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Indonesia has now returned to macroeconomic
stability and 'fiscal space' is growing.
During the past decade, Indonesia has made an impressive recovery thanks to prudent fiscal management, declining debt service, as well as increased tax and export revenues. For the first time since the crisis, Indonesia has sufficient financial resources to address most of its development needs. Apart from prudent macroeconomic policies - most importantly, consistently low budget deficits - the government also made a bold decision in 2005 to sharply reduce fuel subsidies, which freed up an extra US$10 billion for development spending.However, the decline in spending on subsidies was later reversed by the rapid rise of global oil prices in 2007-08, but is expected to drop sharply again in 2009 following the fall in global oil prices. More on overview

In 2007, World Bank Public Finance Team in Indonesia is produced a report called Public Expenditure Review (PER). PER seeks to establish the facts about Indonesia's public expenditures, presenting trends over time and analyzing the composition of public spending across sectors and levels of government. This report presents comprehensive information on key sectors, including spending from sub-national governments and state-owned enterprises in infrastructure. More on this report

Although Indonesia now has enough financial resources to make a real difference in the lives of its citizens, too much public spending is devoted to subsidies and government administration: high energy prices in 2007 2008 led to a rebound in spending on subsidies, which consumed around 28 percent of the total budget in 2008 (making subsidies the largest item in the budget). Meanwhile, core government administration spending is the third largest spending item after education, at around 14 percent of total spending.

In particular, a disproportionate share of spending on government administration is observed at the local government level: around 32 percent of all sub-national public spending is on the government itself. Moreover, the full coverage of civil service salaries by the Central Government has created a strong disincentive for the districts to streamline the number of civil servants they employ: doing so would result in reduced transfers from the Central Government. Another issue of major concern is that many local governments are having difficulties in spending their resources: by end of 2008 as much as 1.6 percent of GDP remained unused in bank accounts.

In order to ensure that Indonesia takes full advantage of the tremendous opportunities now available, three key public expenditure issues must be addressed:

Glossary of Terms in English
Glossary of Terms in Bahasa Indonesia

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