Maxensius Tri Sambodo goes local and looks at the potential impact of the village fund on Jokowi’s presidency.

The village fund was a point of contest during the election campaign. Prabowo famously promised 1 billion rupiah per village, while Jokowi topped him with a promise of Rp 1.4 billion. Can Jokowi really come through with his election promises?

Understanding the Village Fund (DD)
On 15 January 2014, the Indonesian President, Susilo Bambang Yudhoyono signed the Village Law (Undang-Undang Desa) No 6/2014. This is the first law that specifically regulates villages, rather than local government (Law No. 32/2004). The village law renders inapplicable articles 200-216 of the local government law.

One of the main differences between the two laws is an article on rural revenue (see table below). In essence, the Village Law entitles villages to extra revenue from the central government known as the village fund (Dana Desa/DD).


The allocation of the village fund will vary across villages. According to the drafted government regulation, DD will be calculated on certain criteria such as population, poverty, village size, and location. The regulation also stipulates that the DD cannot be used to finance the monthly salary for the village head. The central government thinks that with these stipulations, the village fund will be fairer and more equitable.

Government Regulation (No 43/2014) on the implementation of DD, specifies that 70 per cent of village spending needs to be allocated to poverty eradication, health and education, infrastructure, and supporting agricultural programs. The other 30 per cent can be used for salaries, operational, assistance and incentives.The DD aims to provide a single window for all central government programs for rural development. This is because many ministries have their own program for rural development, funded mainly through the special allocation fund (Dana Alokasi Khusus/DAK). DAK projects fund important things like education, health, roads, irrigation, drinking water, and rural energy. However, not all villages get the DAK. It’s a huge task identify all rural development expenditures by ministries (and non-ministries) with the aim of reclassifying them as DD.

But DD is not the only central government transfer to the village. The law allows for a second fund, called ADD or the village fund allocation (Aloksi Dana Desa /ADD) – an allocation by the mayor or the regent. So, village revenue will mostly come from these two sources, ADD and DD.

ADD is important because it’s partly used to pay for the salaries of the village head and other administrative personnel. To ensure that district/city governments do not cut ADD after the government provides DD, the central government specifies that a least 10 per cent of the general allocation fund to district/city government needs to be allocated for ADD. There are also sanctions for district/city governments that flaunt this: the law allows the central government to reduce city/district allocations if they do not use their ADD as specified.

Disbursement of DD and ADD will bring substantial increases to village revenue. The draft regulation for the new law suggests that the village fund will be 10 per cent of total fiscal transfers to local government (provinces, districts, and municipalities).

This percentage was settled on as an ‘ideal number’ and according to the research summary of the Ministry of Finance on the village fund, DD sums are not going to rocket to the 10 per cent straight away. Instead, sums will gradually head towards 10 per cent in line with the capacity of the national budget. During the transition period, most of the DD won’t be new money, but reallocations of current central government spending on rural based programs such as DAK.

So how much will each village get? The answer is simple; 10 per cent of total central government transfers divided by the number of villages. The Ministry of Finance puts the number at 72,994 villages. Looking at the 2014 national budget, the total transfer was Rp 592.6 trillion which increased to Rp 596.6 trillion in the revised budget. Presuming the number of villages remains the same, the total sum for each village is about Rp 817.3 million per village per year. This figure is different from Prabowo and Jokowi’s campaign estimates that said Rp 1 billion and Rp 1.4 billion for each village per year respectively. This is because in their calculations they add the ADD component.

Rural Base Program: empirical evidence from Manggarai District, Nusa Tenggara Timur Province
There are two challenges that the government needs to address before rolling out the village fund. Firstly is the considerable overlap between rural based projects. Secondly, how to capitalize on the lessons learned from the National Community Empowerment Program for Villages or PNPM Perdesaan. PNPM is been widely regarded as a model for the full implementation of the DD.

Avoiding Predatory Programs
Currently, village revenue is mostly made up of revenue from district/city and provincial governments through ADD. Some villages get DAK. The allocation of DAK goes first to the district/city bank accounts before it is allocated to villages. The central government regulates what DAK can be spent on such as education, health, infrastructure, agriculture, electricity, and so on.

Legislation also specifies that district/city governments need to allocate a certain amount of funds as a complement to DAK. For example, in 2014, the district ofManggarai got a DAK of about Rp 84.9 billion and a further Rp 3 billion was allocated to support the rural electrification program. Local government had to contribute a further 10% from its own budget to support this program. So in Manggarai, the total budget for the rural electrification program was about Rp 3,3 billion Rupiah. Mostly rural electrification program is used to develop solar panel systems, collectively and for individual homes.

However, only few households felt the benefits of this program. People in the village asked, why did our neighbours get electricity and we not, and when will it be our turn, or why we have to pay to obtain electricity while others obtain for free? As a result people in the village began to perceive the program differently. Another problem was in maintaining the complicated solar panel devices and the challenge of obtaining the spare parts. So many solar panels were broken. As a result poor families were only electrified for a short period. Then, they returned to purchasing kerosene.

The main reason why the rural electrification program experienced these problems was because the program was designed and implemented by different agencies at local level. The rural electrification program involved the department for Mining and Energy, Village Community Empowerment, Cooperative and Small Medium Enterprises, electricity state owned company (PLN) and under PNPM Perdesaan. Each of these ministries developed their own similar program for rural electrification because they thought it was a national priority.

This overlap created bureaucratic competition and predation. For instance, PLN’s solar panel program was in competition with the Ministry of Energy and Mineral Resources’ solar home system/SHS. SHS was given free of charge, while PLN charged people a monthly fee for SEHEN. If a neighbour subscribing to SEHEN got wind that her neighbour on SHS was paying nothing, she’d also refuse to pay. The effect was that the SEHEN program in Manggarai district was temporarily terminated due to fees owning to the tune of about Rp 1 billion.

Although the SHS program was free, it had its own costs. Maintenance for instance, was up to the homeowner herself. (PLN’s doomed SEHEN program did include maintenance, hence the service charges). Subscribers to the SHS program were not given information on maintaining the solar panels. Worse the equipment was poor quality, so the panels only worked for a short while. The SHS program was ultimately unsustainable.

Current rural development programs lack centralised organisation and control, which means that agencies often operate independently and without coordination. The Village Law observes that program monitoring should be the responsibility of the governor (head of province), the regent or the mayor to be delegated to technical agency at local level (Dinas) but clearly a monitoring and supervision program, attached to a set of sanctions and rewards, needs to be coordinated amongst numerous agencies and at different

The new Village Law took something of the spirit of PNPM, which aims to develop participation from local community and to promote a system of checks and balances. PNPM has been lauded for its well-established framework and institutions. I saw that the PNPM village program had more projects in Manggarai district than non-PNPM projects. During my visit to one of villages in Manggarai district, I found workers busily constructing schools. This project is funded by the PNPM Village (Perdesaan) with a budget of about Rp 356.3 million.

Following PNPM’s National Working Meeting in June 2014, Vice President Boediono claimed that ‘PNPM Indonesia has a good reputation as one of the most successful poverty alleviation programs in the world’. The 2015 budget has a continuing allocation for PNPM. So PNPM will continue despite the village law. And yet, PNPM doesn’t have the legal standing of the village fund. It’s not clear how the government intends to coordinate between the DD and the PNPM budgets.

There’s no doubt that PNPM is a major driver of village development and ideally, village heads should utilise existing PNPM mechanisms rather than setting up new institutions to execute the village fund. However, developing the capacity of village administrative skill is also important. This won’t be easy. In Manggerai about 74 per cent of village heads finished high school while 13% graduated only from junior high school. Village heads are also older. About 29 per cent of village heads were aged between 40 and 45 years old. Forty-seven per cent were above 45. Building capacity in the new law and regulations will have to take into account the low education rates and older age of village heads.

Heads of villages are excited about the future of DD, but anxious about its responsibilities. They worry that too many funds can bring more corruption to the village, particularly in infrastructure projects where inflated budgets are common. Similarly, they worry that too much money without the proper administration to manage will increase social tensions. Even a simple project like Raskin (rice for the poor) heightens tensions in the village.

Way forward
The village fund has the potential to bring new opportunities to finance village development and in turn the chance of improving infrastructure that will lead to better living standards. However experience shows that rural based programs funded by the central government have a spotty record. Overlap, lack of coordination and institutional rivalries leading to major implementation flaws are all challenges. A bigger challenge will be how to develop effective communication across increasing layers of governance – the province, district/municipalities, and village – and different layers of competence.

The risk is great that more money to villages do little for rural development, bar inciting opportunistic behaviour amongst village elites. Critical to its success is a gradual increase in funds married with developing administrative capacity. A reward and punishment system needs to be developed as well as a collective monitoring mechanism between the various layers of government and villagers the fund is meant to serve.

Maxensius Tri Sambodo is a Visiting Fellow at the Institute of Southeast Asian Studies (ISEAS) and a researcher at Indonesian Institute of Sciences (LIPI).