REGIONAL DEVELOPMENT FUNDS
Indonesian development divided into sectoral and regional development approaches. Each of that approach has different sources of development funds. Sectoral development use sectoral expenditures for financing sectoral projects which is done by each of sectoral department. The other one is regional development which is financed from its own-source and from central government sources. Financing regional development in Indonesia, which consists of 27 first level of regional governments (provinces), 304 second level of regional governments (kabupatens) and around 65.000 villages, is not easy. Due to the difference of natural resources which is owned by each region and the lack of regional government own-source revenues, central government has transfered some funds to regional government for development finance. There are three sources of regional development funds which consist of otonomous regional subsidies, regional development grants and regional development account.
Otonomous regional subsidies is chanelled from central government to regional government as an otonomous region (province and kabupaten) for routine expenses. Otonomous regional subsidies is one of the consequences of desentralisation concept that we attentive to and also due to the lack of regional government finance capability. Ninety percent of this fund goes to employee wages such as teacher's, physician's, nurse's and others who are most located in remote areas, and the rest are for official stuff, official trips and others. This fund's alocation is based on the real amount of regional government needs such as the number of employee.
Another regional development fund is regional development grants which are also known as Inpres funds. One of the objectives of regional development grants is for distribute development's yields. Regional development grants are funds from central government to regional government which are divided into block grants and specific grants. The block grants are funds that can be used for all of the development sectors in appropriate with regional government needs and conditions. They are consist of provincial grant, kabupaten grant, and village grant which are chanelled to each of province, kabupaten and village respectively. There are some criteria which are used for the grants' alocation to each regional government such as the wide of region area, the number of population, the number of island, the length of road and irrigation duct, the wide of reforestation area, and the number of subdistrict. Furthermore, there are also specific grants which are used in accordance with national sectoral targets. Usually, regional government only as a project implementer so that it can not be adjusted with regional needs and conditions. The specific grants consist of elementary education grant and health infrastructure grant which are channelled to kabupaten; and poverty alleviation grant which amount is twenty million rupiahs channelled to each of indicated poor villages. The criteria which are used for specific grants alocation are the number of infrustructures needed such as the number of schools, pupils, teachers, textbooks, community health center (puskesmas), and medical stuff.
The last one is regional development account which has slight difference form those already mentioned above. The objectives of this fund are to decrease regional government reliance on central government grants, to increase the level of regional own-source revenues, and to increase regional government responsibility. The regional development account is a lending facility to finance development investments by regional government and regional enterprises. It has operated as a mechanism to channel funds from various sources, including the central government and foreign donor agencies, to infrastructure projects of the regional government (province and kabupaten). This fund is usually used for urban infrastucture investments that have long-term benefits and provitable.