Should Indonesia establish a legislative budget office?

Indonesia might benefit from having a Legislative Budget Office (LBO). www.shutterstock.com

Indonesia needs a new type of government office to manage the competing interests of its fast growing economy. Creating a legislative budget office would introduce more transparency in the budget process.

A legislative budget office is an office of economists and budget experts that is attached to, but separate from, the government. Their job is to give advice and analysis to parliamentarians on key issues related to the budget.

According to the largest budget transparency database, the International Budget Partnership, Indonesia does a fairly good job of creating transparent mechanisms in the budget process. However there is still room for improving; overall Indonesia’s ranking is 59 out of 100.

This ranking is somewhere in the middle for countries in the Asia Pacific region, with New Zealand (ranked 88) and Philippines (ranked 64) ranking higher and Malaysia (ranked 46) and Thailand (ranking 42) ranking lower.

Indonesia’s assessment by the International Budget Partnership clearly states that the country would benefit from a legislative budget office.

There are also local considerations that are very important. Indonesia represents a large economy with enormous potential for economic growth, but this also means that it must have a strategy around its budget priorities to reflect competing, and sometimes conflicting, goals.

In recent times, issues such as tax reform and subsidy transfer payments have come to the forefront in Jakarta. But while these are complex economic issues, they are also delicate political ones too.

This is why a objective analysis by a legislative budget office would be particularly helpful in separating the political considerations from the economic ones.

What a legislative budget office does

Having an independent office brings a degree of impartiality and analytic rigour into the budget process. The usual state machinery for budgeting in most countries includes Treasuries or Ministries of Finance working closely with the elected government, which tends to increase the risk of partisanship in budgeting.

A legislative budget office helps to counteract this by presenting an independent “second data point.” So these offices increase the level of transparency and accountability in the budget process.

More than 60 countries already have an office like this one at the national-level, and many provincial and state governments are looking into this idea as well. In the future, budget offices with power or influence that transcends national boundaries or governments, such as one for the entire European Union, may also become important.

Some of Indonesia’s neighbours, including Australia, have been pioneers in implementing legislative budget offices to help fix their budget process.

What would the legislative budget office in Jakarta need?

Helping legislators improve their budget oversight capabilities is one thing, the actual implementation of such an office is quite another. As emerging research shows, in practice legislative budget offices tend to have quite a difficult time implementing their work.

Therefore, there are several key ingredients that an Indonesian legislative budget office would need in order to be effective from an early stage.

Jakarta’s legislative budget office would need to be granted “statutory independence”, meaning that it should have a formally endorsed independence in some body of law (as in Australia’s Charter of Budget Honesty). It would need a mandate to publish its findings openly, so that the wider public can be informed of the costs of policy, and thus be better engaged in budgeting.

It also needs the authorisation from others in the budget process, including the conferral of legitimacy from the government. Without this, much of the work of the legislative budget office that politicians may disagree with might be rejected, even if it is more accurate.

It may also require Memoranda of Understanding with government ministries to have access to the relevant budgetary information.

These sorts of offices can also benefit from cooperation and mentorship from other similar offices around the world, such as through the Global Network of Parliamentary Budget Offices.

The Indonesian legislative budget office will require three important internal resources: able leadership, capable staff, and sufficient funding.

Leadership is a key element in the success of legislative budget offices around the world, insofar as leaders can maintain a objective, professional, motivated, and politically astute approach. Sufficient funding and capable staff are necessary to engage in the actual exercise of rigorous budget analysis.

Limitations of a legislative budget office

Despite its appeal, the legislative budget office is not the be-all-end-all of budget reform, and there are inherent limitations to what it can accomplish.

One limitation is that it’s inherently difficult to measure the “success” of an legislative budget office. Experts continue to deliberate on how to measure the value that legislative budget offices create.

Even then the office can be constrained by politicians who won’t allow it to make the relevant impact in the budget process. Sometimes governments might actually try to stop legislative budget offices from working.

There is also a need for strong accountability for legislative budget offices themselves, because they can be vulnerable to internal corruption and self-sabotage. For example in Uganda it was the head of the legislative budget office itself who was charged with 3 counts of embezzlement, false accounting, and theft, for which he is serving sentences at present.

In general, legislative budget offices end up fighting a hard battle to earn legitimacy over time and to manoeuvre around political obstacles and demonstrate a track-record of serious, rigorous, nonpartisan analysis.

Nonetheless, a legislative budget office in Indonesia, so long as it works hard to develop a reputation of non-partisanship and strong analysis, can make significant contributions to the budget process.

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