National Medium‐Term Development Plan (RPJMN 2010‐2014)

For the implementation of the National Long Term Development Plan, the RPJMN is to be further elaborated into the Annual Government Work Plan (RKP) that will then become the basis for formulating the Draft Government Budget (RAPBN).

Indonesia is in the midst of carving out a new history in order to continue growth and progress. The common ideal of the Indonesian people is to become a grand and advanced nation; a nation that is prosperous, self‐ reliant, democratic and just. More than a decade after the Indonesian people decided to pursue a new path in history - and after being adversely affected by a multidimensional crisis - the country has managed to develop again.

Investment Requirements and Policies on National Development Fund and Utilization

In the context of attaining the development targets, the investment funding policies are directed to ensuring the availability and optimizing of development funds towards development funding self‐reliance. In this regard, the main strategies of development funding are: (1) optimizing of the sources and schemes of existing as well as future development funds, and (2) increasing the quality of development funding sources and schemes.

Total investment of IDR 11,913.2 - 12,462.6 trillion cumulative for five years is needed to attain the average economic growth target of 6.3 ‐ 6.8 percent per year. Out of this total investment required, around 18 percent in 2014 is expected to be provided by the government. Government funding is obtained from tax revenues and non‐tax revenues, originating from grants, foreign financing, and from domestic financing. The remaining investment requirement can be obtained from the business community and from banks, non‐bank financial institutions, capital market (stocks and bonds), foreign funds, retained earnings, and others. The increase in the proportion of investment funds from the business community mainly comes from the PMA (Foreign Direct Investment) and PMDN (Domestic Direct Investment) in line with the more conducive business climate, from the increased capital market in line with the improved regulatory framework and strengthened management of the capital market, and from the increased governance and performance of companies.

In the context of increasing government revenues, the government will continue to develop and improve policies on tax revenues and non‐tax revenues, while still maintaining a conducive investment climate. Meanwhile, for increasing the effectiveness of government expenditures, the following measures are taken:

• Increasing expenditures quality by consolidating the implementation of the MTEF (Medium‐Term Expenditure Framework) and performance based budgeting, through restructuring programs and activities, and formulating accurate and measurable performance indicators.

• Increasing and strengthening planning and budgeting that links the central government through improvements in the RPJMN (National Medium‐Term Development Plan) formulation, Renstra (Strategic Plans of Ministries), RKP (Government Annual Work Plan), RKA‐KL (Budget Allocation Plan of Ministries and Government Agencies), and other instruments. Likewise, the regional governments will improve the formulation of the RPJMD (Regional Medium‐Term Development Plan), Budget Work Plan of Regional Governments, and other policy instruments.

• Formulating more effective budget allocations in attaining targets and placing funding priorities to activities that can multiply domestic economic activities and can create a large number of employment opportunities and support efforts in enhancing public services quality.

• Strengthening monitoring and evaluation in the planning, implementation, and budgeting process.

• Improving the mechanisms for budget administration and budget disbursement into a faster and more accountable one.

The funding procurement from foreign sources, in the form of foreign grants as well as loans (PHLN), must place the importance on Indonesia’s sovereignty, national interest and should increase effectiveness of their utilization in accordance with the national development priorities. Utilization of the PHLN must be viewed not only from the funding point of view, but also as the means for exchanging information and experience in the context of strengthening and improving the national system of planning, budgeting, procurement, monitoring and evaluation and for strengthening the institutional capacity and human resources.

Funding sources through foreign grants can originate from international development partners, countries as well as international institutions and bodies. Even though as a proportion of total government revenues grants are small, it does not entail the risk of having to be repaid. In the context of optimizing the use of grants, the government will continue to enhance the capacity of grant receiving institutions and improve the implementing regulations on government grants management that are more conducive and flexible while still accountable, that can be adjusted to the characteristics of the grant.

Funding sources from foreign loans can be in the form of program loans as well as project loans that originate from multilateral, bilateral, and commercial financial institutions. In view of the increased status of Indonesia as a Middle Lower Income Country (MLIC), Indonesia will no longer be eligible for obtaining very low cost loans from multilateral financial institutions. Therefore, it is necessary that the management of foreign loans is strengthened and their utilization is increasingly optimized.

To reduce the government debt burden, the ratio of government debt will continuously be reduced to 24 percent in 2014, while still maintaining the negative net transfer target. Government debt management will continue to enhance, by increasing the effectiveness of portfolio management, diversification of debt sources, development of safer debt funding schemes, and by risk management of government debt.

In order to increase the utilization of foreign loans and grants quality, steps are taken for:

(i) revising the regulations on the planning and management of the government PHLN (Government Regulation Number 2/2006 on the Procedure for the Loans Procurement and/or Receiving Grants and Forwarding Foreign Loans and/or Grants, and Regulation of the Minister of National Development Planning Number 05 /2006 on Procedure of Planning and Submitting of Proposal and Evaluation of Activities that are Financed from Foreign Loans and/or Grants,

(ii) increasing the quality of planning and capacity for implementation of projects such as through enforcing regulations on project preparedness, sharpening focus in the utilization of the PHLN so as to become more selective for the financing or supporting national priority programs/activities,

(iii) increasing the use of the national system (alignment) and harmonizing development partners’ activities,

(iv) strengthening quality of monitoring and evaluation. The government will continue to increase effectiveness of foreign loans and grants utilization (PHLN) together with development partners by consistently implementing the agenda of the Paris Declaration, that has been further elaborated in the Jakarta Commitment.

Government domestic financing is obtained from banking and non‐banking financing. The important role is that of non‐banking financing, particularly the SBN (Government Securities), the SBSN (State Syariah Securities), and domestic borrowings. The SBN/SBSN are widely sold to financial institutions as well as to the public. To increase efficiency and effectiveness in the management of the SBN/SBSN portfolio, efforts are continued for developing new instruments, strengthening the infrastructure, and coordinating its management.

Domestic loans are obtained through funds from state‐owned banks, domestic private banks, and regional governments. Government financing from domestic debt is not to hamper credit absorption by private sector and is mainly aimed for reducing dependence on foreign commercial loans. In that effort, government policies are prioritized at improving the laws and regulations and at strengthening the capacity of institutions that are related to the procurement of domestic loans. This is directed at strengthening the mechanism for coordinating institutions in the utilization of loans, regarding their planning, implementation, as well as their monitoring and evaluation.

As funding intermediation institutions, banks have an important role in supplying investment funds from public savings. Funding from banks can be through the conventional scheme. In addition, it can also be channeled through non‐bank institutions, such as: financing institutions including infrastructure financing institutions and export financing institutions, insurance institutions, pension fund institutions, mortgage institutions, and capital markets. The potential of these financial institutions need to be directed to the financing of the real sector for stimulating investments. For this purpose, efforts are continued in improving the regulations and policies to support the roles of banks, non‐banks, and the capital market as sources of medium‐term and long‐term funding.

In addition to being the provider of national development funds, the PMDN/PMA (Domestic and Foreign Direct Investment) has an important role as business entities in national development. To increase the PMDN/PMA, the strategy is to improve policies to attain a more conducive investment climate and provide reliable and adequate infrastructure.

The prospective in increasing the national development funding sources can also be made by encouraging and developing development schemes that involve government roles and contributions, business community, and public. Some of the funding schemes that can be utilized are: (i) Public Private Partnership (PPP) scheme; (ii) Corporate Social Responsibility (CSR); and (iii) Donations/Zakat.

The Role of Public Private Partnerships (PPPs) in National Economic Development

The ability of private companies to reduce costs, shorten the procurement period, and manage constructions and facilities more efficiently, have made PPPs capable offering value for money compared to the construction of the same facilities that are managed by the government. To increase the utilization of the PPP scheme, two main steps are carried out, namely optimizing the PPP scheme and increasing the quality of utilizing the PPP scheme.

The steps for optimizing the PPP scheme are made through the following:

• Developing, revising, and harmonizing various sectors as well as regional policies and regulations, for facilitating formation of the PPP, particularly revision of Presidential Regulation Number 67 year 2005 and regulations on the land procurement for construction of public infrastructure.

• Developing laws and regulations for expanding the PPP priority fields other than infrastructure.

Steps for increasing effectiveness of the utilization of the PPP scheme are through the following:

• Compiling the PPP book, that contains the list of government projects that can be implemented through cooperation with private companies at the beginning of each year, according to the government work plan cycle. According to Presidential Instruction Number 5 of 2008, the PPP book is compiled and issued as an effort to create a mechanism for preparing projects that is more integrated with the government budget cycle, transparent and accountable. To optimize private participation in development, it is necessary that the plan for preparing government projects that will be implemented in cooperation with private companies is integrated with the government work plan to subsequently be implemented by ministries and government agencies and by regional government agencies.

• Strengthening the role of the PPP institution for enhancing efficiency in PPP implementation management in compiling the planning strategy and sector priority that will be implemented in cooperation with private companies.

Implementation of CSR by business units that operate in Indonesia has been stipulated in Law Number 40 year 2007 on Limited Corporations. The CSR is then more directed at increasing the consistency of its activities with government programs in supporting national development, including attaining the Millennium Development Goals (MDGs), and efforts for overcoming impacts of climate change. Considering the high potential of the CSR for supporting national development, efforts need to be made to harmonize policies of institutions, companies and government in the process of planning, implementing, and reporting of activities.

Other development funding schemes that continue to develop are instruments that are related to religious activities, such as zakat. Several zakat managing entities have already started to develop zakat management systems in a more professional manner and that also have the potential for supporting government programs. In this regard, such funding sources continue to be encouraged so that it can increase, among others through the strengthening of institutions and management of funds based on religious activities and improvement of its utilization in line with national development.

In addition to the above funding schemes, there are global schemes that have the potential of becoming national development funding sources, such as Carbon Trade, the Clean Development Mechanism (CDM), the Copenhagen Green Climate Fund, and others. In the context of utilizing such funding sources, attempts are made for developing and strengthening policies and institutional capacity that can support the utilization of such funds.