funds (DAK) are second largest source of district/municipality level revenue, contributing 15 percent. Figure 3.3 Composition of North Sulawesi’s Sub-national Revenue, 2005-2009 Source: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2005-2010 Note: Calculations Employ Revised Regional Budget (APBD-P) for Tomohon in 2009 Central government transfers have dominated North Sulawesi’s sub-national revenue over the past five years. General allocation funds are the main source of these transfers, contributing an average portion of 65 percent of overall revenue. Special allocation funds have also increased from 5 percent of revenue in 2005 to 14 percent in 2009. Special allocation funds are used to facilitate improvements of public services in sectors including education, health, transportation, basic infrastructure facilities, and family planning. Figure 3.4 Difference in the Composition of Sub-national Revenues between North Sulawesi Provincial and District/Municipality Governments, 2008 Source: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2009 37 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing At provincial level, own-source revenues have decreased significantly, whereas general allocations funds have increased to now contribute more than 50 percent of North Sulawesi’s provincial revenue. The share of provincial revenue derived from general allocation funds has increased from 51 percent (Rp. 322 billion) in 2005 to 55 percent (Rp. 558.6 billion) in 2009. Over the same period, the contribution of own- source revenue decreased from 41 percent to 32 percent. North Sulawesi first received special allocation funds in 2008, and the contribution of these funds has been stable, similar to revenue sharing (DBH). Transfers also dominate district/municipality revenue, with their contribution increasing between 2005 and 2009. The contribution of special allocation funds to district/municipality revenue increased from 6 percent in 2005 to 15 percent in 2009. As at provincial level, the contribution of own-source revenue decreased from 5.5 percent in 2005 to 4 percent in 2009. Revenues derived from general allocation funds and revenue sharing decreased, although not by the same proportion as did the contribution of general allocation funds. Table 3.1 Composition of North Sulawesi’s Fiscal Revenue, 2005-2009 2005 2006 2007 2008 2009 Billion Billion Billion Billion Billion Province % % % % % Rupiah Rupiah Rupiah Rupiah Rupiah DAU 322.0 50.8 499.8 61.9 501.8 55.4 545.2 55.2 558.6 54.6 DAK 0.0 0.0 0.0 0.0 0.0 0.0 28.7 2.9 52.9 5.2 Revenue 34.7 5.5 46.9 5.8 55.5 6.1 53.8 5.4 62.8 6.1 sharing PAD 258.7 40.8 261.2 32.3 283.2 31.3 330.0 33.4 331.1 32.4 Others 18.6 2.9 0.0 0.0 65.7 7.2 29.7 3.0 18.0 1.8 Total 634.0 100 807.9 100 906.2 100 987.4 100 1,023.3 100 2005 2006 2007 2008 2009 Billion Billion Billion Billion Billion District % % % % % Rupiah Rupiah Rupiah Rupiah Rupiah DAU 1,675.6 68.3 2,911.0 76.8 2746.2 65.0 2964.0 65.2 3492.6 63.6 DAK 142.8 5.8 388.8 10.3 677.8 16.1 659.1 14.5 836.4 15.2 Revenue 170.2 6.9 245.8 6.5 233.0 5.5 252.1 5.5 302.6 5.5 sharing PAD 135.8 5.5 146.0 3.9 178.1 4.2 173.7 3.8 203.0 3.7 Others 328.1 13.4 99.7 2.6 387.6 9.2 499.1 11.0 659.2 12.0 Total 2,452.4 100 3,791.3 100 4,222.7 100 4,548.0 100 5,493.8 100 The fiscal capacity of North Sulawesi’s districts/municipalities varies markedly. Kepulauan Sitaro district had the largest fiscal capacity of Rp. 5.2 million per capita by 2009 regional budget data, whereas Bolaang Mongondow Timur district had the smallest fiscal capacity of only Rp. 1.1 million per capita. Most of this district’s revenue derives from central government transfers of general allocation funds. 38 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing Figure 3.5 Composition of Per Capita Sub-national Revenue, by District/Municipality in North Sulawesi, 2009 Source: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2009 Note: Calculations Employ Revised Regional Budget (APBD-P) for Tomohon in 2009 3.1.2 Own-Source Revenue North Sulawesi’s own-source revenue increased In absolute terms between 2005 and 2009, but decreased as a proportion of North Sulawesi’s overall revenue. North Sulawesi’s own-source revenue increased from Rp. 394.4 billion in 2005 to Rp. 534.1 billion in 2009. Regional taxes are the main source of this own-source revenue; they increased from Rp. 259.5 billion in 2005 to Rp. 364.8 billion in 2009. Figure 3.6 Composition of North Sulawesi’s Own-Source Revenue, 2005-2009 Source: Calculated from North Sulawesi APBD (realized), 2005-2009 Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 The Revenue Composition Data for the Province and Districts/Municipalities is 2009 data. 39 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing Own-source revenue decreased significantly as a proportion of overall revenue, particularly from 2005 to 2006. Own-source revenue decreased from 13 percent of sub-national revenue in 2005 to 9 percent in 2006. Thereafter, own-source revenue remained stable at 9 percent through to 2008, after which it fell to 8 percent in 2009. The significant decrease in the contribution of own-source revenue reflected a sharp increase in the amount of general allocation funds and special allocation funds received by North Sulawesi that year, whereas the amount of own source revenue increased by only 3 percent. Tax is the largest component of North Sulawesi’s own-source revenue. Tax contributed 66 percent of own-source revenue in 2005, 68 percent in 2009 and reached as high as 72 percent in 2008. Regional charges were the second largest contributor to own-source revenue, followed by profits from regional companies, but the contribution of each of these revenue sources decreased as a proportion of overall own-source revenue between 2005 and 2009. Motor vehicle tax is the largest tax source in North Sulawesi. Figure 3.7 Comparison of Own-Source Revenue Composition of North Sulawesi Province and Districts/ Municipalities, 2009 Regional Tax Local charges Profits from Regional Companies Other Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized) Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 The Revenue Composition Data for the Province and Districts/Municipalities is 2009 data. Most tax revenue comes from the provincial government. Tax is the main contributor own-source revenue at both provincial and district/municipality government level, but the overall composition of own-source revenue differs significantly at these two levels. At provincial level, tax contributes almost all own-source revenue (approximately 87 percent). Tax remains the largest contributor to district/municipality own-source revenue too, but its contribution is similar to that of regional charges and other sources of own-source revenue. ‘Other’ own-source revenue in fact constitutes the second largest share of own-source revenue at district/municipality level. In accordance with Law no. 3/2004, other own-source revenue includes the sale of assets controlled by the sub-national government, revenue from interest and from management of goods and services. Kepulauan Sangihe district had the highest per capita own-source revenue of any district/ municipality in North Sulawesi in 2009. Its per capita own-source revenue was Rp. 190,000, followed by Manado municipality with Rp. 166,000 and Kepulauan Sitaro with Rp. 137,000. There are significant disparities in per capita own-source revenue between districts/municipalities One of the districts newly formed via administrative re-division in the last five years, Bolaang Mongondow Timur, had the lowest per capita own-source revenue of Rp. 10,000. 40 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing Figure 3.8 Comparison of Per Capita Own-Source Revenue, by District/Municipality in North Sulawesi, 2009 Regional Charges Regional Company Profits PAD Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized) Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 The Revenue Composition Data for the Province and Districts/Municipalities is 2009 data. Regional charges play a greater role than tax at district/municipality level as a source of own-source revenue. Specifically for Kepulauan Sangihe and Kepulauan Sitaro districts, ‘other’ revenue also contributes more to own-source revenue. In these two districts in 2009, most own-source revenue originated from bank interest and funds returned in response to State Audit Board (BPK) findings. Comparison of Own-Source Revenue in Parent Districts and Newly Formed Districts Per capita own-source revenue is increasing more rapidly in newly formed districts/municipalities than in parent districts/municipalities. Regions were classified as ‘newly formed’ if they separated from their parent districts during the past five years. Newly formed districts/municipalities include Kotamobagu municipality, Bolaang Mongondow Timur district, Bolaang Mongondow Selatan district, Minahasa Tenggara district and Kepulauan Sitaro district. Per capita own-source revenue of newly formed districts/municipalities has increased rapidly and in 2009 surpassed that of parent districts/municipalities. Per capita own-source revenue of newly formed districts/municipalities increased from Rp. 19,000 in 2008 to Rp. 54,000 in 2009, compared to Rp. 41,000 in 2008 and Rp. 44,000 in 2009 for parent regions. Interestingly, ‘other’ sources dominated own-source revenue in newly formed districts. As with the overall pattern of revenues, other own-source revenue in newly formed regions derived from the sale of regional assets and bank interest. 41 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing Figure 3.9 Comparison of Per Capita Own-Source Revenue (PAD) In Newly Formed and Parent Regions Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized) Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 The Revenue Composition Data for the Province and Districts/Municipalities is 2009 data. 3.1.3 General Allocation Funds (DAU) North Sulawesi’s dependence on general allocation funds increased during 2005-2009, especially in 2006. General allocation funds decreased as a proportion of overall revenue in 2007, however, before stabilizing at approximately 63 percent of overall sub-national revenue. General allocation funds more than doubled from Rp. 1.9 trillion in 2005 to Rp. 4 trillion in 2009. A significant increase occurred in 2006, matching the general trend in other parts of Indonesia, due to the reduction of petroleum fuel subsidies in 2005. Average general allocation fund transfers to sub-national government increased by 65 percent throughout Indonesia in 2006 (World Bank, 2008) It is clearly evident that in North Sulawesi, general allocation funds are targeted more towards governments at district/municipality level. The proportion of general allocation funds allocated to district/municipality governments increased every year from more than 80 percent in 2005 to 86 percent in 2009. General allocation funds increased from Rp. 322 billion (province) and Rp. 1.7 trillion (district/ municipality) in 2005 to Rp. 559 billion (province) and Rp. 3.5 trillion (district/municipality). From 2005-2009, general allocation funds increased by 18 percent on average per year at provincial level and by 27 percent on average annual at district/municipality level. Figure 3.10 General Allocation Fund (DAU) Transfers to North Sulawesi, 2005-2010, by Level of Government Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized) Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 The Revenue Composition Data for the Province and Districts/Municipalities is 2009 data. 42 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing General allocation funds transfers to each district/municipality in North Sulawesi varied considerably, with Kepulauan Talaud district receiving the highest average per capita transfers. Kepulauan Talaud’s per capita general allocation funds reached Rp. 3.5 million in 2009, a significant contrast to the 835,000 per capita received by Bolaang Mongondow Timur. Central government transfers appear not to have entirely overcome revenue disparities between districts/municipalities in North Sulawesi. Figure 3.11 Per Capita General Allocation Fund (DAU) Transfers in North Sulawesi, by District/ Municipality, 2009. Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized) Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 The Revenue Composition Data for the Province and Districts/Municipalities is 2009 data. 3.1.4 Special Allocation Funds (DAK) Special allocation fund transfers in North Sulawesi increased rapidly from 2005-2009, with some deceleration in 2008. Overall special allocation fund transfers increased from Rp. 143 billion in 2005 to Rp. 889 billion in 2009. The provincial government first received special allocation fund transfers in 2008. Meanwhile, the real levels of special allocation fund transfers to districts/municipalities increased significantly, from Rp. 143 billion in 2005 to Rp. 836 billion in 2009. Special allocation fund transfers are targeted more towards governments at district/municipality level, mirroring the pattern of general allocation fund transfers. In 2009, the provincial government received 6 percent of total special allocation fund transfers to North Sulawesi, whereas districts/municipalities received 94 percent. The five districts and municipalities to receive the largest special allocation fund transfers in 2009 were Kepulauan Sangihe district (Rp. 104.8 billion), Minahasa district (Rp. 76 billion), Bolaang Mongondow district (Rp. 74.8 billion); Kepulauan Sitaro district (Rp. 72 billion) and Kotamobagu municipality (Rp. 63.4 billion). The largest single usage of special allocation funds in North Sulawesi is to fund infrastructure development. This infrastructure development covers road network improvements, irrigation as well as access to clean water. Road construction to link districts/municipalities or to connect different villages in the same district/municipality received the single largest allocation, amounting to Rp. 112 billion or approximately 26 percent of total special allocation funds in 2008. 43 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing Figure 3.12 North Sulawesi’s Special Allocation Funds (DAK), 2005-2009 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized) Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 Bolaang Mongondow Timur also received the lowest per capita special allocation fund transfer of any the district/municipality in North Sulawesi in 2009. Per capita special allocation fund transfers varied between different districts/municipalities. Kepulauan Sitaro district received the highest per capita transfer, at Rp. 1.2 million, whereas Bolaang Mongondow Timur received the lowest at Rp. 63 thousand. Two newly created districts (Bolaang Mongondow Timur and Bolaang Mongondow Selatan) received extremely low per capita transfers. 3.1.5 Revenue Sharing (DBH) Revenue sharing (DBH) transfers increased in absolute terms from 2005-2009, particularly in 2006. North Sulawesi’s overall revenue increased more rapidly over this time period, however, meaning that the share contributed by revenue sharing decreased, particularly in 2007. Revenue sharing transfers increased from the Rp. 205 billion in 2005 to Rp. 366 billion in 2009, or 79 percent overall. As with other balancing funds, most revenue-sharing transfers are allocated to districts and municipalities. In 2009, the provincial government received 17 percent of overall revenue sharing transfers, with district/municipality governments receiving the remaining 83 percent. There are two categories of revenue sharing transfers: tax and non-tax (natural resources). In 2009, these two categories were combined. From 2005-2008, almost all revenue sharing transfers were from the tax category (more than 99 percent), whereas non-tax revenue sharing (natural resources) constituted less than one percent Revenue sharing transfers also vary in per capita terms from region to region in North Sulawesi. Tomohon municipality received the highest per capita revenue sharing transfers in 2009 at Rp. 352,000 considerably receiving the Rp. 76,000 allocated to Bolaang Mongondow Timur district as the recipient of the lowest per capita amount. Overall, Bolaang Mongondow Timur district has the lowest per capita regional revenue of all districts/municipalities in North Sulawesi. 44 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing Figure 3.13 Overall Revenue Sharing (DBH) Transfers to North Sulawesi, 2005-2009 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2005-2010 Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 3.2 Financing North Sulawesi experienced a surplus in regional revenue each year from 2005-2009, except in 2005. In 2005, there was a Rp. 85.8 billion deficit in regional revenue, followed by a surplus for the following four years. The highest surplus of Rp. 380 billion or 6.8 percent was in 2008, indicating that the government was unable to absorb the available budget. Most of the 2009 sub-national budget (APBD) surplus was used for short-term investment expenditure. This utilization complies with Law no. 32/2004, which stipulates that APBD surplus may be used to pay principal installments due for payment; regional investment; or transfers to reserve funds accounts. The 2005 budget deficit was mainly financed using the unspent budget balance (SiLPA) from the previous year. Law no. 32/2004 stipulates that financing for a deficit may originate from the previous year’s unspent budget balance; transfers from reserve funds; income from the separated proceeds of regional assets sales; and sub-national government borrowing. Article 28(5) of Government Regulation no. 58/2005 states that the total net financing must be able to cover the budget deficit. Figure 3.14 Budget Surplus and Deficit in North Sulawesi Province Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2005-2010 Note: Calculations Employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 45 North Sulawesi Public Expenditure Analysis 2011 Chapter 3 Revenues and Financing In 2009, the provincial government experienced a deficit, whereas the district/municipality governments experienced a surplus of regional revenue. The provincial government was able to finance its deficit using unspent budget balance. Overall, district/municipality governments experienced a surplus and positive net financing, with the result that their unspent budget balance exceeded the surplus. Minahasa Utara had the highest unspent budget balance of any region in North Sulawesi, whereas Kepulauan Talaud experienced the largest planned budget deficit (SiKPA), owing to settlement of a debt payment with a third party. 3.3 Conclusion and Recommendations North Sulawesi’s district/municipality governments have relatively low own-source revenue and their dependency on central government transfers is increasing. This situation is not in line with the objectives of regional autonomy. Further study is needed to identify the potential for taxes with an extensive tax base; improved supervision is required to minimize leakage of tax revenues and regional charges; improved human resource capacity in the taxation field is also required. Nevertheless, it should be noted that excessive tax imposition might become a disincentive to economic activities, so attention must be paid in levying taxes not to impede the region’s economic growth. Non-tax (natural resources) revenue sharing remains extremely small compared to revenue sharing from tax, raising the question of whether North Sulawesi has utilized its natural resource potential to the maximum possible extent. Further research is required on North Sulawesi’s natural resource potential, which may provide a source of regional revenue. The imbalance in per capita regional revenues between districts/municipalities remains high. Several newly formed districts have very low revenue (particularly Bolaang Mongondow Timur). Government support is required, for instance through central government transfers, to initiate the development of these newly formed districts/municipalities by improving their fiscal position. The provincial and most district/municipality governments in North Sulawesi have large unspent budget balances. These sub-national governments cannot absorb the available budget and yet are able to undertake important programs and activities to provide services to the community. Once their service provision reaches the maximum possible level, these sub-national governments could make additional investments to utilize available funds. On the other hand, several regions have planned budget deficits (SiKPA). To deal with these planned budget deficits, the governments in question need to be more careful in managing their finances the following year, when they must face both inherent risks and the planned budget deficit carried over from the previous year. 46 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure Chapter 4 Expenditure 4.1 Overview of Sub-national Expenditure North Sulawesi’s total sub-national expenditure increased during 2005-2009. North Sulawesi’s total expenditure (including deconcentration and co-administration funds) increased by Rp. 3.4 trillion over four years from Rp. 3.7 trillion in 2005 to Rp. 7.1 trillion in 2009. The average annual increase in North Sulawesi’s total expenditure over this period was 23.5 percent. District/municipality governments manage most of North Sulawesi’s sub-national expenditure. The share of expenditure managed by district/municipality governments has also increased, from 69 percent in 2005 to 75 percent in 2009. The provincial government managed 13 percent of North Sulawesi’s total expenditure in 2009, with the remaining 12 percent being central government spending in the regions. Most district/municipality level expenditure is allocated to personnel spending, particularly for general government affairs. This expenditure covers salary and allowance spending, namely: basic salary for personnel (the largest expenditure item), family allowance, position allowance, functional allowance, general allowance, special allowance, as well as additional performance-based payments to personnel. Figure 4.1 North Sulawesi’s Sub-national Expenditure (including Deconcentration and Co- administration Funds), 2005-2009 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2005-2009 Note: Calculations employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 World Bank staff calculated data on the deconcentration and co-administration expenditure based on Ministry of Finance data. North Sulawesi’s total sub-national per capita expenditure exceeded the national average in 2009. Ministry of Finance budget data indicates North Sulawesi’s 2009 per capita expenditure to have been Rp. 2.8 million, significantly higher than national per capita expenditure of Rp. 1.7 million. North Sulawesi’s 2009 per capita expenditure was relatively high compared to other provinces in Sulawesi, although it was lower than Southeast Sulawesi’s expenditure of Rp. 3.1 million per capita. West Papua Province had the highest per capita spending in 2009 of Rp. 10 million. 48 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure Figure 4.2 Real per capita Public expenditure by province, 2009 12.0 10.0 8.0 Rp Million 6.0 4.0 2.0 0.0 Maluku Utara Kalimantan B arat Kepulauan Riau Kalimantan T imur Sumatera Selatan Sulawesi Selatan Sulawesi Tenggara Papua Barat Sumatera Utara Papua NTT Kalimantan T engah DI Jogjakarta NTB Sulawesi Tengah Jawa Barat Gorontalo Bangka Belitung Jawa Timur Maluku Sulawesi Utara NAD Riau Lampung Kalimantan S elatan Bengkulu Bali Jambi Rata-rata Jawa Tengah Banten Sumatera Barat DKI Jakarta Sulawesi Barat Source: The data was obtained from the Directorate General of Fiscal Balance at the Ministry of Finance. The data is data on budget. Population data is from BPS, 2009. Mirroring the pattern of per capita revenue in North Sulawesi, newly proliferated Bolaang Mongondow Timur district also has the lowest per capita expenditure. Per capita district/municipality expenditure in North Sulawesi is quite varied and imbalanced. Kepulauan Sitaro has the highest per capita expenditure (and also the highest per capita revenue) at Rp. 4.5 million, much higher than Bolaang Mongondow Timur’s per capita expenditure of Rp. 1.2 million. Bolaang Mongondow Timur and Bolaang Mongondow Selatan are the most recently formed districts in North Sulawesi; each was established in 2009. Their recent formation is one of the reasons why these districts have the lowest per capita revenue and expenditure. Those two districts have just started to organize their administration and the transition to become new governments. They also have minimal infrastructure facilities, impeding economic activities somewhat. Figure 4.3 Per Capita District/Municipality Public Expenditure in North Sulawesi in 2009 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2009 Note: Calculations employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 49 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure Per Capita Expenditure of Newly Proliferated and Parent Districts/Municipalities Unlike the pattern of per capita revenue, newly formed districts/municipalities have significantly higher per capita expenditure than parent regions, particularly in per capita capital expenditure. The per capita expenditure of newly formed districts was Rp. 2.8 million in 2009, almost triple the per capita expenditure of parent districts at Rp. 1 million. Per capita capital expenditure registered the largest difference in expenditure levels between newly formed and parent districts. Per capita capital expenditure in newly formed districts was Rp. 1.2 million in 2009, whereas the equivalent figure in parent districts was Rp. 273,000. In the same year, capital expenditure was the largest expenditure item for newly formed districts, whereas parent districts spent the most on personnel expenditure. Newly formed districts appear to allocate more of their expenditure to construction of district infrastructure, such as building new schools and government offices, which are categorized as capital expenditure. Figure 4.4 Per Capita Expenditure of Newly Formed and Parent Districts, 2009 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2009 Note: Calculations employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 4.2 Expenditure by Economic Classification Personnel expenditure was the largest expenditure for North Sulawesi’s sub-national governments during 2005-2009. Although the proportion spent on personnel expenditure decreased between 2005 and 2009, it remained the largest expenditure item for sub-national governments in North Sulawesi. The share of personnel expenditure decreased from Rp. 1.5 trillion or 56 percent of total expenditure in 2005 to Rp. 2.8 trillion of 47 percent in 2009. Capital expenditure increased quite significantly over the same period as a proportion of North Sulawesi’s total expenditure, however. North Sulawesi’s capital expenditure increased 3.5 times in absolute terms between 2005 and 2009, from Rp. 420 billion in 2005 to Rp. 1.9 trillion in 2009. The share of spending allocated to capital expenditure also significantly increased, rising from the lowest share in 2005 relative to other economic expenditure (goods and services; and personnel) at 14 percent, to be the second largest economic expenditure in 2009 at 31 percent. North Sulawesi hosted the World Ocean Conference (WOC) In 2009, impacting positively upon the province’s infrastructure development. Infrastructure upgrades include a new terminal and runway extension for Sam Ratulangi International Airport, widening of the road linking Manado municipality to the airport, improvement on crossing facilities and infrastructure to Bunaken 50 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure Island, construction of an outer ring road, as well as the construction of facilities and improvement of access to tourist attractions4. Figure 4.5 North Sulawesi’s Sub-national Expenditure by Economic Classification, 2005-2009 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2005-2010 Note: Calculations employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 The proportion of spending allocated to personnel expenditure was relatively stable, as changes were smaller than those to the proportional allocations to capital expenditure and goods and services expenditure. The proportion of spending allocated to personnel expenditure fluctuated only modestly between 2005 and 2009, ranging from 47-56 percent. The proportional allocation to goods and services expenditure declined sharply over the same period, from 27 percent in 2005 to 17 percent in 2009. Comparison of changes in allocations to these three types of expenditure demonstrates the increased proportional allocation to capital expenditure to be a shift from goods and services expenditure, not from personnel expenditure. Figure 4.6 Share of North Sulawesi Province and District/Municipality Expenditure by Economic Classification, 2005-2009 100% 2% 11% 8% 5% 4% 19% 22% 21% 100% 29% 16% 80% 36% 80% 14% 27% 32% 26% 6% 18% 17% 24% 0% 23% 60% 25% 17% 16% 60% 16% 28% 27% 24% 20% 40% 40% 23% 57% 49% 49% 51% 48% 20% 0% 20% 37% 36% 39% 40% 32% 2005 2006 2007 2008 2009 0% 2005 2006 2007 2008 2009 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2005-2010 Note: Calculations employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 4 Badan Kerja Sama Pembangunan Regional Sulawesi, Dampak WOC bagi Pengembangan Sulawesi Utara, 24 Maret 2009, (The Coordination Agency for Sulawesi Regional Development, WOC Impact on North Sulawesi Development, 24 March 2009) http:// www.bkprs-news.com/index.php?option=com_content&task=view&id=190&Itemid=117 51 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure At provincial government level, personnel expenditure was also the largest economic expenditure item in North Sulawesi. Personnel expenditure received the largest allocation each year. Its share fluctuated from 37 percent in 2005 to 32 percent in 2009, but remained consistently above 30 percent (Figure 4.5). Capital expenditure received the lowest allocation of any type of expenditure in 2005, at just 6 percent. Capital expenditure has increased each year, however, with a significant increase since 2007 to a 2009 level of 23 percent of total expenditure, similar to goods and services expenditure. District/municipality governments’expenditure pattern is similar to that of the provincial government, with personnel expenditure constituting the largest share. Capital expenditure received the second largest allocation of expenditure with a share of 32 percent. The share of capital expenditure has increased significantly, particularly in 2007, when it increased from 14 percent to 26 percent of total expenditure. In a similar trend to North Sulawesi’s overall expenditure pattern, this increase in capital expenditure appeared to be concurrent with a decline in goods and services expenditure, whereas personnel expenditure continued to receive the largest share, at almost half of total district/municipality expenditure in North Sulawesi in 2009. 4.3 Sectoral Expenditure North Sulawesi’s sub-national governments (provincial and district/municipality combined) continue to spend the most on general administration expenditure, although its share is declining. The real combined expenditure of the provincial and district/municipality governments in the general administration sector increased consistently during 2005-2009, from Rp. 950 billion in 2005 to Rp. 2 trillion in 2009. Consequently, the dominance of general administration expenditure in sub-national spending continued, although its share declined from 37 percent in 2005 to 33 percent in 2009. Infrastructure expenditure increased rapidly over this period, but did not reach the levels of the education sector, which received the second largest allocation. Health and agriculture expenditure fluctuated, while marine and fishery expenditure remained very low with an average share of 1 percent. Figure 4.7 North Sulawesi’s Sub-national Expenditure by Sector, 2005-2009 Sectoral Real Expenditure (2009 =100) Sector Spending as a Proportion of Total Spending (%) 485.2 Rp Billion 215.56 325.8 388.7 478.41 187.92 181.04 487.7 325.39 371.54 1,742.72 135.42 393.64 1,296.48 1,468.02 335.3 927.32 1,212.62 55.63 763.22 852.04 228.34 826.82 591.11 183.98 1,894.02 1,705.61 2,003.76 1,447.95 949.60 General Administratio (excluding transfer to districts) General Administratio (excluding transfer to districts) Education Education Agriculture Agriculture Infrastructure Infrastructure Health Health Others Others Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2005-2010 Note: Calculations employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 52 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure General administration sector expenditure exceeds 50 percent of overall provincial-level spending. Provincial government general administration expenditure increased from Rp. 418 billion in 2005 to Rp. 566 billion in 2009, equivalent to 9 percent average annual growth. Consequently, the sector continued to dominate provincial expenditure (above 50 percent), even as proportional allocations to infrastructure and education almost doubled between 2005 and 2009. Health sector expenditure increased in real terms, but its share remained at 5 percent. Table 4.1 Provincial Government Expenditure by Sector (Billion Rp. and Proportion of Total Expenditure), 2005-2009 2005 2006 2007 2008 2009 Billion Billion Billion Billion Billion Province % % % % % Rupiah Rupiah Rupiah Rupiah Rupiah General Administration 418 69.2 507 63.1 474 54.5 546 58.4 566 54.7 Infrastructure 65 10.8 98 12.2 167 19.2 150 16.1 198 19.1 Education 18 3.1 49 6.0 56 6.5 52 5.6 54 5.2 Health 30 4.9 39 4.8 47 5.5 46 4.9 54 5.2 Agriculture 17 2.8 29 3.6 51 5.9 50 5.3 58 5.7 Marine and Fishery 5 0.9 9 1.1 9 1.1 10 1.1 13 1.2 Forestry 12 2.1 16 2.0 8 0.9 9 1.0 10 1.0 Social and Gender 4 0.7 6 0.8 6 0.7 8 0.9 11 1.1 Empowerment Industry and Trade 5 0.8 7 0.9 7 0.8 8 0.9 8 0.8 Labor 8 1.3 10 1.3 11 1.3 12 1.2 14 1.4 Demography and 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Transmigration Cooperative and Small 4 0.6 6 0.7 7 0.8 7 0.7 9 0.9 and Medium Enterprises Tourism 10 1.6 14 1.7 8 0.9 8 0.8 14 1.4 Energy and Mineral 4 0.6 6 0.7 7 0.8 6 0.7 6 0.6 Resources Environment 2 0.3 3 0.4 3 0.4 3 0.3 4 0.4 Investment 2 0.3 5 0.6 6 0.7 5 0.6 5 0.5 Housing 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Youth and Sports 0 0.0 0 0.0 1 0.1 13 1.4 9 0.8 Spatial Planning 0 0.0 0 0.0 0 0.0 1 0.1 0 0.0 Defense 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Total 605 100 803 100 870 100 935 100 1,034 100 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2005-2010 The greatest contributor to continuing high general administration expenditure at provincial level has been increased revenue sharing transfer expenditure. Unlike other sectoral expenditure, in addition to personnel expenditure, goods and services expenditure, and capital expenditure, general administration sector expenditure also includes transfer expenditure.5 Transfer expenditure contributed an average of 42 5 Transfer expenditure includes grants, subsidies, social assistance, financial assistance to districts/municipalities, and contingency spending. By contrast with the previous regulation in which every government work unit was permitted to budget and administer 53 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure percent of provincial general administration sector expenditure between 2007 and 2009, most of which was allocated to revenue sharing expenditure, followed by expenditure on grants to districts/municipalities. Even excluding transfer expenditure, however, other general administration expenditure received the largest share of expenditure, exceeding allocations to infrastructure, education, and health. There has not been a significant shift in expenditure priorities from general administration to strategic sectors such as education, health, and infrastructure. As at provincial level, the general administration sector dominates district/municipality government expenditure. District/municipality government general administration expenditure grew considerably from Rp. 704 billion in 2005 to Rp. 1.5 trillion in 2009. Education also received a significant expenditure allocation (above 30 percent on average), followed by infrastructure and health. Allocations to infrastructure increased significantly as a proportion of overall expenditure between 2005 and 2009, from 5 percent (2005) to 19 percent (2009). Table 4.2 District/Municipality Government Expenditure by Sector (Billion Rp. and Proportion of Total Expenditure), 2005-2009   2005 2006 2007 2008 2009 Rupiah Milyar Milyar Milyar Milyar District/Municipality % % % % % Billion Rupiah Rupiah Rupiah Rupiah Public Administration 704 29.8 1,162 34.2 1,511 37.6 1,300 31.2 1,580 30.1 Infrastructure 119 5 493 14.5 596 14.9 702 16.8 1,015 19.3 Education 808 34.2 879 25.8 1,240 30.9 1,416 33.9 1,689 32.2 Health 199 8.4 355 10.4 278 6.9 325 7.8 424 8.1 Agriculture 39 1.6 107 3.1 137 3.4 131 3.1 157 3 Marine and Fishery 19 0.8 37 1.1 48 1.2 50 1.2 73 1.4 Forestry 14 0.6 22 0.6 18 0.4 21 0.5 28 0.5 Social and Women’s em- 32 1.4 33 1 14 0.3 19 0.5 28 0.5 powerment Industry and Trade 16 0.7 22 0.6 26 0.7 32 0.8 50 1 Labour 7 0.3 55 1.6 11 0.3 13 0.3 14 0.3 Demography and Transmi- 17 0.7 22 0.7 17 0.4 23 0.6 23 0.4 gration Cooperative and Small and 5 0.2 8 0.2 13 0.3 13 0.3 13 0.2 Medium Enterprises Tourism 7 0.3 15 0.4 11 0.3 12 0.3 18 0.3 Energy and Mineral Re- 6 0.3 9 0.3 11 0.3 12 0.3 14 0.3 sources Environment 12 0.5 19 0.5 40 1 49 1.2 53 1 Investment 2 0.1 5 0.1 6 0.1 11 0.3 8 0.2 Housing 104 4.4 161 4.7 13 0.3 7 0.2 19 0.4 Youth and Sports 1 0 0 0 14 0.3 23 0.6 11 0.2 Spatial Layout 38 1.6 0 0 10 0.3 13 0.3 28 0.5 Defense 0 0 0 0 0 0 1 0 2 0 Total 2,362 100 3,400 100 4,014 100 4,172 100 5,246 100 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2005-2010 Note: Calculations employ the Revised Regional Budget (APBD-P) for Tomohon in 2009 transfer spending, Minister of Home Affairs Regulation no. 13/2006 stipulates that all such spending is to be allocated to the Regional Financial Management Officer (PPKD), which is the general administration sector work unit. 54 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure 4.4 Relationship between Expenditure and Gender Gender Responsive Budgeting Gender mainstreaming in central and sub-national government institutions derives from Presidential Instruction no. 9/2000 concerning Gender Mainstreaming in National Development. This presidential instruction requires government institutions to integrate men’s and women’s experiences, aspirations, needs, and issues in planning, implementing, monitoring, and evaluating all policies, programs, and activities in various aspects of life and development. The 2010-2014 National Medium-Term Development Plan (RPJMN) refers to Presidential Instruction no. 9/2000 in establishing a policy of cross-sectoral gender mainstreaming as a principle and operational basis for overall development implementation (2010-2014 RPJMN). Gender mainstreaming in development is a strategy to reduce/remove inequalities between males and females in Indonesia in accessing and obtaining development benefits, as well as increasing participation of each group in decision- making and control over development resources, such as knowledge, skills, information and credit. Gender Responsive Budgeting in North Sulawesi Province In North Sulawesi, gender responsive budgeting comprises: A special budget category for women and children, namely: budget for the fulfillment of women’s priority needs in public services (health, education, and community welfare); budget for health, education, and protection for girls and/or boys; budget for improvement in economic conditions of poor women; as well as funds for children disbursed to finance childcare in poor families. A budget allocation category for affirmative action for marginal groups, namely: budget for marginal groups (such as: the poor, minority ethnicities, isolated ethnic groups, etc.); budget for government training programs prioritizing gender balance; budget for actualization of gender balance in public staffing sectors; budget for providing a legal umbrella to implement affirmative action or measures to actualize equal opportunity for men and women in public sectors. A gender mainstreaming budget allocation category, namely: budget for gender mainstreaming programs; budget for gender analysis needs including generating disaggregated data; budget for gender training implementation and provision of modules on gender mainstreaming in each sector; budget for research and evaluation of program or project impacts on men and women. 55 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure Figure 4.8 Categories of Gender Responsive Budgeting (Sharp and Budlender, 1985) Categories Category I Category II Category III Allocation of Gender Specific Budget Allocation for Improving Allocation for Mainstream General Targeted Budget Equal Opportunity at Work Budget Required spending for women or As an affirmative action to actualize Allocation of general budget men in the community in order to equal opportunity between men guaranteeing that public services fulfill their special needs and women mainly in governmental may be obtained and enjoyed by environment or other work all community members (men and environments women) Example: Budget allocation for Example: Budget allocation for Example: Budget allocation for women’s reproductive health, agricultural technology training for proportional public facilities (public budget allocation for procurement women, budget allocation for child toilets) between men and women, of contraception devices for men, day care facilities in workplaces budget allocation for special means budget allocation for pap smear, of transportation respectively for budget allocation for prostate cancer women and men sufferers, budget allocation for mass circumcision Categories North Sulawesi allocated Rp. 19.3 billion or 2.2 percent of the total provincial budget to gender responsive budgeting in 2009. This allocation constitutes a decrease from 2008. when Rp. 29.2 billion was made available. It is not known why the gender budget decreased in 2009, whether because of re- allocation or because the budget had been incorporated into other programs that were not detailed. Table 4.3 presents details of women’s empowerment spending. Most of the women’s empowerment budget is allocated to spending on women and children, in the amount of Rp. 17,548 million (91 percent). Affirmative action for marginal groups and mainstreaming received budget allocations of Rp. 1,346 million (7 percent) and Rp. 416 million (2 percent) respectively. As a proportion of the total 2009 North Sulawesi provincial APBD, these allocations were very small. The special budget allocation for women and children was only 2 percent, affirmative action for marginal groups received 0.15 percent and 0.05 percent was allocated to gender mainstreaming. 56 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure Table 4.3 Allocations Related to Women’s Empowerment in North Sulawesi Provincial APBD, 2008- 2009 Budget (Million Rp) Program 2008 2009 Women’s empowerment 1,196 Family Planning and Welfare 322 205 Harmonization of Policies on Children and Women Quality Improvement 40 95 Early Childhood Education 165 608 Enhancement of Institutional 707 347 Gender and Children Mainstreaming 1,188 68 Nine-year Compulsory Elementary Education 968 705 Guidance for Neglected Children 111 113 Improvement in the Quality of Life and Women Protection 359 115 Non-formal education 1,111 Improvement in Participation and Gender Equality in Development 449 210 Guidance for Former Social Ills Sufferers (ex-prisoners, ex-prostitutes, ex-drug users, and 373 334 other social ills) - Provision of Counseling on the Dangers of Illegal Drugs for the Community Improvement in Handling Drug Use and Sexually Transmitted Diseases (STD) including HIV/ 322 111 AIDS Education Service Management 3,262 Education Quality Improvement 13,746 Health Service Standardization 45 Health Service for the Poor 455 Development of Drinking Water and Waste Processing Performance 1,730 1,727 Secondary Education 1,345 5,896 Public Health Measures 83 4,386 Women’s Empowerment Bureau 811 Harmonization of Policies on Children and Women Quality Improvement 40 Guidance for Neglected Children 111 Guidance for Former Social Ills Sufferers (ex-prisoners, ex-Prostitutes, ex-drug users, and 373 231 other social ills. Women’s Empowerment and Child Protection 1,214 Improvement in Youth Participation – Counseling for the Prevention of Drug Use among 213 the Young Generation Measures for the Prevention of Drug Abuse 651 Guidance for Orphanages/Senior Citizens’ Homes 740 Improvement in Women’s Roles in Rural Areas 47 Health Promotion and Community Empowerment 319 People’s Nutrition Improvement 44 57 North Sulawesi Public Expenditure Analysis 2011 Chapter 4 Expenditure Budget (Million Rp) Program 2008 2009 Development of Information Materials on Nurturing Children and Guidance on Children’s 94 Growth and Development Twelve-year Compulsory Education 1,333 Fostering Art Skills, Talents, Creativity, and Achievement of Students 2,350 Children and Adolescent Support Center 200 Total 29,213 19,309 Source: Calculated from North Sulawesi Provincial and District/Municipality APBD (realized), 2008-2009 4.5 Conclusion and Recommendations Personnel expenditure continues to be very dominant. Therefore, in the future it is necessary to perform: (1) reduction of the number of personnel through attrition, namely by recruiting fewer new personnel than the number of retiring personnel; (2) recruitment of highly-qualified personnel as well as the provision of proper training to improve productivity; and (3) personnel reallocation from areas with excessive number of personnel to the areas experiencing personnel shortage to prevent unnecessary recruitment. Sub-national governments allocate very little expenditure sectors in which North Sulawesi enjoys an advantage. Only around 3 percent of funds are allocated to agriculture, 0.5 percent to tourism, and approximately 1 percent to the maritime and fisheries sector. Appropriate efficient programs are required, including developing the skills and work ethics of workers in those sectors, and providing adequate finance to enable these advantageous sectors to accelerate the achievement of community welfare. Measures are also required to promote a balance in expenditure trends between personnel spending and infrastructure spending. Health spending of only 8 percent needs to be increased, as health care costs increase and in accordance with the relatively high poverty and unemployment rates. The gender responsive budget in North Sulawesi remains very small. A higher expenditure allocation is required to promote women’s empowerment in North Sulawesi’s economic development. Steps are needed to increase women’s access to economic sectors to facilitate improvement to women’s standard of living. Budget may be allocated to women’s and children’s empowerment as necessary. Adequate budget allocations are required to finance programs for victims of trafficking, rape victims, unwanted pregnancies and neglected children, including provision of legal aid. Budget allocations for the welfare of senior citizens need to be increased. 58 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Chapter 5 Strategic Sector Analysis 5.1 Health Sector North Sulawesi province aims to resolve a number of health problems, as set out in the 2005-2010 Regional Medium-Term Development Plan (RPJMD) of North Sulawesi Province. These problems include: the degree of the disparity in health status between different societal groups; the low number, quality, utilization, and affordability of health facilities, infrastructure and services for poor/isolated community groups; the limited number of health workers; uneven distribution; community behavior to develop a culture of clean and healthy living based on local resources and sanitary conditions in residential and work environments. 5.1.1 Analysis of Health Sector Spending North Sulawesi province’s dependence on central government transfers for health expenditure is decreasing. North Sulawesi’s health expenditure has more than doubled from Rp. 203 billion in 2005 to Rp. 426 billion in 2009. The proportion of health expenditure derived from the sub-national budget (APBD) has increased rapidly to constitute 90 percent of total health spending in 2009. North Sulawesi’s health expenditure has fluctuated, increasing by 60 percent in 2006 but then decreasing for the next three years before increasing again in 2009. Figure 5.1 North Sulawesi’s health spending has increased while its dependence on central government transfers has decreased Source: North Sulawesi PEA Database, Sam Ratulangi University A large degree of increased health expenditure derives from increases in personnel and capital expenditures. Personnel spending increased in nominal terms from Rp. 99 billion in 2005 to Rp. 203 billion in 2009 (Figure 5.2). As a proportion of overall health expenditure, it remained relatively constant during this five-year period, however (48 percent). Over the same period, capital expenditure increased significantly from Rp. 26 billion to Rp. 175 billion, rising from 13 percent to 41 percent of health spending. 60 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.2 Capital expenditure increased rapidly in amount and as a proportion of health spending Source: North Sulawesi PEA Database, Sam Ratulangi University The provincial government allocated the majority of its health spending to personnel spending, whereas district/municipality governments allocated a balanced proportion to personnel and capital expenditure. The provincial government allocated almost 70 percent of spending to personnel, whereas allocations to goods and services and to capital expenditure were only 19 percent and 12 percent respectively. To provide a comparative example from a recent PEA study of another province, the composition of provincial health spending in Maluku was more balanced, with goods and services expenditure receiving the highest allocation of 44 percent. At district/municipality level, capital expenditure and personnel spending were balanced. This pattern arises because districts and municipalities do indeed have greater responsibility to provide health facilities and infrastructures than does the provincial government. At this level, the expenditure composition of the comparative case in Maluku was similar case, with the PEA study in that province showing capital expenditure to receive a moderately high allocation (36 percent). Figure 5.3 The majority of provincial spending was allocated to personnel, whereas the highest allocation at district/municipality level was to capital spending Source: North Sulawesi PEA Database, Sam Ratulangi University 61 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis 5.1.2 Health Sector Outputs and Outcomes Health quality in North Sulawesi province is better both than in other provinces in Sulawesi and the national average. There are large disparities in the rate of childbirths assisted by medical practitioners between Sulawesi’s various provinces. Professional medical workers handled 76 percent of births in North Sulawesi, whereas the lowest rate of 29 percent was observed in West Sulawesi. The North Sulawesi figure is also higher than in South Sulawesi and exceeds the national average. North Sulawesi’s immunization coverage is also the highest in Sulawesi and better than the national average. Table 5.1 Basic Health Outcomes in Sulawesi Infant Immunization Birth assisted by professional medi- Province Morbidity (%) Coverage (%) cal personnel (%) North Sulawesi 79 76 36 Central Sulawesi 73 46 38 South Sulawesi 76 59 32 South East Sulawesi 77 36 36 Gorontalo 75 37 48 West Sulawesi 68 29 38 Indonesia 77 65 34 Public access to public health facilities in North Sulawesi is the lowest in Sulawesi. In spite of the better health indicators, access to public health facilities in North Sulawesi was relatively low, only 7 percent or equal to the national average. Gorontalo on the other hand had the highest average in Sulawesi of 11 percent. This figure could indicate that many people in North Sulawesi choose to use private health facilities. Based on user numbers, low-income earners in North Sulawesi had the greatest access to public health facilities. Figure 5.4 The number of people in North Sulawesi using public health facilities was the lowest in Sulawesi Source: World Bank Estimation from National Socioeconomic Survey 2009 62 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Low-income earners in North Sulawesi preferred modern medical methods to other methods. Among low-income earners (quintile 1 and quintile 2), 37 percent chose modern medical treatments, 34 percent chose traditional medication and 29 percent chose other treatments. Higher-income earners (quintile 4 and quintile 5) made up the majority of those choosing other treatments, at 51 percent. Figure 5.5 The proportion of low-income earners choosing modern medication exceeded the proportion choosing other treatments Source: World Bank Estimation from National Socioeconomic Survey 2009 5.1.3 District/Municipality Analysis in North Sulawesi Archipelagic districts dominate the list of largest health spenders in North Sulawesi. In 2009, Sitaro district had the highest per capita health spending of Rp. 392,000, followed by Sangihe district. Nevertheless, Sangihe District spent the highest proportion on health at of 11.5 percent of total expenditure. Manado municipality, Bolaang Mongondow Selatan and Bolaang Mongondow Timur districts had the lowest per capita health spending in North Sulawesi. Districts with the highest health spending have the lowest morbidity. Archipelagic districts such as Sangihe, Talaud and Sitaro with the highest per capita health spending have the lowest morbidity in North Sulawesi. Access to health facilities in Sangihe District is also the highest (8 percent). North Sulawesi Provincial Health Office data suggests that the highest mother mortality rate in North Sulawesi in 2009 was in Bolaang Mongondow District with 16 deaths/1000 live births, whereas in several districts the figure was below 5 deaths/1000 live births. 63 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.6 Archipelagic districts have the highest per capita health spending Source: North Sulawesi PEA Database, Sam Ratulangi University Newly formed districts tend to have low per capita health spending. The four most recently formed districts were divided from Bolaang Mongondow district – Bolaang Mongondow Utara, Selatan, and Timur – along with Minahasa Tenggara. Minahasa Tenggara is the exception to this trend, since its health spending was the fourth largest in North Sulawesi. Newly firmed districts tended to spend much of their budget on governmental administration or on capital expenditure to construct government offices or buildings. Figure 5.7 Archipelagic districts have the lowest morbidity in North Sulawesi Source: World Bank Estimation from National Socioeconomic Survey 2009 64 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Inequalities remain in the availability of health workers in North Sulawesi province, with availability generally better in urban areas. These inequalities were most evident in the ratio of doctors per 10,000 residents, for which disparities were larger than for the ratio of midwives per 10,000 residents. Manado municipality (13.5) and Tomohon municipality (7.8) registered the highest ratio of doctors. Tomohon also had a relatively high ratio of midwives for North Sulawesi, at 9.9 per 10,000 residents. Kepulauan Talaud district performed best for availability of midwives in North Sulawesi (10.7 per 10,000 residents), whereas its ratio of doctors was the fourth highest (4.4 per 10,000 residents). Talaud also performed well in having the third highest per capita health spending and the second lowest morbidity in North Sulawesi. The availability of health workers does not correlate directly with access to free health care, however. Manado municipality and Bolaang Mongondow district had the highest access to free health care (18 percent), although Bolaang Mongondow had the lowest ratio of doctors in North Sulawesi. Access to free health care was influenced more by the availability of facilities such as community health centers (Puskesmas) and Integrated Health Service Outlets (Posyandu). Bolaang Mongondow district had the largest number of community health centers (21 units) and integrated health service outlets (251 units) in North Sulawesi. Figure 5.8 Patterns of access to free health care facilities and ratio of health workers do not correspond Source: World Bank and North Sulawesi PEA team Estimation from 2008 Village Potential Statistics Immunization coverage in North Sulawesi is relatively even, whereas there are disparities in the proportion of childbirths assisted by professional medical workers. Bolaang Mongondow Utara district had the lowest rate of childbirths assisted by medical workers (33 percent). Bolaang Mongondow Utara district also had the highest morbidity, while its ratio of health workers and access to free health care facilities were the lowest in North Sulawesi (Figure 5.7 and 5.8 above). The relation between outputs (ratio of doctors and midwives per 10,000 residents) and outcomes (immunization coverage and births assisted by medical workers) varies. In urban areas, outputs and outcomes were relatively even, but in districts with larger territory such as the archipelagic districts, health sector outcomes varied. Sitaro district had a high ratio of midwives and a very low ratio of doctors, resulting in low immunization coverage but better results for births assisted by medical workers. Talaud had the lowest rate of births assisted by medical workers, even though it had the highest ratio of midwives in North Sulawesi. These variations arise because limited transportation and geographical location impede even distribution of and access to medical personnel in archipelagic districts. 65 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.9 Coverage of births assisted by medical workers is better in urban areas Births assisted by Medical Personnel Source: World Bank Estimation from National Socioeconomic Survey 2009 5.1.4 Public Response to Health Services The North Sulawesi PEA research team conducted a survey to assess public perceptions of public services in certain sectors. This survey was conducted by interviewing respondents from all districts/municipalities in North Sulawesi. Eight health service indicators were employed to evaluate the response to public services in the health sector: ease and certainty of access to services, established service procedures, appropriate costs for treatment, reliability and professionalism, hygiene and completeness of instruments/rooms, health facility utilization, service to patients, and an evaluation of the delivery of government programs. Of these eight indicators, the service procedures indicator obtained the best public perception score. By contrast, the public judged the hygiene and completeness of health instruments and rooms to be an area of health service provision requiring improvement. Figure 5.10 Respondent perceptions of public health services in North Sulawesi Source: North Sulawesi PEA Database, Sam Ratulangi University 66 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis 5.1.5 Conclusion and Recommendations Health indicators in North Sulawesi are generally better than in its neighboring provinces in Sulawesi and than the national average. The distribution of health services and outcomes between districts/ municipalities requires attention, however. All districts require sufficient medical personnel who are able to access and be accessed by the community. Health expenditure mostly accounts for less than 10 percent of total expenditure (both provincial and district/municipality level). Most provincial level health spending is allocated to personnel spending. At district/municipality level, personnel spending and capital expenditure dominate in equal measure (49 percent). Archipelagic districts have higher per capita health spending than other areas in North Sulawesi province. Both the provincial and district/municipality governments need to increase the proportion of total expenditure that they allocate to health expenditure. This is important to increase the allocation of community-oriented public expenditure. The correlation between outputs (ratio of doctors and midwives per 10,000 residents) and outcomes (immunization coverage and birth assisted by medical workers) varies. In urban areas, outputs and outcomes were relatively even, but in districts with larger territory such as the archipelagic districts, health sector outcomes varied. These variations arise because limited transportation and geographical location impede even distribution of and access to medical personnel in archipelagic districts. Archipelagic districts merit special attention in terms of access and mobility of health workers. Public perceptions of public health service in North Sulawesi are relatively positive, but providers need to improve the standard and hygiene of their equipment and facilities. 5.2 Education Sector The Government of North Sulawesi Province guarantees that all children will have the same access to quality education. The 2005-2010 North Sulawesi National Education Service Office strategic plan provides guidelines to accelerate the achievement of development targets, namely: expansion and even distribution of quality education to guarantee that by 2015, all children will have equal access and can complete free, quality, compulsory primary education, including girls, disadvantaged children, and ethnic minorities (Framework of basic actions to achieve education for all). 5.2.1 Education Expenditure Education spending in North Sulawesi exceeded 20 percent each year, and has more than doubled in five years. Unlike health expenditure, which fluctuated, education expenditure continually increased. 2007 saw the highest growth of 40 percent from the previous year. The proportion of education spending derived from central government transfers has increased. This trend is evident in the almost fourfold increase in deconcentration funds for education from Rp. 128 billion in 2005 to Rp. 431 billion in 2009. Over the same period, the proportion of education spending derived from the sub-national budget (APBD) declined from 85 percent to 78 percent. Sub-national governments are responsible for primary and secondary education, whereas the central government is responsible for higher education, which it finances through deconcentration funds. The increase in deconcentration funds could also be interpreted as a sign of the increasing role of the central government in providing higher education services in North Sulawesi. 67 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.11 Education spending in North Sulawesi has constantly increased, and constitutes more than 20 percent of total expenditure Source: North Sulawesi PEA Database, Sam Ratulangi University Personnel spending in the education sector is very high. Personnel spending almost doubled between 2005 and 2009 from Rp. 657 billion to Rp. 1.2 trillion, although it decreased as proportion of total expenditure from 88 percent to 77 percent over the same period. This figure remains high. As a comparison, the Maluku PEA study found the proportion spent on personnel in that province in 2009 to be 69 percent. The decrease in the proportion of expenditure allocated to personnel was balanced out by an increased allocation to capital expenditure, which rose sharply from 3 percent to 17 percent of overall expenditure. Figure 5.12 Personnel spending in North Sulawesi’s education sector is very high Source: North Sulawesi PEA Database, Sam Ratulangi University 68 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis The provincial government allocates the largest share of education spending to goods and services, whereas district/municipality governments allocate the greatest amount of education spending to personnel expenditure. The large allocation to personnel spending arises because of the need to pay the salaries of salary of elementary school and junior high school teachers in each district/municipality. There were significant differences in goods and services spending between the provincial government and district/municipality governments. The provincial government allocated 59 percent of education spending to good and services, whereas districts/municipalities altogether allocated 5 percent. Personnel spending also differed, with the provincial government allocating 37 percent and district/municipality governments 78 percent. PEA studies in other provinces have revealed a similar pattern, for instance in Maluku, Nusa Tenggara Barat and Gorontalo. Figure 5.13 The role distribution between the province and districts/municipalities in education is reflected in each level’s spending composition Source: North Sulawesi PEA Database, Sam Ratulangi University 5.2.2 Education Sector Outputs and Outcomes North Sulawesi has excellent education achievements in Indonesia. North Sulawesi’s literacy rate is generally always the highest in Indonesia, well above that of neighboring provinces and the national average. Maluku and the Jakarta Special Capital City Region are other Indonesian provinces to have relatively high literacy rates, of 97.4 percent and 98.9 percent respectively in 2009 compared to 99.2 in North Sulawesi. Literacy in North Sulawesi is also more evenly distributed between age groups. There is relatively little difference between productive age (15-60 years old) residents and non-productive age (over the age of 60) residents (Figure 5.15). In other provinces, the literacy rate for over 60 year-olds is much lower, for instance in South Sulawesi (55.6 percent) and West Sulawesi (58.6 percent). South Sulawesi province also has the largest disparity between productive age and non-productive age literacy of any province in Sulawesi. 69 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.14 Literacy rate in Sulawesi, 2003-2009 Source: World Bank and North Sulawesi PEA Team Estimation from National Socioeconomic Survey 2009 Figure 5.15 Literacy rate in Sulawesi, by age group Source: World Bank Estimation from National Socioeconomic Survey 2009 North Sulawesi’s net enrollment rate for each education level exceeds the national average as well as the rate in other provinces in Sulawesi. The primary education level net enrollment rate in Sulawesi is relatively even across provinces, but North Sulawesi has the highest rate at secondary level. These figures indicate more equally access to education in North Sulawesi at every level. Enrollment rates at primary level (97.9 percent) and junior high level (87.2 percent) are not dissimilar, showing that government efforts in North Sulawesi to implement nine-year compulsory education are close to on target. 70 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.16 Net enrollment rates in Sulawesi, by education level Source: World Bank and North Sulawesi PEA Team Estimation of National Socioeconomic Survey 2009 Women in North Sulawesi have better education on average than women in neighboring provinces. There is no literacy rate gap for different age groups of women in North Sulawesi. Net enrollment rates for all education levels in North Sulawesi are also the highest in Sulawesi. Figure 5.17 Literacy rates of women in Sulawesi, by age group Source: World Bank Estimation from National Socioeconomic Survey 2009 71 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.18 Net enrollment rates of women in Sulawesi Source: World Bank Estimation from National Socioeconomic Survey 2009 5.2.3 District/Municipality Analysis in North Sulawesi As with health spending, archipelagic districts dominate the list of high per capita education spenders in North Sulawesi. The same districts as for health also have the lowest per capita education spending, namely Bolaang Mongondow Utara, Bolaang Mongondow Selatan and Bolaang Mongondow Timur. The three districts were newly established in 2008. Each district newly divided from Bolaang Mongondow District has low education and health spending, although Minahasa Tenggara is another district formed around the same time that does not conform to this trend. District/municipality governments in North Sulawesi allocate a high proportion of expenditure to education. In most districts/municipalities in North Sulawesi, allocations to education exceeded 30 percent of total expenditure in 2009. Minahasa allocated the highest proportion at 45 percent, whereas Bolaang Mongondow Utara allocated the lowest proportion at only 15 percent. New districts usually allocate their spending to construction of new government offices and buildings, resulting in lower allocations of spending for basic services. Figure 5.19 As with health expenditure, archipelagic districts dominate the list of the largest education spenders in North Sulawesi Per capita education spending (Rp’000) Source: North Sulawesi PEA Database, Sam Ratulangi University 72 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Compared to other provinces, districts/municipalities in North Sulawesi allocate a high proportion of expenditure to education. In Maluku province, for example, which also has excellent education indicators among Indonesian provinces, Ambon municipality spends 40 percent on education and Maluku Tengah District spends 38 percent, but most other districts allocate less than 20 percent. These figures suggest that improved education achievements in North Sulawesi are evenly distributed, whereas Maluku’s overall scores are likely boosted by outcomes in Ambon municipality. North Sulawesi’s even education outcomes are evident in the literacy rates of different age groups (Table 5.2). A small difference is evident only for over 60 year-olds, which is understandable given that previous generation did not necessarily have the access to education available today. Table 5.2 Literacy rate in North Sulawesi, by district/municipality and age group Age 15-29 years 30-44 years 45-59 years 60 years ke atas Male Female Male Female Male Female Male Female Bolmong 99.4% 99.6% 99.3% 99.3% 99.6% 97.2% 93.9% 82.9% Minahasa 100.0% 100.0% 99.5% 99.7% 100.0% 100.0% 100.0% 97.9% Sangihe 100.0% 100.0% 99.7% 100.0% 98.7% 98.4% 93.8% 90.9% Talaud 100.0% 100.0% 99.3% 100.0% 98.5% 98.3% 99.0% 98.4% Minsel 99.6% 100.0% 99.7% 100.0% 99.1% 99.5% 97.3% 97.6% Minut 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 97.6% 95.8% Bolmut 98.3% 100.0% 99.0% 98.5% 98.1% 95.4% 93.8% 91.2% Sitaro 100.0% 100.0% 100.0% 100.0% 100.0% 99.4% 96.5% 95.3% Mitra 100.0% 100.0% 100.0% 99.5% 98.7% 100.0% 100.0% 98.4% Manado 100.0% 100.0% 100.0% 99.6% 99.0% 99.5% 100.0% 96.7% Bitung 99.5% 100.0% 99.9% 98.1% 100.0% 99.9% 100.0% 97.6% Tomohon 99.0% 99.8% 99.2% 99.3% 99.4% 99.5% 100.0% 99.1% Kotamobagu 98.7% 100.0% 100.0% 99.6% 100.0% 99.5% 100.0% 98.6% Source: World Bank Estimation from National Socioeconomic Survey 2009 Net enrollment rates for primary education in North Sulawesi are evenly distributed, but inequalities remain for upper secondary education. Kepulauan Talaud has the highest net enrollment rate at senior high school level in North Sulawesi (67.5 percent), followed by Tomohon municipality (64.7 percent). This figure reflects Talaud’s commitment to education, evident in its budget allocation. The small difference in Talaud between primary and junior high school enrollment rates shows that the district has more or less fulfilled the nine-year compulsory education target. Figure 5.20 Net enrollment rate in North Sulawesi, by district/municipality Senior High School NER Junior High School NER Elementary School NER Source: World Bank Estimation from National Socioeconomic Survey 2009 73 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis 5.2.4 Public Response to Education Services The North Sulawesi PEA research team conducted a survey to assess public perceptions of public services in certain sectors. This survey was conducted by interviewing respondents from all districts/municipalities in North Sulawesi. Seven education service indicators were employed to evaluate the response to public services provided by North Sulawesi’s district/municipality governments in the education sector: ease of enrollment, established service procedures, appropriate costs, free-of-cost education, parents’ participation, School Operational Assistance (BOS) management, and delivery of education. Community perceptions of education services in North Sulawesi are relatively positive. The survey showed people in North Sulawesi to be relatively satisfied with the free education provided by the government. Respondents also observed parents’ participation and established procedures for education services to be relatively good. Figure 5.21 Respondent perceptions of public education services in North Sulawesi Source: North Sulawesi PEA Database, Sam Ratulangi University 5.2.5 Conclusion and Recommendations The quality of education outcomes in North Sulawesi is the highest in Indonesia, as shown by education indicators such as net enrollment rate and literacy rate. Education outcomes are also relatively even across every district/municipality in North Sulawesi. Further recommended steps are to improve the quality or education or graduates to support job creation and reduce unemployment. Disparities in education indicators in North Sulawesi are relatively small, both between districts/ municipalities, age groups, and sexes. The equal distribution of access to education in archipelagic districts, in terms of getting students to school and mobilizing teachers, requires attention. Education sector spending in North Sulawesi increased more than twofold in five years and its proportional allocation is generally always above 20 percent. This overall increase was matched by an increase of personnel spending, which also doubled. Almost all districts and municipalities spend more than 20 percent on education, and two districts spend 40 percent. The proportion of education expenditure spent on personnel is higher than several other regions where PEA studies have been conducted, and requires reduction. 74 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Education expenditure in North Sulawesi is increasingly dependent on central government transfers, as evident in increasing educational sector deconcentration funds each year. This increase of education deconcentration funds means the central government is playing an increasingly strong role in providing higher education in North Sulawesi. A recommendation is for universities in North Sulawesi to improve their quality and self-reliance to reduce central government transfers, for instance through producing academic outputs such as research and training. 5.3 Infrastructure Expenditure The strategic location of North Sulawesi Province at the edge of the Pacific should be utilized to support its role in trade and distribution of goods and services. One of the essential requirements to achieve those goals is the provision of quality infrastructure. 5.3.1 Infrastructure Spending Infrastructure spending increased fourfold between 2005 and 2009. District/municipality spending increased quite significantly in 2006 and 2009 due to the formation of new districts in those years. The formation of new districts also encouraged the allocation of an increased proportion of expenditure to infrastructure in North Sulawesi, from 6 percent in 2005 to 19 percent in 2009. If the formation of new districts did cause the increase in infrastructure spending, however, it should be noted that this high infrastructure spending was probably allocated mostly to build government offices and facilities. As district/municipality level spending has increased, dependence on central government transfers has decreased. Half of infrastructure spending in 2005 derived from central government transfers of deconcentration funds. By 2009, this proportion had declined markedly to only 14 percent. Figure 5.22 Infrastructure spending in North Sulawesi has increased fourfold in five years, driven mainly by district/municipality spending Source: North Sulawesi PEA Database, Sam Ratulangi University Personnel spending is decreasing as a proportion of infrastructure expenditure. At provincial level, the proportion of spending on personnel decreased from 42 percent to 22 percent between 2005 and 2009, whereas at district level it decreased from 21 percent to only 7 percent. On the other hand, there was a very large increase in the proportion of capital spending especially after 2007. This increase resulted from a spike in infrastructure projects to prepare for the 2009 World Ocean Conference. 75 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.23 The share of spending on personnel has decreased at both provincial and district/ municipality level Source: North Sulawesi PEA Database, Sam Ratulangi University 5.3.2 Infrastructure Sector Outputs and Outcomes Access to basic infrastructure in North Sulawesi is generally the best in Sulawesi. The 2009 National Socio-Economic Survey reveals coverage of the three categories of basic infrastructure in North Sulawesi to be higher than in other provinces in Sulawesi. The two most-recently formed provinces in Sulawesi – West Sulawesi and Gorontalo - had lower levels of access to sanitation and clean water, as they had previously been relatively underdeveloped areas. The coverage of electricity supply and distribution is determined predominantly by central government policy. Figure 5.24 Basic Infrastructure Outcomes in Sulawesi Proper sanitation Access to electricity Source: World Bank Estimation from National Socio-Economic Survey 2009 Gaps remain between income groups in access to basic infrastructure in Sulawesi and North Sulawesi. Only 18 percent of the lowest income group quintile in North Sulawesi have access to clean water, whereas 51 percent have access to proper sanitation. Access to clean water exceeds 50 percent only for the highest income group quintile. These figures demonstrate that regardless of prosperity level, half of North Sulawesi’s residents do not have proper access to clean water. In the highest quintile, 76 percent have access to clean water and most (99 percent) have access to sanitation. 76 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Such gaps are also evident in other provinces, and for access to sanitation, are in fact wider in Gorontalo than in North Sulawesi, for instance. Only 20 percent of lowest income earners in Gorontalo have access to sanitation, compared to 90 percent of highest income earners. For access to clean water, both Gorontalo and West Sulawesi had broader disparities. Among the bottom four quintiles in West Sulawesi, less than one third of people have access to clean water. In the top quintile, by contrast, 68 percent have access to clean water. These disparities in North Sulawesi require attention from the provincial government, especially the distribution of access to clean water . Figure 5.25 Access to clean water and sanitation in Sulawesi, by income group Access to Clean Water Access to Sanitation Source: World Bank Estimation from 2009 National Socio-Economic Survey In the transportation sector, use of air transportation has increased both for passengers and goods. North Sulawesi Province Central Bureau of Statistics (BPS) 2009 data shows an increase in the number of passengers and amount of goods passing through Sam Ratulangi Airport. The number of passengers has increased 22 percent in five years, cargo has increased 27 percent and airmail traffic has more than doubled (122 percent). Table 5.3 Passenger and goods traffic passing through Sam Ratulangi Airport has increased 2004 2005 2006 2007 2008 Passengers (people) 1,042,002 802,371 1,139,334 1,132,657 1,275,405 Baggage (Kg) 14,278,850 13,720,566 14,898,766 14,758,286 16,016,042 Cargo(Kg) 8,687,025 7,911,961 9,553,703 9,866,495 11,004,635 Postal (Kg) 214,333 160,928 170,478 229,292 475,136 Source: North Sulawesi in Numbers 2009, Central Bureau of Statistics Decreasing numbers of passengers are using sea transportation, but the flow of goods continues to increase. Passenger mobility in North Sulawesi was calculated from the two main ports, namely Bitung Port and Manado Port, whereas flow of goods was measured at Bitung Port. Over a fifteen-year period from 1993 to 2008, the number of ship passengers has decreased from 524,000 to 491,000. Passenger numbers did increase in the late 1990s and early 2000s, but the rapid development of air transportation has caused sea transportation passenger numbers to fluctuate and generally decrease. The outflow of goods sent from North Sulawesi has decreased since 2005, but there has been a large increase in the inflow to North Sulawesi. Total goods traffic through Bitung Port has almost doubled in 15 years. If this trend continues, the 77 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis North Sulawesi provincial government will need to appraise the capacity and quality of its port services and supporting infrastructure such as highways. Figure 5.26 Goods traffic at North Sulawesi’s main port has increased, whereas passenger traffic has fluctuated Goods Traffic Loading flow Discharging flow Passenger Traffic Source: North Sulawesi In Numbers 2009, Central Bureau of Statistics Sea transportation in archipelagic districts remains dependent on pioneer shipping. Law no. 17/2008 on Shipping designates pioneer shipping to be transportation services on routes determined by the government to serve areas or region which are not served by water transportation due to lack of commercial viability. Archipelagic districts such as Sangihe and Talaud remain highly dependent on pioneer shipping services, which as of 2008 were provided by just three vessels. The Law on Shipping also states that either the central government and/or a sub-national government may fund and hold the operational authority over pioneer shipping. The quality of national roads in North Sulawesi has decreased, whereas provincial roads have improved. Highways constitute basic supporting infrastructure for goods and passenger traffic from seaports and airports. North Sulawesi BPS data reveals a decrease of 10 percentage points in the amount of national roads in good condition between 2003 and 2007. The proportion of national road in critical condition increased from 4 percent to 7 percent over the same time period. By contrast, the proportion of provincial roads (for which the provincial government is responsible) in good condition almost doubled. With goods and passenger traffic increasing in North Sulawesi, attention is required to road quality given its position as the main supporting infrastructure. 78 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Table 5.4 The proportion of good-quality road in North Sulawesi has increased Nasional Road Provincial Road 2003 2007 2003 2007 Good (Km) 655.06 893.44 408.69 511.82 Not Good(Km) 116 272.95 649.77 273.7 Critical (Km) 38.36 101 252.06 47.5 Good (%) 81% 70.5% 31% 61% Source: Sulawesi in Numbers 2009, Central Bureau of Statistics 5.3.3 District/Municipality Analysis in North Sulawesi Newly formed districts and municipalities generally have greater infrastructure spending. This trend holds for various regions because newly formed districts/municipalities spend their budget on the construction of new government buildings. The four districts/municipalities in North Sulawesi with the highest infrastructure expenditure – both in per capita terms and as a proportion of total expenditure – are each relatively newly established districts. Figure 5.27 Newly established districts have the highest infrastructure expenditure Source: North Sulawesi PEA Database, Sam Ratulangi University Urban areas in North Sulawesi generally have high access to clean water, but several districts have far lower levels of access. Districts with low levels of access are generally archipelagic districts and newly established districts. Disparities in access between income groups are another problem, although this problem also applies in urban areas such as Kotamobagu municipality. In Bolaang Mongondow Utara and Sitaro districts, one third of the highest income quintile has access to clean water. For all other income groups, less than 10 percent have access to clean water. For the two lowest income quintiles, an average of 28 percent have access to clean water. This figure is much lower than the average for the lowest two quintiles across municipalities of 63 percent. 79 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.28 Disparities remain in basic infrastructure coverage between municipalities and districts in North Sulawesi Source: World Bank Estimation from 2009 National Socio-Economic Survey Lower income earners in North Sulawesi generally have access to proper sanitation. In most districts in North Sulawesi, more than 90 percent of the two lowest income quintiles have access to sanitation. Regions with low rates of access are Bolaang Mongondow, Sangihe, Bolaang Mongondow Utara and Kotamobagu. Only 40 percent of the lowest income earners in Kotamobagu have access to proper sanitation, whereas the overall average in the municipality was nearly 80 percent. In Bolaang Mongondow, access to sanitation for low income earners is nearly equal to the district’s average. These two examples reveal large disparities in Kotamobagu, whereas in Bolaang Mongondow, access to proper sanitation is low overall. Figure 5.29 Some low income earners in North Sulawesi have access to sanitation Source: World Bank Estimation from 2009 National Socio-Economic Survey 80 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis 5.3.4 Public Response to Infrastructure Services Seven indicators were employed to evaluate the response to public service provision for basic infrastructure: public perceptions of road and bridge quality, availability of irrigation, availability of drainage, availability of sanitation, availability of clean water, availability of electricity, and telecommunications coverage. Public perceptions of infrastructure services were relatively low compared to perceptions of health and education services. The average assessment scores given by respondents for infrastructure was 62 (on a scale from 1 to 100), whereas the average score for health services was above 70. Public perceptions were most positive regarding telecommunications coverage, although the private sector is responsible for almost all of this infrastructure. Perceptions of clean water coverage were also relatively positive, although these perceptions run contrary to the results of the 2009 National Socio-Economic Survey, which show clean water access in North Sulawesi not to be better than the access to sanitation and electricity. This result could possibly indicate that selected respondents lived in urban areas or district capitals, or were drawn from higher-income groups. Figure 5.30. North Sulawesi respondent perceptions of infrastructure services Source: North Sulawesi PEA Database, Sam Ratulangi University 5.3.5 Conclusion and Recommendations Infrastructure expenditure has increased fourfold in the last five years, over which period the share of spending on personnel has decreased. Nevertheless, central government spending has increased from year after year as a proportion of infrastructure spending in North Sulawesi. Four newly established districts/ municipalities are the highest spenders on infrastructure in North Sulawesi. The majority of infrastructure spending from newly established districts must be taken into account, since it does not automatically equate to provision of better basic services. Of the three basic infrastructure categories, the coverage of clean water was lower compared to access to sanitation and electricity coverage. Disparities remain between districts and income groups. Disparities are also evident within certain districts such as newly formed Minahasa Tenggara, Bolaang Mongondow Utara and Sitaro. It is recommended provision of services for basic infrastructure access focus on lower income earners, especially for the provision of clean water and sanitation access. 81 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis A shift in passenger traffic has occurred from sea transportation to air transportation. This shift results from increasing tourism in North Sulawesi along with North Sulawesi’s growing role in providing MICE (Meetings, Incentives, Conventions, Exhibitions) services, for which the majority of consumers use air transportation. Sea transportation remains favored for freight. The main recommendation is to improve carrying capacity and service quality of at airports to anticipate growth in passenger numbers. Another recommendation is to improve loading and unloading efficiency at the port to anticipate growing goods’ traffic and improve competitiveness against other ports. Communities in outermost districts remain heavily reliant on pioneer shipping services, but there are very few pioneer vessels in North Sulawesi. Passenger numbers for sea transportation have decreased, but sea transportation will remain crucial to communities in archipelagic regions Low frequency and unpredictable weather remain obstacles to transportation services in outer islands, however. A special allocation of infrastructure spending to support pioneer shipping is required, because these routes are unlikely to attract commercial operators. 5.4 Agriculture and Plantation Sector North Sulawesi’s high potential plantation commodities are coconuts, clove, nutmeg, coffee, and cacao. The output of these plantation sub-sectors has been inconsistent, however. Coconuts are the commodity most favored by communities in North Sulawesi, but neither its plantation area nor production have increased significantly. Clove plantations exhibited the same trend – their production in fact decreased significantly in 2008. By contrast, production increased for rice and crops such as maize, peanuts, and soybean. 5.4.1 Agriculture and Plantation Sector Expenditure Agriculture sector expenditure is increasing each year, although it remains a very small proportion of overall spending. Agriculture expenditure more than doubled between 2005 and 2009, rising from approximately 3 percent to 6 percent. Sub-national governments have not exhibited optimal commitment to spending on this sector, as 43 percent of agriculture expenditure derives from central government transfer. Of the Rp. 192 billion spent on agriculture in 2009 by North Sulawesi’s sub-national governments, Rp. 94 billion or 49 percent was allocated to personnel expenditure. Figure 5.31 Half of agriculture spending in North Sulawesi derives from central government transfers Source: North Sulawesi PEA Database, Sam Ratulangi University 82 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Agricultural sector personnel spending in North Sulawesi remains high, particularly at provincial government level. Provincial level personnel expenditure averaged more than 60 percent between 2005 and 2009, whereas at district/municipality level the proportion spent on personnel expenditure decreased from 65 percent to 42 percent over the same time period (Figure 5.32). In the agriculture sector, programs related to food security or production increases are generally included in the goods and services spending allocation. Goods and services spending at district/municipality level increased from only Rp. 6 billion (19 percent of agriculture spending) in 2005 to Rp. 31 billion in 2009 (22 percent of agriculture spending). Nevertheless, goods and services spending also includes official travel expenses. The proportion spent on capital expenditure at district/municipality level increased from 8 percent (Rp. 3 billion) in 2005 to 36 percent (Rp. 50 billion) in 2009. Capital spending in the agriculture sector is frequently used to build and provide supplies for government offices, however. Figure 5.32 Personnel spending at district/municipality level has decreased, whereas capital spending has increased Personnel Personnel Miscellaneous Miscellaneous Source: North Sulawesi PEA Database, Sam Ratulangi University 5.4.2 Agriculture and Plantation Sector Outputs and Outcomes Rice production in North Sulawesi has increased, but its productivity has been stagnant for the past three years. Production of rice, maize, and beans has consistently increased. Rice productivity in North Sulawesi also increased from 4.7 tons per hectare to 4.97 tons per hectare over the past five years, although its productivity has been stagnant for the past three years. Further rice productivity increases have become difficult because cultivation methods and input qualities are already almost maximal. Rice crops with their large water requirements are also strongly influenced by climatic factors. For example, high rainfall can flood farmland and increase the water content of the husked rice, making it difficult to dry, reducing the quality of rice produced. In view of the increasing area of paddy rice farmland and relatively stagnant productivity, the North Sulawesi government’s policy to increase rice production remains limited to land extension. Maize production in North Sulawesi has nearly tripled and its productivity has increased by 50 percent over the past five years. Maize production increased from 195 tons in 2005 to 509 tons in 2009. Plantation area increased rapidly in 2007 to 115,000 hectares, up from 82,000 hectares the previous year, and production also increased by 68 percent the same year. The increase in maize production and productivity reflects the emphasis on maize production of sub-national governments in North Sulawesi over the past five years. Other provinces in Sulawesi such as Gorontalo and South Sulawesi have also implemented similar improvement programs. 83 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Table 5.5 Area of harvested fields and production of agricultural commodities in North Sulawesi Land (Hectare) Production(Ton)   2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Dry land paddy 88.772 89.159 94.528 98.416 103.887 417.659 441.573 473.94 492.177 516.522 rice Wetland paddy 6.174 5.558 38.02 11.535 10.858 14.966 13.328 92.957 28.014 27.657 rice Maize 71.644 82.189 115.664 131.791 126.349 195.305 242.713 406.759 466.041 509.261 Cassava 6.695 6.058 5.709 6.388 5.907 68.463 82.919 74.406 83.654 79.471 Yam 4.457 3.755 3.618 4.278 5.43 38.67 37.345 35.485 42.059 39.98 Peanuts 5.668 5.821 5.756 6.573 6.45 6.267 7.206 7.553 8.639 8.896 Soy bean 3.179 3.321 2.662 5.227 5.652 4.113 4.875 4.573 7.217 7.342 Mung bean 1.417 1.506 1.614 1.791 2.123 1.463 2.079 2.153 2.381 2.553 Source: North Sulawesi in Numbers 2009, Central Bureau of Statistics With the exception of nutmeg and cacao, cash crops production in North Sulawesi has decreased. In contrast with food crops such as rice and vegetables, cash crops are strongly influenced by market prices. Although the government has determined a national purchase price, local farmers often receive a lower price. Moreover, some commodities such as cloves can only be harvested once every two years. The production of nutmeg and cacao, as the premium commodities in North Sulawesi, increased. Nutmeg land productivity increased from 0.26 percent per hectare in 2005 to 0.7 tons per hectare in 2008. The production of vanilla decreased drastically between 2005 and 2008, because the crop was not prioritized. Table 5.6 Area of harvested field and production of plantation commodities in North Sulawesi   Land (Hectares) Production(Ton)   2005 2006 2007 2008 2005 2006 2007 2008 Coconut 262.347 259.306 267.652 272.137 187.719 246.262 229.613 209.995 Clove 70.721 68.106 72.248 74.383 12.672 8.862 19.329 285 Nutmeg 11.33 13.814 12.319 13.774 2.946 4.815 1.887 9.646 Coffee 9.689 9.579 9.488 9.143 5.929 5.951 3.323 3.305 Cocoa 10.556 9.743 10.071 11.695 3.144 3.069 1.924 5.141 Vanilla 5.239 5.273 5.755 5.404 1.165 - 717 436 Source: North Sulawesi In Numbers 2009, Central Bureau of Statistics Urban areas have the highest per capita spending on agriculture. Tomohon and Kotamobagu municipalities have the highest and third highest per capita agriculture spending respectively. Tomohon municipality is renowned as a vegetable producing area of North Sulawesi. North Sulawesi BPS data reveals that in 2008, Kotamobagu had the highest rice field productivity in North Sulawesi of 5 tons per hectare. In both municipalities, the budget commitment was intended to improve the performance of their agricultural commodities. Several newly established districts also spend highly on agriculture, such as Bolaang Mongondow Utara. Although Bolaang Mongondow Utara is a new district, 2008 data reveals it to be the fifth largest rice producer and the fourth largest maize producer in North Sulawesi. 84 North Sulawesi Public Expenditure Analysis 2011 Chapter 5 Strategic Sector Analysis Figure 5.33 Urban areas have the highest spending on agriculture Per capita agriculture spending % Total Spending Source: North Sulawesi PEA Database, Sam Ratulangi University 5.4.3 Conclusion and Recommendations Agriculture expenditure in North Sulawesi more than doubled between 2005 and 2009, with nearly half of spending coming from central government deconcentration funds. Agriculture spending amounted to 6 percent of total expenditure over this period, half of which was allocated to the personnel spending. As personnel spending at provincial and district/municipality levels has decreased, capital expenditure has increased. The majority of this capital spending was allocated to build governmental offices, however. The main recommendation is to decrease capital expenditure on government buildings and facilities. Spending on agricultural counseling and facilitation programs, which is usually included in goods and services expenditure, also needs to be increased. Rice production in North Sulawesi has increased by nearly 100,000 tons (24 percent) over the past five years. Maize production increased by more, at 161 percent in five years Corn farm productivity also increased by nearly 50 percent, compared to stagnant rice farm productivity of 4.9 tons per hectare. Since agricultural commodities such as rice and other crops are vulnerable to climate change, sub-national governments in North Sulawesi must prepare facilitation and awareness programs to assist farmers to adapt to such climate change. Among high potential cash crop commodities in North Sulawesi, it was the production of nutmeg and cacao that increased between 2005 and 2008. Clove production fluctuated, because the clove harvest cycle takes longer than a year. Although coconut production in 2008 exceeds 2005 levels, production has actually been decreasing since 2006. North Sulawesi needs to adopt a strategic policy focused on certain plantation products to increase its competitiveness. An agro-industry policy should be pursued in tandem with this policy to add greater value to North Sulawesi ‘s plantation products.. 85 North Sulawesi Public Expenditure Analysis 2011 Chapter 6 Development of North Sulawesi as Indonesia’s Gateway to East Asia and the Pacific Chapter 6 Development of North Sulawesi as Indonesia’s Gate to East Asia and the Pacific In order to develop more rapidly, North Sulawesi cannot depend only its agricultural sector, which has been dominating and driving the regional economy. In order to accelerate economic growth, a transformation is required in regional economic development, through strengthening the agriculture-and- fishery-based industry, which are already developing, and making breakthroughs via the service sector and other related activities. Natural resources, strategic position in the Pacific, and better human resources are the main assets to develop North Sulawesi as Indonesia’s Gateway to East Asia and the Pacific. This vision is set forth in the 2011-2025 Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development presented by the Coordinating Ministry for the Economy in Bogor on February 21, 2011. In the master plan, North Sulawesi is to play a role in the fisheries and marine sectors, which are part of the economic corridor of Sulawesi. Secondly, with regard to national connectivity, Bitung Port is projected to be a global connecting port of Indonesia. This chapter maps the supporting potential of North Sulawesi as a new economic growth area in eastern Indonesia and also considers both internal (from North Sulawesi) and national challenges. 6.1 North Sulawesi’s Potentials 6.1.1 Geography and Accessibility Geographically, North Sulawesi province is close to the Pacific Ocean. The province can utilize its position to attract goods traffic from East Asia if it is supported by good sea access, land access, sound bureaucracy, and good transportation. The Manado-Bitung Office of Integrated Economic Zone Management (BP KAPET) has estimated differences in distance, travel time and vessel rental fees from several ports in the Pacific to Bitung Port under two scenarios of passing through Tanjung Priok and going directly to Bitung, as shown in Table 6.1. Table 6.1 Distance between Bitung Seaport and several international ports in the Pacific Port of Destination Country Kaohsiung, Hong Kong, Shanghai, Busan, Tokyo, Los Angeles, Taiwan Cina Cina Korea Jepang A.S Distance to Bitung via Tanjung Priok 3,526 3,365 4,142 4,408 3,429 9,574 (nautical miles) Direct Distance to Bitung (nautical miles) 1,346 1,423 1,901 2,113 2,22 6,651 Estimation of distance difference com- pared to the distance via Tanjung Priok 2,18 1,942 2,241 2,295 1,209 2,923 (nautical miles) Estimation of travel time difference compared to the distance via Tanjung 346.46 336.11 349.11 351.46 364.24 378.76 Priok (hours) Estimation of difference in the number of days compared to the voyage time 14.44 14.00 14.55 14.64 15.18 15.78 required via Tanjung Priok (days) Difference in Vessel Rental Fees (thou- 2,887 2,801 2,909 2,929 3,035 3,156 sand US$ ) Source : Manado-Bitung Management Agency (BP KAPET), 2008. Note : Assumes ocean vessel speed of 23 knots Assumes domestic feeder vessel speed of ten knots Assumes transit time in Tanjung Priok is three days. 88 North Sulawesi Public Expenditure Analysis 2011 Chapter 6 Development of North Sulawesi as Indonesia’s Gate to East Asia and the Pacific Freight traffic by sea and land to North Sulawesi is increasing, as is the quality of provincial roads. Figure 5.26 illustrated an increasing trend in the volume of goods passing through North Sulawesi’s seaport and airports. Table 5.4 also revealed an increase over the past five years in the percentage of good quality provincial roads. With rail transportation not available, the quality of roads connecting the seaport and airport to domestic markets in North Sulawesi is crucial to support increasing goods transportation and passenger traffic. Regulatory support is required to increase the role of Bitung Seaport. Law no. 17/2008 on Shipping and its derivative Government Regulation no. 61/2009 on Ports are hoped to be able to improve the quality of service from port companies. The issuance of the two regulations provides an opportunity to create competition in the provision of port services, which will ultimately increase the quality of the service. Box 6.1 In 2001, the Government of North Sulawesi province through the Manado-Bitung Office of Integrated Economic Zone Management (BP KAPET) joined with SWIRE Shipping Company to open a direct container shipping service from Bitung to Singapore. As a regular pioneer service to open a direct shipping route to Singapore, the service began with three containers but increased to a fortnightly shipment of more than 200 20-foot containers after approximately two years. The number of containers dispatched from Bitung port to overseas destinations was much higher than this, because some fisheries factories continued to use the conventional route through Tanjung Priok (Jakarta) or Tanjung Perak (Surabaya). Mid-sized and small-scale exporters utilized this direct shipping service. Delivery costs via this direct service were cheaper than shipment via Jakarta or Surabaya, with the cost difference varying between USD250-USD300 per 20-foot container. PT. Pelindo IV provided cost relief for the container storage yard costs, but unfortunately this incentive only lasted for around three months. This PT. Pelindo IV incentive also did not compare to the costs of repositioning ocean going containers from Singapore to Bitung. This direct shipping service operated for less than three years because the services and incentives provided by the Bitung port were uncompetitive with Madang port in Papua New Guinea, which led to the initiation of a Madang-Bitung-Singapore shipping lane. While phase II of the container port expansion is underway, and with the issuance of Law no. 17/2008 and Government Regulation no. 61/2009, the Government of North Sulawesi Province is continuing its efforts to invite Main Lane Operators (MLO) to utilize Bitung port. One of the parties to have shown interest is Maersk Line Singapore. Follow-up on implementation is awaiting clarity in the technical implementation of Government Regulation no. 61/2009. Development of Bitung Port could help to reduce freight and distribution costs for export products from eastern Indonesia. Eastern Indonesia possesses export-oriented natural resources, such as fisheries products from the Banda waters and premium cash crops, such as cacao and spices. The majority of these marine and agricultural commodities are exported through the main ports in Java, which results in high transportation cost. To support the development of new growth centers in eastern Indonesia, North Sulawesi is expected to play a role in reducing the cost and maintaining the quality of products, which may ultimately increase product competitiveness in international markets. 89 North Sulawesi Public Expenditure Analysis 2011 Chapter 6 Development of North Sulawesi as Indonesia’s Gate to East Asia and the Pacific 6.1.2 Service and Plantation Products The contribution of the service sector to North Sulawesi’s GRDP has increased over the past ten years. Over this period, the contribution of the service sector (a combination of government services, insurance and financial services and other services) increased, whereas the contribution of agriculture decreased in relative terms (Figure 6.1). Figure 6.1 The contribution of the service sector to North Sulawesi’s GRDP has increased AGRICULTURE INDUSTRY SERVICE Source: North Sulawesi Province Central Bureau of Statistics (BPS), 2010 If government services are excluded, non-government services contributed 39 percent of North Sulawesi’s GRDP in 2008, in part reflecting 14 percent growth between 2001 and 2008 in the trade, hotel and restaurant sector. The growth was supported by the hotel occupancy rate, which significantly increased from 35 percent to 55 percent over this period. The number of foreign tourists visiting North Sulawesi between 2003 and 2008 also increased by 64 percent. If the World Ocean Conference (WOC) and the Coral Triangle Initiative (CTI) in 2009 were included, visitor numbers and hotel occupancy rates would further increase by a significant amount. Figure 6.2 Hotel occupancy rates and the contribution of the service sector in North Sulawesi (2000 constant prices) Hotel occupancy rates Source: North Sulawesi Province Central Bureau of Statistics (BPS), 2006 and 2009. Non-government service denotes the contribution of related sectors to GRDP; including the trade, hotel and restaurant sector, the transportation and communication sector, the financial, lease, and company services sector And the service sector excluding govern- ment services. Hotel occupancy rates are for hotels with star ratings. 90 North Sulawesi Public Expenditure Analysis 2011 Chapter 6 Development of North Sulawesi as Indonesia’s Gate to East Asia and the Pacific Tourism could become the primary service sector in North Sulawesi, but at present it is confined to certain tourist sights. Since the early 1980s, the tourism industry focused solely on exploiting the undersea uniqueness and riches of Bunaken national park. The area developed very rapidly and became an icon of marine tourism in Indonesia, leading to over-crowding at present. Little has been done to develop other potential tourist attractions, such as fishing, hiking and trekking, water sports, community based eco-tourism, and so forth. The current tourism trend in North Sulawesi is for MICE (Meeting, Incentive, Convention, Event) services, which have been growing since the 2009 WOC and CTI events. Box 6.2 In 2009, North Sulawesi hosted the World Ocean Conference (WOC) and the Coral Triangle Initiative (CTI) Summit, which was attended by 76 countries, twelve international agencies and six heads of state. The two international events were held in May and attended by more than 6000 people and resulted in an agreement on marine management called the “Manado Ocean Declaration”. Subsequently, the two events were followed by the Sail Bunaken event in August in which 33 countries participated. Sail Bunaken made history by permitting the United States’ warship, USS. George Washington, to enter Indonesian waters and perform maneuvers in Manado bay alongside warships from other participating countries. More than 10,000 foreign, domestic and local visitors attended this event. After holding several major events between 2006 and 2009, North Sulawesi has become one of Indonesia’s international MICE destinations, adding to Manado’s existing reputation with global travelers for its Bunaken and Lembeh Strait Marine National Park. The sub-national government has established marine tourism as the backbone of the tourism industry in North Sulawesi. The provincial government is currently preparing Manado municipality and surrounding areas to host the ASEAN 2011 and APEC 2013 forums. In March 2011, North Sulawesi hosted the Disaster Management Exercise program attended by 26 participating countries with a number of coastal countries as reviewers. This activity was implemented as a collaboration between the Indonesian government and the Japanese government. North Sulawesi’s net exports increase in value every year.6 North Sulawesi’s net export value (exports minus imports) is only moderate, but it is increasing every year. North Sulawesi’s net exports in 2008 were Rp. 1.5 billion or equal to 10 percent of GRDP (based on 2000 constant prices). This figure increased from Rp. 1.03 billion in 2004, which was equal to 14.5 percent of GRDP. The contribution of exports to GRDP has decreased because North Sulawesi’s export commodities are underdeveloped, whereas the inflow of goods from other regions has been increasing significantly. Plantation products and their derivative products dominate exports from North Sulawesi. The plantation sector, which is dominated by traditional commodities such as copra, crude coconut oil, copra residue (bungkil), and coconut charcoal continues to contribute the most to North Sulawesi’s total exports. North Sulawesi does not have palm plantations, but receives raw materials from several regions in Central Sulawesi, Maluku, and West Papua. Processing is carried out in two factories in Bitung for export through Bitung port. The second largest export commodity is fisheries products. Exports are limited just to fisheries and coconut-based agro industry products. To address the problem, innovation and technology advancements are required to produce high technology-based derivative products (agriculture and plantation). 6.1.3 Quality of Human Resources Education and health outcomes in North Sulawesi indicate a high quality of human resources. Figures 5.14 and 5.16 illustrated that the literacy rate and participation rate in schools in North Sulawesi are the highest in Sulawesi and also better than the national average. The same applies to the health outcomes, 6 ‘Export’ and ‘import’ include domestic trade with other regions in Indonesia 91 North Sulawesi Public Expenditure Analysis 2011 Chapter 6 Development of North Sulawesi as Indonesia’s Gate to East Asia and the Pacific Table 5.1 showed immunization coverage and births assisted by medical workers in North Sulawesi to be better than in other provinces in Sulawesi and the national average. Gender bias in North Sulawesi is relatively modest. Figure 5.17 and 5.18 showed education outcomes for women in North Sulawesi to be equal with the provincial rate. The most recent Indonesia Health and Demographic Survey (SDKI) in 2007 also indicated that 96 percent of women in North Sulawesi obtained post-natal health services, a higher rate than the national average of 93 percent. Concerning employment, 14 percent of employed women work in professional or managerial roles, whereas 49 percent work in service and sales (Figure 6.4). These figures reflect the good education levels of women in North Sulawesi. South Sulawesi registered he highest percentage of married women having a voice in household decisions (86 percent), whereas the figure for North Sulawesi was the second highest at 81 percent. This figure is well above the national average of 66 percent. 6.2 Gender and Development in North Sulawesi North Sulawesi Gender-related Development Index (GDI) score is the best in Sulawesi and exceeds the national average. In 2005, North Sulawesi’s GDI score of 64.1 was above the national GDI of 63.9. In 2006, North Sulawesi’s GDI score of 64.9 was slightly lower than the national GDI of 65.1. In 2007, however, North Sulawesi’s GDI score increased again to 66, whereas the national GDI score was 65.3. Likewise, in 2008, North Sulawesi’s GDI score reached 67.3, whereas the national GDI was 66.4. Compared to other provinces in Indonesia, North Sulawesi’s GDI score is the fourth highest below the Jakarta Special Capital City Region, Yogyakarta and Bali.7 Figure 6.3 Indonesian Gender-related Development Index, 2005-2008 Source: Gender-based Development, Ministry of Women’s Empowerment and Child Protection in cooperation with BPS North Sulawesi’s high Gender-related Development Index score reflects its high life expectancy figure, literacy rate, and labor force composition. 47.8 percent of women in North Sulawesi work in the service and trade sectors, higher than the equivalent proportion in other provinces in Sulawesi. The same is true of the professional and managerial sectors, with their higher skill requirements. 14 percent of female workers in North Sulawesi work in the professional and managerial sectors; the highest rate of any province in Sulawesi. 7 See annex for Indonesia Gender-related Development Index, 2005-2008 92 North Sulawesi Public Expenditure Analysis 2011 Chapter 6 Development of North Sulawesi as Indonesia’s Gate to East Asia and the Pacific Figure 6.4 Occupation type for women in Sulawesi Source: IDHS 2007 Although North Sulawesi GDI score exceeds the national average, it remains below the province’s Human Development Index (HDI) score. This comparison indicates that development disparities remain between men and women in the province. Such a disparity is evident in North Sulawesi’s 2005 GDI score of 64.1 and its HDI score of 73.4, the 2006 figures of 64.9 (GDI) and 74.2 (HDI), and the 2007 figures of 66 (GDI) and 74.4 (HDI). A disparity is also evident in 2008 figures. Figure 6.5 Comparison of Human Development Index (HDI) and Gender-related Development Index (GDI) in North Sulawesi, 2005 – 2008 Gender-related Development Index Source: Gender-based Development, the Ministry of Women’s Empowerment and Child Protection in cooperation with BPS Gender disparities also persist in other provinces in Sulawesi and at national level. The broadest disparity in Sulawesi in 2005 was in Gorontalo province, where its HDI figure was 65.4 and its GDI score was 50.2, a difference of 15.2. In 2008, a fourteen point gap remained between Gorontalo’s HDI and GDI scores. West Sulawesi has the smallest gap in Sulawesi of approximately 4.3 points. 93 North Sulawesi Public Expenditure Analysis 2011 Chapter 6 Development of North Sulawesi as Indonesia’s Gate to East Asia and the Pacific Figure 6.6 Comparison of HDI and GDI in Sulawesi, 2005 and 2008 Source: Gender-based Development, Ministry of Women’s Empowerment and Child Protection in cooperation with BPS As with the Gender-related Development Index, North Sulawesi’s Gender Empowerment Index (GEI) score is the highest in Sulawesi and exceeds the national average. In 2005 and 2006, North Sulawesi’s scores of 62.7 and 63.6 respectively were the highest in Indonesia, above the national figures for each year of 59.7 and 61.3. North Sulawesi’s GEI scores in 2007 and 2008 of 64.2 and 65.5 respectively remained above the national average, but ranked second behind Central Kalimantan province.8 Figure 6.7 Indonesian Gender Empowerment Index, 2005-2008 Source: Gender-based Development, Ministry of Women’s Empowerment and Child Protection in cooperation with BPS Although North Sulawesi has high Gender-related Development Index (GDI) and Gender Empowerment Index (GEI) scores, the high rate of violence against women and cases of trafficking of women in the province require special attention from sub-national governments. These phenomenon are suspected to be the reason that North Sulawesi’s GDI score remains below its HDI score, or why disparities persist in the province. Data compiled by the Swara Parangpuan North Sulawesi NGO highlight the total number of cases of violence against women in this province. In 2002, there were 376 cases. In 2003, the number of cases increased significantly to 577, whereas in 2004, the rate decreased again to 334 cases, which remains too high for cases of violence. The three dominant forms of violence were assault, rape and sexual assault. 8 See annex for 2005-2008 Gender Empowerment Index 94 North Sulawesi Public Expenditure Analysis 2011 Chapter 6 Development of North Sulawesi as Indonesia’s Gate to East Asia and the Pacific Trafficking of women and children also stands out in the province. There are three types of trafficking cases in North Sulawesi, namely: • Cases in which women are sold to become ‘waitresses’ in bars or restaurants • Cases in which dancers are sent to Japan on entertainment visas, but then made to work as commercial sex workers upon arrival. There were 500 recorded cases in North Sulawesi in 2003 of women being sold in Japan in this manner. • Cases of baby trafficking. It is not easy to obtain accurate data on violence against women or trafficking cases, however. Not all cases are detected. Not all cases are reported. For instance, the police recorded 170 cases of trafficking between 2002 and 2007, whereas one NGO found there to be 500 women trafficked to Japan in 2003 alone. Box 6.3 Human Development Index (HDI): a comparative measure of life expectancy, literacy and living standards to measure the effect of economic policies on quality of life. Gender-related Development Index (GDI): an index of basic development outcomes like the HDI, but taking gender disparities into account. The GDI may be used to identify human development disparities between men and women. Gender equality occurs when the value of the HDI is the same as the GDI. Gender Empowerment Index (GEI): a composite index that measures the active role of women in economic and political life. The active role of women in economic and political life includes participation in politics, the economy and in decision-making as well as control over economic resources. 6.3 Conclusion and Recommendations for Future Development Policies in North Sulawesi The gender-responsive budget in North Sulawesi remains relatively small. There are relatively few gender-related problems in North Sulawesi, but the province faces the issue of trafficking. The provincial government has allocated only limited funds to address trafficking and other gender-related problems. A greater spending allocation is required to promote women’s empowerment in North Sulawesi’s economic development so as to improve the standard of living of women. North Sulawesi’s high gender outcome scores do not provide the whole picture of gender in the province. North Sulawesi’s Gender-related Development Index and Gender Empowerment Index scores exceed those of other provinces in Sulawesi, as well as the national average. This result accords with the better state of human resources in North Sulawesi as compared to other provinces in Sulawesi. Stakeholder interviews revealed trafficking of women and children to be a problem, however. Data on the number of cases remains difficult to obtain, because few cases are detected or reported. Regional level cooperation can serve as an opportunity for provinces involved actively by the central government. The Brunei Darussalam-Indonesia-Malaysia-Philippines ASEAN Growth Area (BIMP-EAGA) is one example of cooperation in which the central government has involved several provinces in Sulawesi as stakeholders. Nevertheless, the central government needs to respond to the commitment of sub-national governments in such cooperation by enacting supporting regulations for ports, immigration and customs. One example is a plan to establish Bitung as a Special Economic Zone. 95 North Sulawesi Public Expenditure Analysis 2011 A commitment to maintain the quality of infrastructure is required, including infrastructure for which the central government is responsible. Such infrastructure includes national roads, electricity, seaports, and airports. Table 5.4 showed that the percentage of good quality national roads in North Sulawesi decreased, in a direct opposite of the trend for the quality of provincial roads. Several infrastructure services such as electricity supply have indeed been decentralized, but the sales and distribution mechanism remains under central authority. Infrastructure support has been strengthened by the plan to establish Bitung Port as a global connecting port in Indonesia as indicated in the Coordinating Ministry for the Economy’s 2011- 2025 Master Plan for Acceleration and Expansion of Indonesia’s Economic Development. Sub-national governments in North Sulawesi need to develop the tourism and service sectors. North Sulawesi province has an advantage in the tourism and service sectors. This advantage arises supported particularly from the province’s adequate human resources, upgraded hotel service providers in the aftermath of the WOC and CTI, and good infrastructure. The tourism industry, which is yet to be fully developed, can add impetus North Sulawesi’s economy in the future. Fiscal stimulus and regulations are very much required from sub-national governments. Such measures might include promoting tourism, encouraging community participation-based tourism, encouraging eco-tourism, and reordering and implementing quality standards for travel agents. Sub-national governments must support green energy industry. Electricity needs outside Java-Bali are very high, but the supply is very limited. Geothermal power has been the main source of green energy in North Sulawesi to date, for instance through the Lahendong geo-thermal power station in Tomohon. In the future, sub-national governments could provide tax and non-tax incentives for renewable energy or to industries producing goods in an environmentally friendly manner. The education industry is the main driving force and support strata for regional economic development. North Sulawesi’s education sector is one of the advantages the province enjoys. State and private higher education must be able to support the development of the industries identified above. Moreover, collaborations are required between sub-national governments, higher education institutions and the industrial sector to improve labor expertise in the coconut processing industry, fisheries, marine tourism and eco-tourism, the energy and information technology industries. Such collaboration could help achieve an equal supply and demand relationship between labor and job seekers, and in turn reduce the unemployment rate in North Sulawesi. Collaborations and networks with neighboring provinces are definitely required. Cooperation with neighboring provinces to increasing trade between regions and engage in joint regional promotion might include utilization of existing forums such as the Regional Development Cooperation Agency of Sulawesi (BKPRS) or the Heads of the Regional Development Planning Agency (Bappeda) Forum as communication fora to harmonize regional policies. For example, neighboring provinces could also utilize Bitung port as the main gateway for regional exports and imports at a far lower cost than shipping via Tanjung Perak or Tanjung Priok on Java. Such measures could make farmers’ and fisherman’s products from surrounding regions more competitive in the international market. 96 North Sulawesi Public Expenditure Analysis 2011 Bibliography Manado-Bitung Integrated Economic Zone Management Agency. ”Kajian Strategis Pelabuhan Bitung Sebagai International Hub Port” (Strategic Analysis of Bitung Port as an International Hub Port). Manado (2007). Central Bureau of Statistics (BPS) of North Sulawesi Province (2009). “Sulawesi Utara Dalam Angka 2009” (North Sulawesi in Numbers 2009). BPS, Manado. Central Bureau of Statistics (BPS) of North Sulawesi Province (2006). “Sulawesi Utara Dalam Angka 2006” (North Sulawesi in Numbers 2006). BPS, Manado. 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H., (2006). “Strategies For Asia Pasific. Meeting New Challenges”. Third Edition. Palgrave Macmillan. New York. Prabawa. T.S., (2010). “The Tourism Industry Under Crisis. The Struggle of Small Tourism Enterprises in Yogyakarta (Indonesia)”. Vrije Universiteit, Netherland. _____(2009) Government Regulation of the Republic of Indonesia no. 61/2009 on Seaport Affairs. Ratulangi, G.S.S.J, (1981). ”Indonesia di Pasifik” (Indonesia in the Pacific). Sinar Harapan. Jakarta. The Asia Foundation, 2008. ”Biaya Transportasi Barang. Angkutan, Regulasi, dan Pungutan Jalan di Indonesia” (The Cost of Moving Goods Road Transportation, Regulations and Charges in Indonesia). Jakarta. _____(2008) Law of the Republic of Indonesia no. 17/2008 on Shipping. Wahyuningsih, Rina (year unavailable). ”Potensi dan Wilayah Kerja Pertambangan Panas Bumi di Indonesia. Pusat Sumber Daya Geologi” (Indonesia’s Geothermal Potential and Work Areas, Center for Geological Resources). Ministry of Energy and Mineral Resources. _____(2011) “Master Plan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia 2011-2025.” (2011-2025 Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development) Coordinating Ministry for the Economy. World Bank (2010). ”Pengelolaan Keuangan Daerah dan Pelayanan Publik di Provinsi Seribu Pulau. Analisis Pengeluaran Publik Provinsi Maluku” (Sub-national Financial Management and Public Service Provision in the Province of a Thousand Islands: Maluku Province Public Expenditure Analysis). World Bank Technical Report. World Bank (2007). ”Gorontalo Public Financial Management Survey”. World Bank Technical Report. 97 North Sulawesi Public Expenditure Analysis 2011 Annexes Attachments Annex A. What is the North Sulawesi Public Expenditure Analysis? In view of the implementation of Public Expenditure and Capacity Harmonization (PEACH) in various regions of eastern Indonesia, the Government of North Sulawesi took the initiative to conduct a similar program. Experience from other provinces indicates that participatory public expenditure analysis is a good starting point to improve the quality of sub-national governments’ public expenditure management in performing their functions and responsibilities newly apportioned to them under decentralization. Accordingly, the World Bank, in cooperation with a research team arranged by the Economics Faculty of Sam Ratulangi University, conducted a comprehensive public expenditure analysis to help strengthen sub- national governments’ capacity. The North Sulawesi PEACH aims to improve budget resource allocation to contribute to better public service provision at sub-national level, accordance with sub-national government’s preferences and deliberations. Involving the decision makers as well as other stakeholders in identifying public expenditure priorities and financial management can achieve such a goal. The main aims of the Public Expenditure Analysis (PEA) component is as follows: (i) To obtain a better understanding of public expenditure management in a province, particularly related to the participatory planning and budgeting and the provision of basic services. (ii) To obtain a better understanding of ongoing civil service reform, particularly related to regional welfare allowances; (iii) To develop strategies to improve North Sulawesi’s financial management to achieve better public service provision and public capital investment in order to stimulate higher economic growth. (iv) To establish a better system to analyze and monitor the sub-national budget. Such a system could comprise: - Establishing a network of counterparts from local universities in North Sulawesi and sub- national government institutions to take the lead in the implementation of the North Sulawesi PEACH, thereby building capacity to be able to independently conduct public expenditure analysis in the future; - Providing technical assistance/capacity enhancement to this network to enable it to conduct similar analysis in the future. 100 North Sulawesi Public Expenditure Analysis 2011 Attachments Annex B. Methodology Notes B.1 The Sub-national Budget (APBD) The sub-national budget or APBD is an annual budget, which is allocated and/or spent by provincial and district/municipality governments. The budget consists of two categories: plan (to be approved by the local parliament) and realization (actual expenses or the accountability report of the head of the regional government). This report compiled a dataset from provincial and district/municipality governments in North Sulawesi covering the period from 2005-2009; the Ministry of Finance also provided data to enable national-level comparison. B.2 Framework for Public Financial Management (PFM): Strategic Sectors, Outcomes and Indicators The World Bank and the Ministry of Home Affairs will assess the financial management capacity of district/ municipality governments in developing a public financial management framework. This framework is divided into nine sectors, which are the keys to district/municipality government level financial management: (1) Regulatory Framework, (2) Planning and Budgeting, (3) Cash Management, (4) Procurement, (5) Accounting and Reporting, (6) Internal Audit, (7) Public Debt and investment, (8) Asset Management (9) External Audit and Supervision. Each strategic sector is divided into one to five outcomes, with a list of indicators for each result. The result represents the desired achievement in each strategic sector, and indicators are used to assess the performance of district/municipality governments in these sectors. These outcomes were not formulated based on international best practices, because the disparity between the resultant outcomes and current realities would be too great to produce practical results. Respondents are asked to provide “yes” or “no” answers to questions, each of which corresponds to an indicator. Answers are tallied for each outcome, and the score is the percentage of “yes” answers. Several strategic sectors have been apportioned a greater number of indicators than other sectors, to provide more weight to these sectors in the overall results. For instance, there are 49 planning and budgeting indicators, but only eight public debt and investment indicators. Procurement (41 indicators) and cash management (31 indicators) are other strategic sectors to have been apportioned greater weight. 101 North Sulawesi Public Expenditure Analysis 2011 Attachments The North Sulawesi public financial management survey covered the provincial government and fifteen district/municipality governments. Sam Ratulangi University was involved in the research for the survey. By the end of 2007, the public financial management survey had been conducted in approximately 60 districts/ municipalities throughout Indonesia. Methodology Results were obtained through interviews and FGDs (Focus Group Discussions) with sub-national government representatives from relevant departments. These discussions involve the regional development planning agency, the department of finance; the regional parliament (DPRD), regional revenue service office; regional treasury office; public works agency and sub-national government supervisory agency. To guarantee the accuracy of the data, every “yes” answer must be supported by related documents and/or cross-checking with an additional respondent. Interpretation of Results A score was generated for each strategic sector and survey location. For comparison and evaluation, the score of strategic sectors may be assessed in accordance with the following categories. However, the results are prone to subjectivity bias, because results depend crucially on the interpretation of the party conducting the survey. Currently, the World Bank and the Ministry of Home Affairs are cooperating to improve the survey, particularly to attempt to minimize the risk of subjectivity. Overall Score (%) 80-100 perfect/fully acceptable 60-79 very good/very acceptable 40-59 good/acceptable 20-39 average/sufficiently acceptable 0-19 less/unacceptable 102 North Sulawesi Public Expenditure Analysis 2011 Attachments Annex C. Matrix of Conclusions and Recommendations Table C.1 Agenda and Proposals for the Sub-national Public Financial Management Capacity Building Programs in North Sulawesi Province Field Recommendations Proposed Programs Regional Laws  Complete various regulations to underpin proper public financial (i) Training on a comprehensive and Regulations management practices in compliance the central government’s sub-national public financial national regulatory framework, including, (i) Regional Regulation management regulatory framework on Capital Investment and Regional Public Service Agency; (ii) (ii) Technical assistance to ensure Head of Regional Government Regulation on Cost Standards completion and enactment of and Analysis of Expenditure Standards in order to support required regional regulations performance-based budgeting; and (iii) other more technical regulations for sub-national public financial management  Prepare regional regulations to encourage the implementation of transparency and participatory principles Planning &  Improve regional legislature capacity and involvement in the (iii) Training for regional legislatures Budgeting planning and budgeting process on planning and budgeting  Formulate measurable and target-achievement oriented planning (iv) Training and TA on formulation of and budgeting documents, and enhance synchronization of Cost Standards (SHBJ) and Analysis these documents of Expenditure Standards (ASB)  Prepare a regulation on Cost Standards and Analysis of (v) Training and TA on formulation of Expenditure Standards measurable indicators and targets for various planning and budgeting documents Cash, asset and  Improve revenue management and mobilization capacity (vi) Training and TA on revenue procurement  Maintain good performance in revenue management, cash administration and collection system management management and control, and temporary cash surplus (vii) Complete regulations sub-  Maintain and improve procurement performance national government procurement in compliance with the new regulatory framework established by the central government Accounting &  Improve human resource capacity with accounting background (viii) Accounting training and TA Reporting in public financial management related strategic positions (ix) Integrated accounting  Maintain the integrated accounting information systems information system training and TA established in several regions, and encourage Bolaang (x) Increase the number of staff Mongondow district to implement a similar system with an accounting background Internal Audit,  Improve the role of internal audits in sub-national public financial (xi) Training and TA to strengthen the External Audit management by increasing budget resources and the number of internal audit function and increase and Supervision qualified functional auditors the number of staff with functional  Improve communication to support external audit and follow-up auditor capabilities of external audit findings 103 North Sulawesi Public Expenditure Analysis 2011 Attachments Table C.2 Matrix of Conclusions and Recommendations of Revenue and Expenditure Chapters Acceptance Conclusions Recommendations North Sulawesi’s district/municipality governments have Further study is needed to identify the potential for taxes relatively low own-source revenue and their dependency on with an extensive tax base; improved supervision is required central government transfers is increasing. This situation is to minimize leakage of tax revenues and regional charges; not in line with the objectives of regional autonomy. improve human resource capacity in the taxation field is also required. Non-tax (natural resources) revenue sharing remains Further research is required on North Sulawesi’s natural extremely small compared to revenue sharing from tax, resource potential, which may provide a source of regional raising the question of whether North Sulawesi has utilized revenue. its natural resource potential to the maximum possible extent. The imbalance in per capita regional revenues between Government support is required, for instance through districts/municipalities remains high. Several newly formed central government transfers, to initiate the development districts have very low revenue (particularly Bolaang of these newly formed districts/municipalities by improving Mongondow Timur). their fiscal position. The provincial and most district/municipality governments Once their service provision reaches the maximum in North Sulawesi have large unspent budget balances. possible level, these sub-national governments could make These sub-national governments cannot absorb the additional investments to utilize available funds. available budget and yet are able to undertake important programs and activities to provide services to the community. Spending Conclusion Recommendations Personnel expenditure continues to be very dominant. (1) Reduce the number of personnel through attrition, namely by recruiting fewer new personnel than the number of retiring personnel (2) Recruit highly-qualified personnel and provide proper training to improve productivity (3) Reallocate personnel from areas with excessive number of personnel to the areas experiencing personnel shortage to prevent unnecessary recruitment Sub-national governments allocate very little expenditure (1) Appropriate efficient programs are required, including sectors in which North Sulawesi enjoys an advantage. Only developing the skills and work ethics of workers in those around 3 percent of funds are allocated to agriculture, 0.5 sectors, and providing adequate finance to enable these percent to tourism, and approximately 1 percent to the advantageous sectors to accelerate the achievement of maritime and fisheries sector. community welfare. (2) Measures are also required to promote a balance in expenditure trends between personnel spending and infrastructure spending. (3) Health spending of only 8 percent needs to be increased, as health care costs increase and in accordance with the relatively high poverty and unemployment rates. The gender responsive budget in North Sulawesi remains very (1) Increase expenditure allocation to promote women’s small. empowerment in North Sulawesi’s economic development. (2) Steps are needed to increase women’s access to economic sectors to facilitate improvement to women’s standard of living. (3) Adequate budget allocations are required to finance programs for victims of trafficking, rape victims, unwanted pregnancies and neglected children, including provision of legal aid. (4) Increase budget allocations for the welfare of senior citizens. 104 North Sulawesi Public Expenditure Analysis 2011 Attachments Table C.3 Matrix of Conclusion and Recommendations for Sectoral Chapter Health Conclusion Recommendations Health indicators in North Sulawesi are generally better All districts require sufficient medical personnel who are able than in its neighboring provinces in Sulawesi and than to access and be accessed by the community. the national average. The distribution of health services and outcomes between districts/municipalities requires attention.. Health expenditure mostly accounts for less than 10 Both the provincial and district/municipality governments percent of total expenditure (both provincial and district/ need to increase the proportion of total expenditure that municipality level). Most provincial level health spending they allocate to health expenditure. This is important to is allocated to personnel spending. Archipelagic districts increase the allocation of community-oriented public have higher per capita health spending than other areas in expenditure. North Sulawesi province. The correlation between outputs (ratio of doctors Archipelagic districts merit special attention in terms of and midwives per 10,000 residents) and outcomes access and mobility of health workers. Public perceptions of (immunization coverage and birth assisted by medical public health service in North Sulawesi are relatively positive, workers) varies. In urban areas, outputs and outcomes but providers need to improve the standard and hygiene of were relatively even, but in districts with larger their equipment and facilities. territory such as the archipelagic districts, health sector outcomes varied. These variations arise because limited transportation and geographical location impede even distribution of and access to medical personnel in archipelagic districts. Education Conclusion Recommendations The quality of education outcomes in North Sulawesi is Improve the quality or education of graduates to support job the highest in Indonesia. Education outcomes are also creation and reduce unemployment. relatively even across every district/municipality in North Sulawesi. Disparities in education indicators in North Sulawesi are The equal distribution of access to education in archipelagic relatively small, both between districts/municipalities, age districts, in terms of getting students to school and groups, and sexes. mobilizing teachers, requires attention. Education sector spending in North Sulawesi increased The proportion of education expenditure spent on personnel more than twofold in five years and its proportional is higher than several other regions where PEA studies have allocation is generally always above 20 percent. This been conducted, and requires reduction. overall increase was matched by an increase of personnel spending, which also doubled. Almost all districts and municipalities spend more than 20 percent on education. Education expenditure in North Sulawesi is increasingly A recommendation is for universities in North Sulawesi to dependent on central government transfers. This means the improve their quality and self-reliance to reduce central central government is playing an increasingly strong role in government transfers, for instance through producing academic providing higher education in North Sulawesi. outputs such as research and training. 105 North Sulawesi Public Expenditure Analysis 2011 Attachments Infrastructure Conclusion Recommendations Infrastructure expenditure has increased fourfold in the The majority of infrastructure spending from newly last five years, over which period the share of spending on established districts must be taken into account, since it does personnel has decreased. Four newly established districts/ not automatically equate to provision of better basic services. municipalities are the highest spenders on infrastructure in North Sulawesi. Of the three basic infrastructure categories, the coverage It is recommended provision of services for basic of clean water was lower compared than access to infrastructure access focus on lower income earners, sanitation and electricity coverage. Disparities remain especially for the provision of clean water and sanitation between districts and income groups. access. A shift in passenger traffic has occurred from sea The main recommendation is to improve carrying capacity transportation to air transportation. Sea transportation and service quality of at airports to anticipate growth in remains favored for freight. passenger numbers. Another recommendation is to improve loading and unloading efficiency at the port to anticipate growing goods’ traffic and improve competitiveness against other ports. Communities in outermost districts remain heavily reliant A special allocation of infrastructure spending to support on pioneer shipping services, but there are very few pioneer shipping is required, because these routes are pioneer vessels in North Sulawesi. unlikely to attract commercial operators. Agriculture Conclusion Recommendations Agriculture expenditure in North Sulawesi more The main recommendation is to decrease capital expenditure than doubled between 2005 and 2009, with nearly on government buildings and facilities. Spending on half of spending coming from central government agricultural counseling and facilitation programs, which is deconcentration funds. Agriculture spending amounted usually included in goods and services expenditure, also to 6 percent of total expenditure over this period, half of needs to be increased. which was allocated to the personnel spending. Rice production in North Sulawesi has increased by nearly Since agricultural commodities such as rice and other crops 100,000 tons (24 percent) over the past five years. Maize are vulnerable to climate change, sub-national governments production increased by more, at 161 percent in five in North Sulawesi must prepare facilitation and awareness years Maize farm productivity also increased by nearly 50 programs to assist farmers to adapt to such climate change. percent, compared to stagnant rice farm productivity of 4.9 tons per hectare. Among high potential cash crop commodities in North North Sulawesi needs to adopt a strategic policy focused on Sulawesi, it was the production of nutmeg and cacao that certain plantation products to increase its competitiveness. increased between 2005 and 2008. Although coconut An agro-industry policy should be pursued in tandem production in 2008 exceeds 2005 levels, production has with this policy to add greater value to North Sulawesi ‘s actually been decreasing since 2006. plantation products.. 106 North Sulawesi Public Expenditure Analysis 2011 Attachments Table C.4 Matrix of Conclusions and Recommendations for North Sulawesi’s Development Policy Conclusion Recommendations The gender-responsive budget in North Sulawesi remains A greater spending allocation is required to promote relatively small. There are relatively few gender-related women’s empowerment in North Sulawesi’s economic problems in North Sulawesi, but province faces the issue of development so as to improve the standard of living of trafficking. women. North Sulawesi’s high gender outcome scores do not Comparative study of indicators used for the Gender-related provide the whole picture of gender in the province. Development Index and Human Development Index to ascertain exactly what disparities have occurred (in which sectors) and afterwards take measures to reduce the disparity. Regional level cooperation can serve as an opportunity for The commitment and cooperation of the central provinces involved actively by the central government. government and sub-national governments is required to enact supporting regulations for ports, immigration and customs. A commitment to maintain the quality of infrastructure Improve quality of infrastructure that supports economic is required, including infrastructure for which the central activities including airports, seaports, roads and electricity. government is responsible. Sub-national governments in North Sulawesi need to Fiscal stimulus and regulations are very much required from develop the tourism and service sectors. sub-national governments. Such measures might include promoting tourism, encouraging community participation- based tourism, encouraging eco-tourism, and reordering and implementing quality standards for travel agents. Sub-national governments must support green energy Sub-national governments could provide tax and non-tax industry. Electricity needs outside Java-Bali are very high, incentives for renewable energy or to industries producing but the supply is very limited. goods in an environmentally friendly manner. The education industry is the main driving force and Collaborations are required between sub-national support strata for regional economic development. governments, higher education institutions and the industrial sector to improve labor expertise in the coconut processing industry, fisheries, marine tourism and eco- tourism, the energy and information technology industries. Collaborations and networks with neighboring provinces Utilization of existing forums such as the Regional are definitely required. Development Cooperation Agency of Sulawesi (BKPRS) or the Heads of the Regional Development Planning Agency (Bappeda) Forum as communication fora to harmonize regional policies. 107 North Sulawesi Public Expenditure Analysis 2011 Attachments Annex D. Budget Master Table Annex D.1 Consolidation of North Sulawesi’s Sub-national Government Budgets Table D.1.1 Revenue by Source (million Rupiah) Province 2005 2006 2007 2008 2009 Own-source Revenue (PAD) 258,686 261,186 283,220 330,032 331,084 Regional Tax 205,752 206,191 238,424 294,955 289,215 Regional Charges 10,563 10,272 5,302 6,331 7,567 Separated Proceeds Of Regional Asset 33,373 30,787 30,311 13,201 16,369 Management Other Legal Own-Source Revenues 8,998 13,936 9,183 15,545 17,933 BALANCING FUND 356,746 546,750 557,289 627,740 674,268 Tax Revenue Sharing 34,642 46,406 55,451 53,786 62,754 Non-Tax Revenue Sharing 100 541 0 0 0 DAU 322,003 499,804 501,838 545,227 558,635 DAK 0 0 0 28,728 52,879 OTHER SHARING FROM RATIFIED RECEIPTS 18,567 0 65,663 29,670 17,998 Grant Revenue 0 0 0 0 0 Emergency Funds 0 0 40,408 28,647 0 Tax Revenue Sharing From Other Provinces And 0 0 0 0 0 Sub-national Governments Adjustment Fund And Special Autonomy 0 0 22,449 0 17,998 Financial Assistance From Other Provinces And 0 0 2,806 0 0 Sub-national Governments Non-Tax Revenue Sharing From Other Provinces 0 0 0 0 0 And Sub-national Governments Other Revenues 0 0 0 1,023 0 TOTAL REVENUES 633,998 807,936 906,172 987,442 1,023,349 District/Municipality 2005 2006 2007 2008 2009 PAD 135,761 145,968 178,078 173,704 202,969 Regional Tax 53,819 62,103 77,265 66,700 75,605 Regional Charges 51,721 49,492 47,371 51,940 57,160 Separated Proceeds Of Regional Asset 11,245 9,043 13,720 10,542 7,931 Management Other Legal Own-Source Revenues 18,976 25,330 39,722 44,522 62,273 BALANCING FUND 1,988,548 3,545,670 3,657,013 3,875,255 4,631,587 Tax Revenue Sharing 165,183 182,706 207,978 250,802 302,574 Non-Tax Revenue Sharing 4,977 63,138 25,053 1,275 0 General Allocation Grant 1,675,550 2,911,000 2,746,160 2,964,050 3,492,574 DAK 142,838 388,825 677,823 659,129 836,439 108 North Sulawesi Public Expenditure Analysis 2011 Attachments District/Municipality 2005 2006 2007 2008 2009 OTHER SHARING FROM RATIFIED RECEIPTS 328,125 99,683 387,646 499,066 659,247 Grant Revenue 0 0 19,643 46,286 42,539 Emergency Funds 0 0 121,896 89,521 64,663 Tax Sharing Revenue From other Provinces and 0 0 68,521 82,736 137,803 Sub-national governments Adjustment Fund and Special Autonomy 0 0 165,439 214,857 285,315 Financial Assistance from other Provinces and 0 0 0 21,951 65,727 Sub-national governments Non-Tax Sharing Revenue From other Provinces 0 0 2,909 13,788 40,847 and Sub-national governments Other Revenues 0 0 9,238 29,925 22,352 TOTAL REVENUES 2,452,435 3,791,322 4,222,737 4,548,025 5,493,803 Note: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2005-2010 (2009 constant prices) Calculations employ Revised Regional Budget (APBD-P) for Tomohon in 2009 Table D.1.2 Spending by Economic Classification (Million Rupiah) Province 2005 2006 2007 2008 2009 Personnel Spending 223,549 292,218 337,084 376,161 335,167 -Indirect 0 0 269,717 300,717 297,466 -Direct 0 0 67,367 75,445 37,701 Goods and Services Spending 172,173 218,900 209,487 188,620 236,257 -Goods and Services 76,640 111,819 0 0 0 -Official Trip 22,689 36,588 0 0 0 -Maintenance 72,844 70,492 0 0 0 Capital Spending 34,528 0 155,122 161,371 241,284 Other Spending 174,275 292,081 167,808 208,944 221,720 District/municipality 2005 2006 2007 2008 2009 Personnel Spending 1,340,998 1,679,041 1,950,867 2,135,423 2,540,743 -Indirect 0 0 1,674,886 1,873,269 2,279,056 -Direct 0 0 275,981 262,154 261,688 Goods and Services Spending 578,611 854,964 700,572 676,420 826,537 -Goods and Services 297,619 393,038 0 0 0 -Official Trip 99,080 143,198 0 0 0 -Maintenance 181,912 318,728 0 0 0 Capital Spending 385,435 480,245 1,055,598 1,144,036 1,690,853 Other Spending 57,312 385,977 306,679 215,709 188,347 Note: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2005-2010 (2009 constant prices) Calculations employ Revised Regional Budget (APBD-P) for Tomohon in 2009 109 North Sulawesi Public Expenditure Analysis 2011 Attachments Table D.1.3 Spending by Sector (Million Rupiah) Province 2005 2006 2007 2008 2009 Sector General Government 418,403 506,778 473,746 545,796 566,058 Infrastructure 64,995 98,367 167,038 150,251 197,910 Education 18,476 48,532 56,251 52,225 53,987 Health 29,542 38,898 47,405 46,117 53,915 Agriculture 16,894 28,690 50,945 49,818 58,452 Fisheries and Marine 5,450 8,655 9,361 10,014 12,850 Forestry 12,485 16,339 8,172 9,373 10,225 Social and Women’s Empowerment 4,169 6,257 6,254 8,235 11,187 Industry and Trade 4,852 7,206 6,851 8,243 8,162 Employment 7,769 10,151 11,135 11,687 14,413 Population and Transmigration 0 0 0 0 215 Cooperatives and Small-to-medium Enterprise 3,810 5,698 7,379 6,655 8,805 Tourism 9,580 14,054 7,786 7,919 14,167 Energy and Mineral Resources 3,918 5,672 6,886 6,162 6,198 Environment 2,090 2,994 3,235 3,259 4,080 Capital Investment 2,091 4,904 6,378 5,335 5,241 Housing 0 0 0 0 0 Youth and Sports 0 0 680 13,370 8,518 Spatial Planning 0 0 0 635 45 Defense 0 0 0 0 0 Total 604,525 803,199 869,501 935,096 1,034,428 District/Municipality 2005 2006 2007 2008 2009 Sector General Government 703,826 1,161,697 1,510,709 1,299,571 1,580,388 Infrastructure 118,986 492,742 596,184 701,786 1,014,713 Education 808,341 878,788 1,240,227 1,415,790 1,688,736 Health 198,801 354,740 277,985 325,420 424,495 Agriculture 38,737 106,726 136,974 131,227 157,105 Fisheries and Marine 18,844 36,518 48,441 49,745 73,067 Forestry 13,942 21,555 17,502 21,398 27,863 Social and Women’s Empowerment 32,002 32,975 13,613 18,778 27,541 Industry and Trade 15,631 21,888 26,349 31,971 49,981 Employment 7,052 54,784 11,018 12,710 14,029 Population and Transmigration 16,933 22,337 17,397 23,029 23,210 Cooperative and Small-to-medium Enterprises 4,997 8,109 12,517 13,178 12,723 Tourism 7,083 14,831 11,026 11,787 17,652 Energy and Mineral Resources 5,943 8,607 10,919 12,206 14,220 110 North Sulawesi Public Expenditure Analysis 2011 Attachments District/Municipality 2005 2006 2007 2008 2009 Environment 11,690 18,622 39,827 48,555 53,033 Capital Investment 1,921 4,696 5,858 11,036 8,113 Housing 103,985 160,612 13,375 6,660 19,437 Youth and Sports 987 0 13,596 23,474 10,750 Spatial Planning 38,034 0 10,198 12,610 27,583 Defense 52 0 0 656 1,842 Total 2,362,356 3,400,228 4,013,717 4,171,588 5,246,480 Note: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2005-2010 (2009 constant prices) Calculations employ Revised Regional Budget (APBD-P) for Tomohon in 2009 Annex D.2 Central Government Spending for North Sulawesi Table D.2.1 Deconcentrated Central Government Spending for North Sulawesi (Million Rupiah) 2005 2006 2007 2008 2009 PUBLIC SERVICES 28,588 47,284 12,494 6,144 3,167 DEFENSE 910 ORDER AND SECURITY 100 7 311 389 551 ECONOMY 221,497 179,792 173,085 207,975 217,337 ENVIRONMENT 6,279 1,841 2,359 4,918 HOUSING AND GENERAL FACILITIES 92,569 21,566 44,866 104,697 145,063 HEALTH 66,811 113,407 93,849 33,168 49,006 TOURISM AND CULTURE 4,791 4,773 4,250 3,626 7,430 RELIGION 12 EDUCATION 166,738 277,525 278,255 311,871 430,574 POPULATION AND SOCIAL PROTECTION 40,995 55,266 39,211 20,966 18,551 Notes: Data obtained from the Financial Balancing Directorate, Ministry of Finance Data is realized data (2009 constant prices). 111 North Sulawesi Public Expenditure Analysis 2011 112 Annex D.3 Sun-national Budget By Province and District/Municipality Table D.3.1 Real Per Capita Sub-national Revenues by District/Municipality, 2009 (Rupiah) Attachments Bolaang North Minahasa Minahasa Kepulauan Kepulauan Kepulauan Bolaang Bolaang Bolaang Minahasa Manado Bitung Tomohon Kotamobagu Minahasa Mongondow Sulawesi Utara Selatan Talaud Sangihe Sitaro Mongondow Mongondow Mongondow Tenggara Municipality Municipality Municipality Municipality District Selatan Province District District District District District District Utara District Timur District District District PAD 148,544 166,508 93,140 83,523 51,570 79,095 66,613 47,866 54,421 191,222 137,223 40,695 62,056 10,101 27,129 40336,2994 Regional Tax 129,759 103,089 34,593 39,745 14,359 28,363 10,504 12,945 12,333 20,515 14,317 1,125 9,737 3,535 5,100 8264,85213 Regional Charges 3,395 38,342 21,813 25,263 16,333 21,889 18,480 12,706 13,334 86,659 24,257 12,510 11,442 3,199 19,247 20499,6074 Separated 7,344 2,754 7,462 11,945 - 6,193 - - - 7,438 - 7,929 - - - 0 proceeds of regional asset management Other Legal Own- 8,046 22,323 29,273 6,570 20,878 22,649 37,628 22,215 28,754 76,609 98,650 19,131 40,877 3,367 2,782 11571,8398 source Revenues North Sulawesi Public Expenditure Analysis 2011 BALANCING FUND 302,517 1,197,436 1,879,729 3,396,850 2,272,018 1,582,876 1,917,540 1,967,504 4,466,901 3,069,445 4,666,478 1,806,690 3,307,320 975,769 1,284,003 2864351,4 Tax Revenue 28,155 101,794 134,091 352,456 123,268 90,146 121,379 126,300 265,886 114,131 222,561 150,748 197,762 76,962 149,176 124501,933 sharing Non-Tax Revenue - - - - - - - - - - - - - - - 0 Sharing DAU 250,638 967,592 1,501,643 2,445,012 1,616,497 1,239,344 1,453,499 1,529,155 3,401,343 2,151,782 3,277,912 1,274,674 2,436,233 835,458 1,062,631 2152286 DAK 23,725 128,050 243,996 599,381 532,253 253,386 342,662 312,048 799,672 803,532 1,166,006 381,267 673,324 63,349 72,196 587563,465 OTHER SHARING 8,075 124,334 280,892 440,525 265,628 254,611 262,034 365,216 491,737 327,373 493,408 309,156 706,924 179,744 201,450 498749,856 FROM RATIFIED RECEIPTS Grant Revenue - - - - - - - - 227,200 - 16,186 - - 126,261 153,486 94216,1738 Emergency Funds - 86,642 - - 62,660 - - 42,042 59,847 - 13,758 - - - 47,964 41873,855 Tax Revenue - 10,276 75,547 77,326 164,707 - - 323,174 131,455 49,281 - 34,604 61,729 - - 67710,6517 Sharing From other Provinces and Sub-national governments Adjustment 8,075 - 205,345 363,199 - 35,688 170,622 - - 215,768 256,464 274,553 645,195 - - 284480,712 Fund and Special Autonomy Financial - - - - - 218,924 - - - - - - - - - 0 Assistance from other Provinces and Sub-national governments Non-Tax Revenue - 27,416 - - 38,262 - 61,668 - 73,236 - 77,946 - - 53,484 - 0 Sharing From other Provinces and Sub-national governments Other Revenues - - - - - - 29,743 - - 62,323 129,054 - - - - 10468,4638 Total Revenues 459,137 1,488,277 2,253,762 3,920,898 2,589,216 1,916,582 2,246,187 2,380,585 5,013,058 3,588,039 5,297,110 2,156,541 4,076,301 1,165,614 1,512,583 3403437.55 Note: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2005-2010 (2009 constant prices) Calculations employ Revised Regional Budget (APBD-P) for Tomohon in 2009 Table D.3.2 Real Per Capita Sub-national Spending by Economic Classification, by District/Municipality, 2009 (Rupiah) Spending by Bolaang North Minahasa Kepulauan Kepulauan Bolaang Bolaang Bolaang Minahasa Economic Manado Bitung Tomohon Kotamobagu Minahasa Minahasa Kepulauan Mongondow Sulawesi Selatan Talaud Sangihe Mongondow Mongondow Mongondow Tenggara Classification Municipality Municipality Municipality Municipality District Utara District Sitaro District Selatan Province District District District District Utara District Timur District District District Indirect Spending Personnel 133,461.29 885,498.10 1,058,186.83 1,505,323.15 843,324.47 1,014,949.36 961,422.80 1,059,050.62 1,662,262.68 1,579,079.96 1,347,775.99 877,562.99 794,478.80 621,918.35 704,630.65 885,859.25 Interest - - 2,810.50 - - - - - - - - - - - - - Grant/Subsidy 9,896.22 25,538.12 8,245.79 23,292.48 16,582.01 2,831.20 10,341.12 65,639.05 87,081.22 105,215.40 49,972.81 28,915.28 33,415.93 6,144.68 3,837.15 27,260.82 Social Assistance 24,551.24 63,753.80 66,418.56 105,354.09 12,287.57 20,596.36 90,728.67 38,289.45 56,762.87 36,693.34 43,059.03 31,992.79 30,044.81 10,760.76 27,147.85 107,692.23 Profit Sharing to 61,326.48 249.59 - - - - 52,008.39 - 2,172.94 - - - - - - - Sub-regions Assistance to 2,691.96 - - 25,084.21 2,518.79 34,457.38 - 85,330.77 73,640.28 105,088.00 153,732.22 72,596.46 77,401.00 15,004.80 9,592.88 83,280.82 Sub-Region Unexpected 1,011.22 2,299.50 8,280.46 1,791.73 - 51.88 - 10,939.84 16,000.64 5,366.07 24,847.72 2,547.60 1,846.72 3,577.38 7,674.30 4,899.24 Assistance to - - - - - - - - - - - - - - - - Vertical Agency Direct Spending Personnel 16,914.76 99,956.32 165,999.17 360,864.16 80,870.52 33,782.71 83,178.29 79,742.05 223,508.82 119,552.96 179,256.09 126,436.09 206,379.00 110,886.69 117,204.83 19,745.25 Goods and 105,999.44 181,257.83 353,639.46 933,171.49 328,811.07 197,538.17 320,065.98 585,512.45 702,750.86 378,064.77 730,297.51 278,272.93 795,237.44 182,950.86 206,276.63 589,653.31 Services Capital 108,254.48 335,987.17 535,884.91 1,130,254.56 1,106,902.36 512,814.29 805,758.50 452,769.24 1,002,699.87 1,236,295.66 2,025,615.78 703,372.04 1,779,732.83 58,458.21 456,651.33 1,679,823.45 Total 464,107.09 1,594,540.42 2,199,465.69 4,085,135.88 2,391,296.78 1,817,021.34 2,323,503.74 2,377,273.47 3,826,880.17 3,565,356.16 4,554,557.14 2,121,696.18 3,718,536.53 1,209,701.73 1,533,015.61 3,498,214.36 Note: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2005-2010 (2009 constant prices) Calculations employ Revised Regional Budget (APBD-P) for Tomohon in 2009 North Sulawesi Public Expenditure Analysis 2011 Attachments 113 114 Table D.3.3 Real Sub-national Spending by Usage, by District/Municipality, 2009 (Rupiah) Spending by Bolaang Attachments North Minahasa Minahasa Kepulauan Kepulauan Kepulauan Bolaang Bolaang Bolaang Minahasa Usage Manado Bitung Tomohon Kotamobagu Minahasa Mongondow Sulawesi Utara Selatan Talaud Sangihe Sitaro Mongondow Mongondow Mongondow Tenggara Municipality Municipality Municipality Municipality District Selatan Province District District District District District District Utara District Timur District District District OBLIGATORY FUNCTIONS EDUCATION 22,847 639,414 636,751 1,037,637 591,381 817,592 711,432 831,970 1,283,969 1,232,320 1,157,638 650,980 549,891 246,963 412,214 669,013 AFFAIRS MEDICAL AFFAIRS 24,189 81,664 221,692 217,194 193,479 156,371 203,785 178,959 295,867 411,309 439,892 204,660 202,093 48,765 75,113 270,264 PUBLIC WORK 82,255 204,088 258,789 590,047 640,313 288,599 355,424 344,888 526,671 483,363 1,132,127 361,946 1,228,354 117,960 302,921 1,296,584 AFFAIRS PUBLIC HOUSING - 10,538 18,171 56,067 - - 11,237 - 1,147 28,385 - - 7,119 - - 5,584 AFFAIRS SPATIAL 20 14,406 23,619 30,468 53,913 - 7,316 - - 28,888 28,275 - 3,189 - 19,526 - North Sulawesi Public Expenditure Analysis 2011 PLANNING AFFAIRS DEVELOPMENT 3,951 15,090 16,267 34,037 31,964 7,384 28,211 18,052 76,567 33,246 54,518 29,638 68,789 44,187 28,381 22,246 PLANNING AFFAIRS TRANSPORTATION 6,540 30,430 20,740 62,487 38,004 11,405 15,252 - 41,581 48,394 24,313 12,096 34,034 16,191 17,196 13,658 AFFAIRS ENVIRONMENTAL 1,831 29,372 57,832 48,657 25,805 6,595 18,044 7,223 24,035 24,232 51,807 10,964 33,664 5,960 10,308 23,723 AFFAIRS LAND AFFAIRS - - - - - - 503 - - 13,441 - - - - - - POPULATION AND - 7,269 11,118 28,581 14,693 7,118 10,736 - 12,162 18,521 25,101 4,707 17,729 13,569 18,334 7,342 VITAL RECORDS AFFAIRS WOMEN’S 544 - - 4,720 - - 16,732 - 109 - 17,474 - 2,384 - 16,796 5,339 EMPOWERMENT AND CHILD PROTECTION AFFAIRS FAMILY 92 10,445 18,295 34,451 28,221 12,772 4,151 16,475 27,940 23,381 9,628 15,282 19,789 - - 21,093 PLANNING AND PROSPEROUS FAMILY AFFAIRS SOCIAL AFFAIRS 4,475 6,873 13,128 1,495 15,454 5,795 15,718 14,164 12,560 13,466 16,020 12,011 5,849 - - 6,091 EMPLOYMENT 6,467 6,658 13,641 24,161 - 5,454 5,587 - - 2,360 3,341 10,043 3,796 - - 12,904 AFFAIRS COOPERATIVES 3,951 4,826 11,073 21,930 - 6,291 11,621 - 14,854 1,257 1,437 5,526 1,120 - 5,895 - AND SMALL-AND- MEDIUM-SCALE ENTERPRISE AFFAIRS CAPITAL 2,352 - 11,531 17,631 - 3,642 8,184 3,452 7,375 - 10,669 - 2,154 - - - INVESTMENT AFFAIRS Spending by Bolaang North Minahasa Minahasa Kepulauan Kepulauan Kepulauan Bolaang Bolaang Bolaang Minahasa Usage Manado Bitung Tomohon Kotamobagu Minahasa Mongondow Sulawesi Utara Selatan Talaud Sangihe Sitaro Mongondow Mongondow Mongondow Tenggara Municipality Municipality Municipality Municipality District Selatan Province District District District District District District Utara District Timur District District District CULTURAL 1,375 19,002 - 19,787 - - 2,260 - 11,010 12,937 3,520 - 1,384 - 576 14,704 AFFAIRS YOUTH AND 3,882 3,914 4,807 25,523 - - 1,203 - 963 5,861 - 17,152 7,114 - 20,241 - SPORTS AFFAIRS NATIONAL UNITY 4,853 41,375 53,609 116,065 27,858 15,670 41,620 23,638 20,933 43,951 73,052 23,078 39,108 12,012 21,657 31,929 AND DOMESTIC POLITICAL AFFAIRS GENERAL 238,207 419,246 663,812 1,393,127 572,444 334,460 644,241 709,903 1,210,447 859,154 1,033,411 581,126 1,040,995 602,427 510,453 862,499 GOVERNMENT AFFAIRS PERSONNEL - - - - - - - - - - - - - - - - AFFAIRS COMMUNITY 2,119 5,192 10,169 23,900 - 13,804 9,952 34,955 45,244 15,916 56,786 17,507 81,614 55,747 - 29,382 AND VILLAGE EMPOWERMENT AFFAIRS STATISTICS - - - - - - - - 1,032 1,083 3,535 - - - - - AFFAIRS ARCHIVE AFFAIRS 31 1,994 - 10,106 - - 30 - 280 489 - - 13,999 - - - COMMUNICATION 1,461 5,530 12,293 794 - - 5,720 - - 7,138 29,546 12,039 18,693 - - - AND INFORMATION AFFAIRS LIBRARY 3,255 - - - 8,229 1,300 2,197 2,692 - 6,478 13,111 1,175 - - - - FOOD SECURITY 2,741 6,421 12,385 - - 5,581 5,406 11,962 17,958 8,598 - 9,023 - - - 8,983 ELECTION AFFAIRS AGRICULTURE 23,483 13,664 30,005 148,282 121,221 45,809 84,029 88,438 102,055 98,241 109,984 62,938 135,968 - 52,064 61,991 AFFAIRS FORESTRY 4,587 - 57 46,639 - 17,103 19,227 9,901 16,302 4,333 13,120 20,013 37,771 - - 42,327 AFFAIRS ENERGY AND 2,781 - - 23,448 - 3,633 7,759 6,063 - 16,074 27,205 6,932 33,289 - - 9,082 MINERAL RESOURCES AFFAIRS TOURISM AFFAIRS 6,356 - 12,814 9,842 - 10,551 28,209 8,544 556 8,985 21,177 7,460 8,615 - 2,441 - MARITIME 5,765 10,153 27,851 25,929 - 16,715 31,299 26,932 65,534 84,135 151,238 28,113 89,627 35,058 1,401 61,376 AND FISHERIES AFFAIRS TRADE AFFAIRS 3,238 6,974 18,381 10,775 28,319 14,056 4,544 19,530 9,464 27,834 22,263 6,437 5,145 - 1,343 - INDUSTRIAL 424 - 20,558 21,313 - 9,323 11,876 19,530 267 1,576 24,369 10,850 23,273 10,861 16,186 22,100 AFFAIRS TRANSMIGRATION 97 - 77 - - - - -- - - - - 1,988 - - - AFFAIRS North Sulawesi Public Expenditure Analysis 2011 Attachments Note: Calculated from Provincial and District/Municipality APBD (realized) in North Sulawesi, 2005-2010 (2009 constant prices) Calculations employ Revised Regional Budget (APBD-P) for Tomohon in 2009 115 Attachments Annex E. Gender Indicators Table E.1 Indonesian Human Development Index, 2005-2008 Human Development Index Province/District/Municipality 2005 2006 2007 2008 1. Nanggroe Aceh Darusalam 68.7 69 69.4 70.76 2. North Sumatera 71.4 72 72.5 73.29 3. West Sumatera 70.5 71.2 71.6 72.96 4. Riau 72.2 73.6 73.8 75.09 5. Jambi 70.1 71 71.3 71.99 6. South Sumatera 69.6 70.2 71.1 72.05 7. Bengkulu 69.9 71.1 71.3 72.14 8. Lampung 68.4 68.8 69.4 70.3 9. Bangka Belitung 69.6 70.7 71.2 72.19 10. Archipelago of Riau 70.8 72.2 72.8 74.18 11. The Special Capital City Region of Jakarta 75.8 76.1 76.3 77.03 12. West Java 69.1 69.9 70.3 71.12 13.Central Java 68.9 68.9 70.3 71.6 14.Yogyakarta 72.9 73.5 73.7 74.88 15. East Java 62.2 68.4 69.2 70.38 16. Banten 69.2 68.8 69.1 69.7 17. Bali 69.1 69.8 70.1 70.98 18. Nusa Tenggara Barat 60.6 62.4 63 64.12 19. Nusa Tenggara Timur 62.7 63.6 64.8 66.15 20. West Kalimantan 65.4 66.2 67.1 68.17 21.Central Kalimantan 71.7 73.2 73.4 73.88 22. South Kalimantan 66.7 67.4 67.7 68.72 23. East Kalimantan 72.2 72.9 73.3 74.52 24. North Sulawesi 73.4 74.2 74.4 75.16 25. Central Sulawesi 67.3 68.5 68.8 70.09 26. South Sulawesi 67.8 68.1 68.8 70.22 27.South-East Sulawesi 66.7 67.5 67.8 69 28. Gorontalo 65.4 67.5 68 69.29 29. West Sulawesi 64.4 65.7 67.1 68.55 30. Maluku 69 69.2 69.7 70.38 31.North Maluku 66.4 67 67.5 68.18 32.West Irian Jaya 63.7 64.8 66.1 67.95 33.Papua 60.9 62.1 62.8 64 INDONESIA 68.7 69.6 70.1 71.17 Source: Gender-Based Development 2006. 2007 & 2008, Ministry of Women’s Empowerment & Child Protection in cooperation with the Central Bureau of Statistics (BPS) 116 North Sulawesi Public Expenditure Analysis 2011 Attachments Table E.2 Indonesian Gender-related Development Index, 2005-2008 Gender-related Development Index Province/District/Municipality 2005 2006 2007 2008 1. Nanggroe Aceh Darusalam 59.3 59.6 62.8 64.12 2. North Sumatera 61.7 63 66.7 68.87 3. West Sumatera 62.3 63 66.3 67.46 4. Riau 61.2 62 64 65.41 5. Jambi 58.6 59.6 61.1 62.49 6. South Sumatera 57 58.5 62.4 64.8 7. Bengkulu 62.3 63.9 65.3 67.05 8. Lampung 58 59.5 60.4 62.18 9. Bangka Belitung 54.3 55.4 57.8 59.69 10. Archipelago of Riau 55.1 56.7 60.5 62.5 11. The Special Capital City Region of Jakarta 67.7 68.1 71.3 72.7 12. West Java 58.2 59.8 60.8 61.81 13.Central Java 59.8 60.8 63.7 64.66 14.Yogyakarta 69.9 70.2 70.3 71.5 15. East Java 58.1 59.7 60.5 62.97 16. Banten 56.7 58.1 59 61.49 17. Bali 64.3 66 66 67.08 18. Nusa Tenggara Barat 52.1 53.9 54.6 55.6 19. Nusa Tenggara Timur 58.6 59.6 61.3 63.44 20. West Kalimantan 57.9 58.8 61 62.78 21.Central Kalimantan 60.8 62.3 67.3 68.31 22. South Kalimantan 60.7 61.8 62.2 63.8 23. East Kalimantan 54.2 54.9 56.6 58.12 24. North Sulawesi 64.1 64.9 66 67.32 25. Central Sulawesi 55.6 56.8 59.8 61.42 26. South Sulawesi 56.9 57.4 59 61.04 27.South-East Sulawesi 59.1 60 61.4 62.48 28. Gorontalo 50.2 52.3 53.6 55.25 29. West Sulawesi 60.1 61.5 63.6 64.18 30. Maluku 61.9 62.5 64.6 66.75 31.North Maluku 59.6 60.3 60.5 62.87 32.West Irian Jaya 51.4 52.6 56.1 57.36 33.Papua 57.4 58.6 59.3 61.4 INDONESIA 63.9 65.1 65.3 66.38 Source: Development Gender-Based 2006, 2007 and 2008, Ministry of Women’s Empowerment & Child Protection in cooperation with Central Bureau of Statistics (BPS) 117 North Sulawesi Public Expenditure Analysis 2011 Attachments Table E.3 Indonesian Gender Empowerment Index 2005-2008 Gender Empowerment Index Province/District/Municipality 2005 2006 2007 2008 1. Nanggroe Aceh Darusalam 42.1 46.5 49.7 50.67 2. North Sumatera 49.5 51.2 54.8 56.95 3. West Sumatera 55.3 55.8 59.1 59.56 4. Riau 43.6 47.3 49.9 51.91 5. Jambi 56.1 55.7 58 60.18 6. South Sumatera 56.1 57.1 60.1 62.46 7. Bengkulu 56.4 58.8 60 62.05 8. Lampung 59.3 60.6 61.4 62.81 9. Bangka Belitung 39.6 40.2 42.4 44.11 10. Archipelago of Riau 35.6 37.7 42.8 43.71 11. The Special Capital City Region of Jakarta 57.8 57.9 62 63.37 12. West Java 49.2 53 54.4 55.51 13.Central Java 56.5 56.9 59.3 59.76 14.Yogyakarta 62.3 62.4 62.4 62.87 15. East Java 56.8 57.6 58 59.81 16. Banten 40.1 45.4 46.5 49.02 17. Bali 56 57.7 57.8 58.95 18. Nusa Tenggara Barat 53.2 54.3 54.5 55.32 19. Nusa Tenggara Timur 56.3 57.3 59 61.14 20. West Kalimantan 48.7 49.4 51.3 53.96 21.Central Kalimantan 57.1 60.1 65.1 66.45 22. South Kalimantan 57.4 57.4 57.7 59.86 23. East Kalimantan 43.8 46.5 48.9 49.74 24. North Sulawesi 62.7 63.6 64.2 65.48 25. Central Sulawesi 58.3 59.6 62.5 63.23 26. South Sulawesi 49.2 50 51.8 52.96 27.South-East Sulawesi 53 53.4 55.3 55.56 28. Gorontalo 51.3 53.5 54.1 55.63 29. West Sulawesi 60.2 60.6 62.8 63.06 30. Maluku 51.4 52.2 53.9 56.28 31.North Maluku 40.1 44.1 44.1 46.63 32.West Irian Jaya 41 50.5 55 55.89 33.Papua 57.1 61.9 63.5 64.56 INDONESIA 59.7 61.3 61.8 62.27 Source: Development Gender-Based 2006, 2007 and 2008, Ministry of Women’s Empowerment & Child Protection in coordination with the Central Bureau of Statistics (BPS) 118 North Sulawesi Public Expenditure Analysis 2011 Attachments Annex F. Strength, Weakness, Opportunity, Threat (SWOT) Analysis for North Sulawesi as the Growth Center of Eastern Indonesia Analysis of North Sulawesi’s Development Strategy to become Indonesia’s Gateway to East Asia and the Pacific Table F.1 Opportunities (O) and Strengths (S) – Weaknesses (W) STRENGTHS (S) WEAKNESSES (W) - Strategic geographical position with - Minimal human resource relation to East Asia and the Pacific preparedness issues: Lack of Ocean; knowledge and training (on - Peninsular position of North Sulawesi targeted activities, for example, located at the edge of the Pacific tourism and coconut processing Ocean, surrounded by Indonesian industry); Archipelagic Sea Lane I and - Local institutional cooperation Indonesian Archipelagic Sea Lane II; between politicians and - Relatively secure area with open- bureaucrats; minded society, living in harmony - Access to capital and investment despite the religious and cultural for businesses; differences; - Lack of funding for large projects - Rich history as the world center of the either from donors or investors; spice trade; - Local: seaport infrastructure, - Natural riches at sea and on the land, airport runway, electricity supply; including coral reefs, endemic fauna, - National: taxes, general perspective spices, deep seas; on corruption; - Existing industries: coconut, fisheries, - Financial management support for ecotourism, marine tourism; district/ municipality governments - Existing infrastructure: for example, international airport/seaport, special tertiary institution for coconut processing; - Governor’s leadership awarded with Bintang Mahaputra 119 North Sulawesi Public Expenditure Analysis 2011 Attachments OPPORTUNITIES (O) SO STRATEGY WO STRATEGY - The center of economic Industry and Trade Development Strategy to Enhance Human growth in the world has Strategy Resources Quality shifted from the Atlantic to - Encourage Indonesia’s active role - Human resources training East Asia and the Pacific. (through North Sulawesi) in East program, oriented to tourism - Short term advantages: WOC Asia and Pacific regions. activities, coconut processing momentum; presidential - Establish North Sulawesi as the industry, etc; support, for example for center for container consolidation - Increase community the airport runway; interest and distribution from Indonesia to understanding of the Growth of large company –Maersk; East Asian and Pacific markets. Gateway through information political interest from foreign campaign. countries – United States - Increase regional cooperation in - Develop specific expertise, Ambassador and Consul. trade with neighboring provinces for example, entrepreneur - National reconciliation (Gorontalo, Central Sulawesi, North training for students, skills and regional autonomy/ Maluku, Maluku, West Papua and experience obtained from decentralization. Papua) foreign graduates. - Performance of Regional - Regional cooperation, such as Brunei- - Involvement of academics Development Bank (BPD) Indonesia-Malaysia-Philippines East - Increase the role of education towards Rp. 1 trillion asset ASEAN Growth Area, ASEAN, EAST institutions holding. ASIA and APEC through regional - Existence of several leading integration arrangement. Industry and Trade Development private universities and three - Establish North Sulawesi as the Strategy state universities in eastern operational and distribution center - Develop transportation Indonesia. for container ships servicing the East industry for logistics - The necessity to shorten the Asian and Pacific markets; distribution assuming that distance between Indonesia - Making North Sulawesi the regional integration and collaboration and the Asia-Pacific. basis for service and business have been created. - Central governmental companies in eastern Indonesia - Develop industry with local momentum to develop potential to achieve economic border and periphery areas. Infrastructure Development Strategy viability, such as deploying - North Sulawesi and its - Develop Bitung Seaport/Sam skilled workers in coconut surroundings have many Ratulangi Airport production to develop the export commodities - Become one of international scale industry; - Central government policy seaport hubs in Indonesia. to develop growth centers - Establish Sam Ratulangi Airport as a Entrepreneurship Development and gateways for Indonesia transit hub. Strategy in addition to Jakarta and Bali. - Develop basic infrastructure and -Build local community businesses supporting facilities through the and plan for expansion; central government. -Build small and medium-scale enterprises with entrepreneurship Tourism Developing Strategy support (increase quantity and - Promote North Sulawesi as a expand reach); distribution center for marine tourism -Promote entrepreneurship, either and ecotourism for tourists entering from individuals or community. and exiting eastern Indonesia. -Involvement of the banking - Promote North Sulawesi as a Center sector. for Maritime Studies and Center for Study of the Marine Tourism Industry Good Government and and Community Based Eco-Tourism. Governance Strategy - Promote North Sulawesi as eastern - Build trust, commitment Indonesia’s Meeting Incentive, and action; cooperation at Convention and Exhibition (MICE) local level between public activity center. institutions (political and - Promote North Sulawesi as a center bureaucracy); for shopping, entertainment, local - Build without corruption food, and inter-faith studies. 120 North Sulawesi Public Expenditure Analysis 2011 Attachments Analysis of North Sulawesi’s Development Strategy to become Indonesia’s Gateway to East Asia and the Pacific Table F.2 Opportunities (O) and Strengths (S) OPPORTUNITIES (O) STRENGHTS (S) SO STRATEGY - The center of economic Strategic geographic position with Industry and Trade Development growth in the world has respect to East Asia and the Pacific Strategy, through shifted from the Atlantic Ocean; - Encouraging an active role for to East Asia and the Indonesia (through North Sulawesi) Pacific. in East Asia and the Pacific. - Regional cooperation, such as Brunei-Indonesia-Malaysia- Philippines East ASEAN Growth Area, ASEAN, EAST ASIA and APEC through regional integration arrangement. - Making North Sulawesi the regional basis for service and business companies in eastern Indonesia. - Central government - Peninsular position of North - Establish North Sulawesi as the policy to develop growth Sulawesi located at the edge of center for container consolidation centers and gateways for the Pacific Ocean, surrounded by and distribution from Indonesia to Indonesia in addition to Indonesian Archipelagic Sea Lane East Asian and Pacific markets. Jakarta and Bali. I and Indonesian Archipelagic Sea - Increase regional trade with - Central governmental Lane II; neighboring province (Gorontalo, momentum to develop - Existing infrastructure: for Central Sulawesi, North Maluku, border and periphery example, international airport/ Maluku, West Papua and Papua) areas. seaport, special tertiary institution - Develop infrastructure; develop - The necessity to shorten for coconut processing; Bitung Seaport /Sam Ratulangi the distance between Airport; International hub port in Indonesia and the Asia- eastern part of Indonesia. Pacific. - Develop basic infrastructure and supporting facilities through central government. - Short term advantages: - Relatively secure area with open- - Increase North Sulawesi’s MICE WOC momentum; minded society, living in harmony activities (10 percent of MICE in presidential support, despite religious and cultural Indonesia). for example for the differences; - Promote North Sulawesi as eastern airport runway; interest - There is a good relationship Indonesia’s Meeting Incentive, of large company between the central government Convention and Exhibition (MICE) –Maersk; political and sub-national governments, activity center. interest from foreign in particular with the leadership - Promote North Sulawesi as a center countries – United States of the incumbent president and for shopping, entertainment, local food, Ambassador and Consul. governor and inter-faith studies. . 121 North Sulawesi Public Expenditure Analysis 2011 Attachments OPPORTUNITIES (O) STRENGHTS (S) SO STRATEGY - National reconciliation - Governor’s leadership awarded with Good Government and Governance and regional autonomy/ Bintang Mahaputra Strategy decentralization - Highest status for state budget audit. - Developing trust, commitment and action; cooperation at local level between public institutions (political and bureaucracy) - “Developing without corruption” in actualizing good government and governance - Pro-job, pro-poor and pro-growth - Performance of Regional - Rich history as the world center of - Facilitating investors with Development Bank (BPD) the spice trade; entrepreneur, particularly Micro towards Rp. 1 trillion - Natural riches at sea and on Small and Medium Enterprises. asset holding. the land, including coral reefs, - Partnership with Banking in - Existence several leading endemic fauna, spices, deep seas; infrastructure development. private universities and - Existing industries: coconut, - Promote North Sulawesi as a three state universities in fisheries, ecotourism, marine distribution center for marine eastern Indonesia. tourism; tourism and ecotourism for tourists - North Sulawesi and its - Increase in retail business activities entering and exiting eastern surroundings have many in Manado in the last five years Indonesia. export commodities involving entrepreneurs from - Promote North Sulawesi as a Center - North Sulawesi has several other regions. for Maritime Studies and Center tourism potential. for Study of the Marine Tourism Industry and Community Based Eco-Tourism. 122 North Sulawesi Public Expenditure Analysis 2011 Attachments Analysis of North Sulawesi’s Development Strategy to become Indonesia’s Gateway to East Asia and the Pacific Table F.3 Opportunities (O) and Weaknesses (W) OPPORTUNITIES (O) WEAKNESS (W) WO STRATEGY - The center of economic - Sub-national governments Industry and Trade Development growth in the world has are yet to optimize regional Strategy shifted from the Atlantic to cooperation, such as Brunei- - Promote North Sulawesi as a East Asia and the Pacific. Indonesia-Malaysia-Philippines distribution center for marine East ASEAN Growth Area, tourism and ecotourism for tourists ASEAN, EAST ASIA and APEC entering and exiting eastern through regional integration Indonesia. arrangement. - Promote North Sulawesi as a Center - Lack of financing for large-scale for Maritime Studies and Center projects both from donors and for Study of the Marine Tourism investors. Industry and Community Based Eco-Tourism. - Regional cooperation, such as Brunei-Indonesia-Malaysia- Philippines East ASEAN Growth Area, ASEAN, EAST ASIA and APEC through regional integration arrangement. - Establish North Sulawesi as the regional basis for service and business companies in eastern Indonesia Industry and Trade Development Strategy - Sub-national governments are - Develop transportation industry for - Central government policy yet to prioritize development of logistics distribution assuming that to develop growth centers the border economy. integration and collaboration have and gateways for Indonesia - North Sulawesi is yet to been created. in addition to Jakarta and become a base for large-scale - Develop industry with local Bali. enterprises. potential to achieve economic - Central governmental - KABIMA, Special Economic viability, such as deploying skilled momentum to develop Zone, Integrated Economic workers in coconut production to border and periphery areas. Development Region are not develop the industry; - The necessity to shorten yet optimal as an integrated - Developing border economies. the distance between business zone. - North Sulawesi to become surge Indonesia and the Asia- - Unavailability of Air Cargo, investor through investment Pacific. Hub International Port (Local: climate improvement. infrastructure-port, airport - Optimize economic growth runway, power). centers. - Develop infrastructure, airport and seaport. - Short term advantages: - Human resource issues: lack - Encourage the acceleration of WOC momentum; of knowledge and training central government support presidential support, for (on targeting activities, for through regulations to bring example for the airport example, tourism and coconut about the gateway concept. runway; interest of large processing industry); - Partnership with investors (BOT) company –Maersk; political to develop infrastructure. interest from foreign countries – United States Ambassador and Consul. 123 North Sulawesi Public Expenditure Analysis 2011 Attachments OPPORTUNITIES (O) WEAKNESS (W) WO STRATEGY - National reconciliation - Lack of district/municipality Good Government Governance and regional autonomy/ government financial Strategy decentralization management support; - Build trust, commitment and action; - Local institutional cooperation cooperation at local level between between politicians and public institutions (political and bureaucrats. bureaucracy) - National: taxes, general - “Building without corruption” in perspective on corruption actualizing good government and governance - Pro-job, pro-poor and pro-growth - Performance of Regional - Access to capital for business Strategy to Enhance Human Resources Development Bank (BPD) world; Quality towards Rp. 1 trillion asset - Sub-optimal partnership - Human resources training program, holding. between sub-national oriented to tourism activities, - Existence of several leading governments and universities. coconut processing industry, etc; private universities and - Increase community understanding three state universities in of the Growth Gateway through eastern Indonesia. information campaign. - North Sulawesi and its - Develop specific expertise, for surroundings have many example, entrepreneur training for export commodities students, skills experience obtained - North Sulawesi has tourism from foreign graduates. potential. - Involvement of academics - Increase the role of education institutions Entrepreneurship Development Strategy -Build local community businesses and plan for expansion; -Build small and medium-scale enterprises with entrepreneurship support (increase quantity and expand reach); -Promote entrepreneurship, either from individuals or community. -Involvement of the banking sector. Tourism Development Strategy - Optimize marketing and image of North Sulawesi. - Develop cultural performances and regional promotion. - Develop sustainable tourism industry. - Enforce environmental regulation. - Increase tourism spending - Quality of air transportation infrastructure, availability of seats and international flight. - Increase the number of flight operators. - Ground transportation infrastructure, road quality, 124 North Sulawesi Public Expenditure Analysis 2011 Analysis of North Sulawesi’s Development Strategy to become Indonesia’s Gateway to East Asia and the Pacific Table F.4 Threats (T) and Strengths (S) – Weaknesses (W) STRENGTH (S) WEAKNESS (W) - Strategic geographic position with respect to East Asia and the - Human resource issues: Lack of knowledge and training (on Pacific Ocean; targeted activities, for example, tourism and coconut processing - Peninsular position of North Sulawesi located at the edge of the industry); Pacific Ocean, surrounded by Indonesian Archipelagic Sea Lane I and - Local institution cooperation between politicians and Indonesian Archipelagic Sea Lane II; bureaucrats; - Relatively secure area with open-minded society, living in harmony - Access to capital and investment for businesses; despite religious and cultural differences; - Lack of funding for large projects either from donors or investors; - Rich history as center of world spice trade; - Local: seaport infrastructure, airport runway, electricity supply; - Existing infrastructures: for example, airport/international seaport, - National: taxes, general perspective concerning corruption; special tertiary institution for coconut processing; - District/municipality government financial management support - Governor’s leadership awarded with Bintang Mahaputra North Sulawesi Public Expenditure Analysis 2011 Attachments 125 126 THREATS (T) ST STRATEGY WT STRATEGY 1. Morotai Regulation Enforcement Strategy - Prepare human resources by increasing gateway-related education and Attachments Island (North - Establish North Sulawesi as a key cluster to strengthen the training activities. Maluku) has national economic competitiveness. - Obtain support from central and sub-national governments concerning infrastructure - Achieve paradigm shift and convince the central North Sulawesi’s geoposition advantage to establish a gateway. potential to government of the importance of the gateway. - Obtain support from sub-national governments in eastern Indonesia and become an air - Obtain policy support through laws and regulations to the central government. transit hub. support the gateway development beyond the term of - Offer incentives and regulations to partners/investors, particularly in 2. Political will the present governor to establish the course of gateway seaport, airport, immigration as well as customs and excise sectors. to develop development policy. - Prepare infrastructure; Sam Ratulangi International Airport Gateway, eastern - Rich history as the center of the world spice trade; if Bitung International Hub Seaport and Bitung Special Economic Zone (KEK) Indonesia supported by the political will to develop eastern Indonesia require special central government policies by enacting special laws, as 3. Paradigm of the central government did for the Sabang Port and Batam, Bintan and North Sulawesi Public Expenditure Analysis 2011 development Gateway Promotion Strategy Karimun Free Trade Zone, either during the New Order or during the policy - Increase public understanding of the gateway concept transition period. through an information campaign. This knowledge will - Each sub-national government needs urgently to enact regional provide a better orientation in responding to national regulations related to the Regional Long-Term Development Plan (RPJPD), political dynamics. Regional Medium-Term Development Plan (RPJMD), Provincial, District - Secure area with an open-minded community, living in and Municipality Spatial Planning, Airport and Seaport, Investment harmony despite religious and cultural differences as long Procedure and Regional Promotion, Environment, Regional and National as there is a development policy paradigm. Strategic Zone, Regional Infrastructure Development Strategy. - Bureaucracy reform, which sub-national governments are yet to perform comprehensively, must be prioritized. The reform program includes streamlining sub-national government structures and the number of sub-national; personnel, public administration service and integrated investment, health, education and basic infrastructure. - Going forward, regional industrial development should be oriented to the development of fisheries and maritime derivative products, the seaport and airport management service industry, the marine tourism industry, knowledge and technology-based small-and-medium scale industry, micro- and small-scale handicrafts industry, food and beverages, and creative industries which can enhance regional exports and products as well as influence the development of other new economic activities in the region. - Improve district/municipality government financial management - Improve every aspect of promotion and image of region. - Lobby the central government with support from surrounding eastern Indonesian regions to alter the Java and Bali-focused development paradigm. - Maintaining regional security stability against terrorist attacks, trafficking and narcotics, which could damage North Sulawesi’s image. Analysis of North Sulawesi’s Development Strategy to become Indonesia’s Gateway to East Asia and the Pacific Table F.5 Threats (T) and Strength (S) THREATS (T) STRENGTH (S) ST STRATEGY 1. Morotai Island (North Maluku) - Strategic geographic position with Regulation Enforcement Strategy has infrastructure potential to respect to East Asia and the Pacific Ocean; - Establish North Sulawesi as a key cluster to strengthen the become an air transit hub. - Peninsular position of North Sulawesi national economic competitiveness. 2. Political will to develop located at the edge of the Pacific Ocean, - Achieve paradigm shift and convince the central government of eastern Indonesia surrounded by Indonesian Archipelagic the importance of the gateway. 3. Paradigm of development Sea Lane I and Indonesian Archipelagic - Obtain policy support through laws and regulations to support policy Sea Lane II; the gateway development beyond the term of the present - Relatively secure area with open-minded governor to establish the course of gateway development policy. society, living in harmony despite - Rich history as the center of the world spice trade; if supported religious and cultural differences; by the political will to develop eastern Indonesia - Rich history as center of world spice trade; Gateway Promotion Strategy - Existing infrastructures: for example, - Increase public understanding of the gateway concept through airport/international seaport, special an information campaign. This knowledge will provide a better tertiary institution for coconut processing; orientation in responding to national political dynamics. - There is a good relationship between - Secure area with an open-minded community, living in harmony the central government and sub-national despite religious and cultural differences as long as there is a governments, in particular with the leadership development policy paradigm. of the incumbent president and governor North Sulawesi Public Expenditure Analysis 2011 Attachments 127 128 Analysis of North Sulawesi’s Development Strategy to become Indonesia’s Gateway to East Asia and the Pacific Attachments Table F.6 Threats (T) and Weaknesses (S) THREATS (T) WEAKNESSES (W) WT STRATEGY 1. Morotai Island - Human resource issues: lack - Prepare human resources by increasing gateway-related education and training (North Maluku) has of knowledge and training (on activities. infrastructure potential targeted activities, for example, - Obtain support from central and sub-national governments concerning North to become an air transit tourism and coconut processing Sulawesi’s geoposition advantage to establish a gateway. hub. industry); - Obtain support from sub-national governments in eastern Indonesia and the central 2. Political will to develop - Local institutional cooperation government. eastern Indonesia between politicians and - Offer incentives and regulations to partners/investors, particularly in seaport, airport, North Sulawesi Public Expenditure Analysis 2011 3. Paradigm of bureaucrats; immigration as well as customs and excise sectors. development policy - Access to capital and investment for - Prepare infrastructure; Sam Ratulangi International Airport Gateway, Bitung the businesses; International Hub Seaport and Bitung Special Economic Zone (KEK) require special - Lack of funding for large projects central government policies by enacting special laws, as the central government did either from donors or investors; for the Sabang Port and Batam, Bintan and Karimun Free Trade Zone, either during the - Local: seaport infrastructure, airport New Order or during the transition period. runway, electricity supply; - Each sub-national government needs urgently to enact regional regulations related - National: taxes, general perspective to the Regional Long-Term Development Plan (RPJPD), Regional Medium-Term concerning corruption; Development Plan (RPJMD), Provincial, District and Municipality Spatial Planning, - District/Municipality government Airport and Seaport, Investment Procedure and Regional Promotion, Environment, financial management support Regional and National Strategic Zone, Regional Infrastructure Development Strategy. - Bureaucracy reform, which sub-national governments are yet to perform comprehensively, must be prioritized. The reform program includes streamlining sub-national government structures and the number of sub-national; personnel, public administration service and integrated investment, health, education and basic infrastructure. - Going forward, regional industrial development should be oriented to the development of fisheries and maritime derivative products, the seaport and airport management service industry, the marine tourism industry, knowledge and technology-based small-and-medium scale industry, micro- and small-scale handicrafts industry, food and beverages, and creative industries which can enhance regional exports and products as well as influence the development of other new economic activities in the region. - Improve district/municipality government financial management - Improve every aspect of promotion and image of region. - Lobby the central government with support from surrounding eastern Indonesian regions to alter the Java and Bali-focused development paradigm. - Maintaining regional security stability against terrorist attacks, trafficking and narcotics, which could damage North Sulawesi’s image. 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