Public Funds as an Electoral Tool

How does the central government in Indonesia award public funds to local communities and what aspects play a part in this? Economists Prof. Dr. Günter G. Schulze, Gerrit Gonschorek and Bambang Suharnoko Sjahrir from the University of Freiburg investigated this question using a unique data set from more than 400 Indonesian districts for the period 2005 to 2013. “This is the first study into the political factors behind public transfers of money by the central government to the districts of a country that is known for its nepotism in politics,” emphasizes Schulze. The team found that funding was awarded in order to promote the re-election of the president. By contrast, the needs of the population were barely relevant. The study was published in the “Occasional Paper Series” by the Southeast Asian Studies Group at Freiburg.

Indonesia is the fourth-most populated country and since the departure of its long-standing dictator in 1998 also the third-largest democracy in the world. Since 2001 the state has been highly decentralized. The districts are responsible for health care, education, infrastructure and environmental protection, however they have hardly any funds of their own and are therefore heavily reliant on financing from the central government.

The study shows that the distribution of subsidies is influenced less by the needs of the districts, such as rates of poverty, but rather that political interests and re-election strategies play a large part. Consequently, districts that supported the newly-elected president in the elections receive less in subsidies in his first period in office than those that did not support him. The president hopes this will bring better prospects of possible re-election. “Skeptical districts are supposed to be ‘convinced’ by these transfers, while districts with a huge following no longer need to be ‘convinced’,” explains Schulze. As the president of Indonesia can only be re-elected once, this effect is limited to his first period in office. In his second period in office, distribution of public funds, the Freiburg researchers say, has neither a clear political motive nor follows the needs of the districts.

These results, say the team, are explained by the specific features of the political system of Indonesia. “They may also apply to other young democracies in the Global South, but they can’t simply be translated to all developing and emerging countries,” says Schulze. The authors recommend amongst other things that an independent authority should monitor the distribution of central government funding to districts and communities, in order to reduce politically-motivated influences.

Original publication
Gerrit J. Gonschorek, Günther G. Schulze and Bambang Suharnoko Sjahrir (2018): To the ones in need or the ones you need? The Political Economy of Central Discretionary Grants − Empirical Evidence from Indonesia. In: European Journal of Political Economy, published shortly.
Also available as a working paper:
www.southeastasianstudies.uni-freiburg.de/Content/files/occasional-paper-series/op40