Regional Distribution Of Development Grants In Indonesia'S Water Supply Sector

Over successive five†year development plans, Indonesia has channeled large sums of foreign loans and domestic funds into water supply projects with the aim of providing clean water for a majority of households. Most projects have been planned and financed through the central government's public works ministry, though a growing share of rural water projects are being funded through earmarked grants provided to local governments. This paper examines how these central government transfers, in the aggregate, have responded to various indicators of expenditure needs. Overall, past allocations have matched existing demand and supply levels closely–funding has generally favored provinces with large populations, large numbers of water enterprises, extensive distribution networks in place, and high production capacity. They have not, however, worked in favor of either equalization or economic productivity objectives, as reflected by per capita income or GRDP growth rates. This analysis suggests that equity would be promoted either by including income†related factors in future block grant allocation formulas or by shifting funding emphasis in the water supply sector from grants†in†kind controlled by the central government to sectoral grants controlled mainly at the local level. Such policy reforms would also further promote the nation's professed goal of decentralizing infrastructure development.