Jakarta, May 26, 2008 - Whenever money is spent, it’s natural to expect a return on investment. You spend money on groceries, you expect to keep your family fed and nourished for X number of days. You spend money on your child’s education, you expect your child to get smarter. You spend money on the stock markets, you expect (hope) to gain big returns.

Oddly enough however, the same rationale does not always apply to state budgets. Conventional public budgets see large amounts of money being spent in the name of keeping the machine running – salaries, procurement, operational costs, etc. Whether or not the machine produces anything is often not given much consideration during the budget planning process.

For decades, Indonesia’s state budgets were made the conventional way. It wasn’t until the financial crisis that state administrators began to seriously rethink its budgeting processes. This change in mindset eventually led to the passing of Law 17/2003 on State Finances, which took the norm – i.e. routine and development expenditures – and consolidated into a single unified budget. The law also introduces medium-term expenditure planning and the concept of performance-based budgeting, the latter of which recently became the focus of a one-day international conference in Jakarta.

The conference was organized by the Association of Public Financial Management Professionals (APKI) who called upon the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development, the European Commission and the Dutch Government to share their respective experiences in budget reforms with Indonesian government officials and parliamentarians.

“The modernization of the budget process is not an agenda exclusive to Indonesia. Many other countries have been pushing ahead with this in recent years,” said World Bank Country Director for Indonesia, Joachim von Amsberg, in his opening address. Within the walls of the conference lay a wealth of global and regional experience, which von Amsberg hoped would help Indonesia “seek new ways of steering resources to areas with higher returns.”

Finance Minister Sri Mulyani, who was on hand to sound the opening gong, reminded her Indonesian colleagues that mere task of defining reminded her Indonesian colleagues that many countries have struggled with budget reforms, in some cases taking as long as ten years to perfect the process. The key challenge, says the minister, lies in determining the outputs – especially since outputs for some departments, like Defense and Tourism, are not easily measurable.

Performance-based budgeting or results-oriented budgeting is basically the process of allocating funds to areas which would help governments meet their development objectives and ultimately better serve the public. Given that every department of every government does essentially work to serve the public, deciding what ranks higher in a government’s list of priorities is definitely no easy task. Do we go with building more schools or with strengthening the naval armada? Do we go with more free polio vaccinations or broadband internet coverage for the entire country? Each department could argue endlessly over the importance and merits of its respective agendas. In order for governments to successfully reform its budgeting processes and further their development agenda, strong leadership – with the ability to be ruthless in setting priorities – becomes essential.