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RR RUEHCHI RUEHCN RUEHHM
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FM AMEMBASSY JAKARTA
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RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHDC
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UNCLAS SECTION 01 OF 02 JAKARTA 000397 
 
SIPDIS 
 
SIPDIS 
 
 
DEPT FOR EAP/MTS AND EAP/RSP KIM ARCHEA AND AMIT MATHUR 
DEPT FOR EEB/IFD/OMA ANDREW SNOW AND RICHARD FIGUEROA 
TREASURY FOR IA-SETH SEARLS 
SINGAPORE FOR SUSAN BAKER 
COMMERCE FOR 4430-BERLINGUETTE 
DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR FINEMAN 
DEPARTMENT PASS EXIM BANK 
 
E.O. 12598: N/A 
TAGS: EFIN ECON EAID PREL PGOV ID
SUBJECT: INDONESIA FISCAL TRANSPARENCY FOR CONGRESSIONALLY MANDATED 
REPORT 
 
REF: STATE 16737 
 
¶1. (U) This cable responds to reftel request for an update on fiscal 
transparency and accountability of countries receiving USG 
assistance. 
 
¶2. (U) The Government of Indonesia (GOI) has achieved major 
accomplishments in maintaining macroeconomic stability and 
restructuring of the financial sector.  GOI has worked directly with 
the IMF, notably producing a September 2003 White Paper that has 
guided reforms.  In 2003-2004, the Indonesian Parliament enacted 
State Finance Law 19/2003, Treasury Law 1/2004, and the State Audit 
Law 15/2004.  These laws aim to improve fiscal responsibility at the 
national and local government levels.  These reforms are supported 
by reorganizations within the Ministry of Finance (MOF), 
specifically a more solid treasury management system.  A set of 
three tax law amendments have been under discussion in Parliament 
since September 2005.  Parliament finally approved the Law on 
General Tax Rules and Procedures in June 2007.  The other two draft 
tax law amendments, on Value Added Tax (VAT) and income tax, remain 
in Parliament. 
 
Treasury and Public Accounts 
---------------------------- 
 
¶3. (U) The Treasury Law provided a legal basis for the 
rationalization of government bank accounts.  Thousands of the 
accounts, prior to the Asian financial crisis, were opened in the 
GOI's name by ministries.  These accounts were outside the control 
of the MOF's Directorate General (DG) of the Treasury.  An external 
audit report called for greater clarity in the central government's 
financial accounts.  The GOI consolidated government bank accounts 
to improve transparency to address this issue.  New regulations were 
adopted in July 2007 that permitted the Finance Minister to bring 
all government bank accounts under Treasury control.  Short-term 
cash planning in DG Treasury and an integrated cash and debt 
management, however, are still undergoing reform. 
 
¶4. (U) An IMF study highlights the 2003-2004 laws for financial 
management as major steps towards improving the clarity of roles and 
responsibilities for increased transparency and accountability. 
However, significant quasi-fiscal and extra-budgetary activities, 
particularly with state-owned enterprises (SOEs), are not covered in 
the fiscal data.  Progress in treasury reforms and improving 
accounting include strengthening the open budget preparation, 
execution, and reporting process.  However, coverage of explicit and 
implicit fiscal risks is not comprehensive.  The internal audit 
function is also in need of strengthening and rationalization. 
Delay in the sub-national reporting system is an area of weakness 
that needs continuing coordinated action.  Approximately 30% of 
Indonesia's budget is now the responsibility of provincial, regency 
and city and local governments, which have varying levels of 
capacity in budget implementation and monitoring.  In an October 
2007 report, the Indonesian Supreme Audit Board (BPK) reported that 
only 362 of 467 local governments submitted financial reports to the 
BPK for fiscal year 2006. 
 
Budget Information Publicly Available 
------------------------------------- 
 
¶5. (U) Indonesia's central government budget shows good standard 
practices for the public availability of information.  Budget 
statistics, outlining main items of revenues and expenditures, are 
available on the internet at http://www.anggaran.depkeu.go.id/.  The 
lengthy and complicated process of budget formulation and customary 
revisions to the budget makes it difficult for the public to stay 
updated.  In addition to delays in publishing budget reports, 
especially an audited one, lack of reporting on off-budget activity 
is the main area of weakness.  Public disclosure of detailed oil 
revenue flows would also improve transparency.  Regarding 
accountability, the independent status of the Supreme Audit Agency 
(BPK) and the establishment of the Anti-Corruption Commission (KPK) 
represent important institutional reforms, which should be 
strengthened.  Parliament had also become more active in examining 
government performance. 
 
 
JAKARTA 00000397  002 OF 002 
 
 
Ongoing Reforms in Fiscal Management: 
Donor Assistance 
------------------------------------ 
 
¶6. (U) Finance Minister Sri Mulyani Indrawati, the most dynamic 
reformer in the current GOI cabinet, has been strategically using 
bilateral and multilateral assistance to assist in her internal 
reforms at the MOF.  A USAID-funded U.S. Treasury Department Debt 
Advisor is currently in place providing technical assistance to 
support Indrawati's goals of broadening and deepening the variety of 
debt instruments and the investor base.  USAID has also assisted the 
MOF to improve fiscal policies, accelerate public sector debt 
restructuring, and reform tax policies.  Efforts to strengthen the 
public sector debt restructuring process improved capacity and 
implementation of the MOF's policy at the State Asset Management 
Company (PPA) and strengthened the development and implementation of 
the MoF's risk management and restructuring capabilities.  Major 
achievements include the debt restructuring of Garuda and Merpati, 
two of the largest national Indonesian airlines.  USAID and 
Treasury's Office of Technical Assistance (OTA) also coordinate 
effectively with other donors.  AUSAID - the Australian USAID 
equivalent - has advisors at the Fiscal Policy Office, the IMF has 
advisors at MOF's DG Tax, and the World Bank has advisors in several 
MOF directorates under its Government Financial Management and 
Revenue Administration Project (GFM-RAP) program.  Japan also has 
advisors assisting the MOF. 
 
¶7. (SBU) Although the legal and institutional environment has 
improved, it is difficult to make necessary institutional, long-term 
reforms at certain levels.  Many vested interests are at stake.  For 
example, an attempt in 2006 to conduct a census of all government 
bank accounts was met by strong resistance as it was a bold decision 
to re-launch an enquiry.  Remaining weaknesses in GOI fiscal 
operation are mainly due to technical capacity for fiscal policy 
formulation.  However, a lack of political will also impedes further 
reform.  Limited planning capacity in regional government level has 
also caused some budgetary inaccuracies and delayed disbursement. 
 
¶8. (U) The MOF also makes public its fiscal risk assessment report, 
which discusses contingent liabilities not explicitly in the budget 
(e.g. state-owned enterprise debt/losses) and advises the public on 
sensitivity analysis of key budget assumptions (e.g. the oil price). 
 The IMF report on GOI's compliance with standards and codes 
covering fiscal transparency can be found at 
http://www.imf.org/external/pubs/ 
ft/scr/2006/cr06330.pdf. 
 
HUME