The 2018 High Level Policy Dialogue (HLPD) was held in Jakarta on 26 March. The HLPD was organised by the Indonesian Ministry of Finance and ANU Indonesia Project.

The theme for 2018 HLPD was Better local government budget management in globalised economy. It was open by Indonesia’s Minister of Finance Sri Mulyani Indrawati and Charge d’Affairs of the Australian Embassy in Jakarta, Allaster Cox. Minister Mulyani emphasised the importance of managing globalisation and improving subnational government performance. On the latter, three issues were highlighted, namely how to spend funds more effectively, how to reduce dependence on the central government, whether to change the transfers formula. Mr. Cox followed up on the globalisation issue by highlighting the growing tide of populism and protectionism which threatened the prosperity of both Indonesia and Australia.

Medium term challenges

In the first session that set the scene Suahasil Nazara (Chairman of Fiscal Policy Agency), Machfud Sidik (Univ. Indonesia), Arianto Patunru (ANU Indonesia Project) and Hal Hill (ANU Indonesia Project) gave their presentations. Professor Nazara identified three medium term challenges in Indonesian economic development: unequal growth among regions, rapid urbanisation, and quality of infrastructure and human capital. Dr Patunru drew his presentation from the lates Indonesia Update volume (edited with Mari Pangestu and M. Chatib Basri). The key general global trends include a moderately strengthening global economy, plateauing global trade, continuing ‘discontent’ with globalisation, continuing concern about inequality, and widespread resort to populism. Professor Hill examined comparative Indonesian export performance since the 1980s in the three manufactured exports that have dominated East Asia’s dramatic success: garments, footwear, and electronics. He discussed some missed opportunities owing to suboptimal policy and stalled reform.

Political economy of local government spending, service delivery and budget management

In this session on the political economy of local government spending, service delivery and budget management, Blane Lewis (ANU Indonesia Project), Budiarso Widodo (Fiscal Policy Agency), Sarah Dong (ANU Indonesia Project) and Nguyen Hieu (ANU) discussed their researches. Dr. Lewis discussed the problems with political fragmentations. He argued that political fragmentations of DPRDs led to less spending on capital goods, declining service access, and weaker fiscal management. The policy implications include limiting electoral thresholds at the local level, resisting the pressures to increase the number of DPRD seats, and enforcing party and campaign finance rules. In his presentation, Mr. Widodo provided a detailed overview of the regional fiscal policy framework. Next, Dr. Dong argued that the design of transfer policies should take intra-household distributional effects, especially between men and women, into account. Finally, Ms. Nguyen discussed the disappointing results from her study on the effectiveness the 1994 compulsory schooling requirement and the 2002 spending obligation for education.