International Journal of Public Administration

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A Critical Analysis of the Impacts of Financial

Literacy and NPM on Village Funds Initiative in
Indonesia

Harun Harun, Peter Graham, Haryono P. Kamase & Monir Mir

To cite this article: Harun Harun, Peter Graham, Haryono P. Kamase & Monir Mir
(2021) A Critical Analysis of the Impacts of Financial Literacy and NPM on Village Funds
Initiative in Indonesia, International Journal of Public Administration, 44:4, 336-345, DOI:
10.1080/01900692.2020.1722165

To link to this article: https://doi.org/10.1080/01900692.2020.1722165

Published online: 31 Jan 2020.

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INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION
2021, VOL. 44, NO. 4, 336–345
https://doi.org/10.1080/01900692.2020.1722165

A Critical Analysis of the Impacts of Financial Literacy and NPM on Village Funds
Initiative in Indonesia
Harun Haruna, Peter Grahama, Haryono P. Kamaseb, and Monir Mira
a
Canberra Business School, University of Canberra, Canberra, Australia; bDepartment of Accounting, Tadulako University, Palu, Indonesia

ABSTRACT KEYWORDS
Since 1999 the Indonesian government has adopted a more democratic and autonomous political Public sector; corruption;
system to prevent national disintegration and reduce the economic ‘divide’ that has appeared in decentralization; financial
society. To support the policy, the government introduced the Village Funds Initiative in 2014. literacy; Indonesia; NPM
This study examines how the initiative has been ineffective and riddled with problems due to
structural challenges including low financial literacy, complicated budgetary and reporting sys-
tems and corruption. The study reminds policy-makers the dangers of NPM (New Public
Management) ideology which derived from neoliberal philosophy, and subsequently used in
decentralization programs without considering local issues within an individual country.

Introduction
In the last three decades political and economic reforms
throughout the world have been signposted by the
emerging use of market-based principles and decentra-
lization at national and local government levels
(Farazmand, 2017; Gaus, Sultan, & Basri, 2017; Liff,
2014). Equally, the notion of value for money under
the banner of New Public Management (NPM) plays
a central role in formulating budgets, evaluating per-
formance and auditing government entities or agencies.
Essentially, NPM reforms are designed to transform the
existing norms, rules, processes and objectives of bud-
getary and financial management as practised in the
public sector according to certain economic and effi-
ciency principles (Kickert, 2013). The key underlying
concepts of NPM include the use of market principles,
decentralization and the emphasis on efficiency in plan-
ning, operating, reporting and measuring the perfor-
mance of central and local government departments,
schools and hospitals (Pollitt, 1993). However, it is
important to note the outcomes of NPM reforms are
determined or indeed, undermined by circumstances
which include the institutional capacity of public sector
agencies, bureaucratic environment and level of corrup-
tion (Healy & Ramanna, 2013; Islam, Haque, &
Gilchrist, 2017). One of the main challenges faced by
governments everywhere to successfully institutionalize
autonomy policies is the level of education and public
finance literacy. This is because these factors determine
the nature and quality of citizens’ involvement in
policymaking and implementation of government pro-
grams (Chowdhury, 2018; Vitt, 2000).
Since 1999 Indonesia’s political landscape has
experienced rapid and transformative reforms follow-
ing the fall of the authoritarian Suharto regime which
had been in power in since 1965: competitive elections
were held; restrictions on free media and pluralistic
civil society were lifted; independent judicial and law
enforcement institutions were established. These
reforms have been considered a great success story of
democracy’s ‘third wave’ (Gaus et al., 2017;
Huntington, 1991; Lane, 2014; Power, 2018, p. 307).
As well, in 1999, the Indonesian government issued
Law 25 which granted greater autonomy to local gov-
ernment (Blunt, Turner, & Lindroth, 2012). Currently,
Indonesia has a population of over 261 million and is
now a member of the G20 group with GDP of US
$3.492 trillion and per capital income of US$13,163
(IMF, 2018).
The central objective of autonomy in Indonesia is to:
(a) empower the capacity of local governments in pro-
viding better services to the public; and (b) reduce
economic inequality between urban and rural commu-
nities (Law 25/1999). Commentators believe the politi-
cal aim of the policy is to prevent national
disintegration given the rise and persistence of rebel-
lious tendencies in some local regions such as Aceh and
Papua; widespread social discord has been evident since
the collapse of Suharto’s regime (Seymour and Turner,
2002). From 2014, village governments have been

CONTACT Harun Harun Harun.Harun@canberra.edu.au Canberra Business School, University of Canberra, Canberra, Australia.
© 2020 Taylor & Francis Group, LLC

granted more autonomous roles in planning and
undertaking their own programs and policies. This is
reinforced by the issuance of Law 6 on Village
Government in 2014 (Antlöv, Wetterberg, &
Dharmawan, 2016). In support of this move, the gov-
ernment decided to provide village funds totalling
Rupiah (Rp) 1 billion (US$76,000) for every village
each year, which meant funding 74,000 village govern-
ments for the whole of the country. This program was
called “Bantuan Dana Desa” (Village Funds Initiative,
henceforth VFI) and it was launched in 2015 with
a nation-wide allocation of Rp 20,7 trillion. The aim
of VFI is to improve public services in all villages,
alleviate poverty, advance the community’s economy,
overcome inter-village development discrepancies, and
strengthen rural communities so that they can develop
better (Law 6, 2014).
In 2018 alone, the government spent Rp 60 trillion
for VFI and rose to Rp 70 trillion (US$12.42 billion) in
the 2019 national budget (Okezone, 2019). The VFI
program provides substantive additional fiscal
resources for villages to accelerate development pro-
grams and reduce poverty. However, despite the
enhanced roles of village governments and significant
increases in funding provided to them through the
village funds, there is no guarantee the objectives can
be easily achieved. In addition, the extent to which an
autonomy program such as VFI achieves its aims is also
determined by the public’s engagement, including those
people living in disadvantaged areas and their role in
policymaking and implementation of government
development programs (Lele, 2016). Because the for-
mulation of government budgets plays a key role in
modern democracies, citizens’ ability to understand
and effectively scrutinize government budget commit-
ments and how they are delivered is necessary.
However, effective public engagement depends on the
existence of mechanisms to critique, provide meaning-
ful inputs and recommendations in the whole process
of government policy and development processes.
Otherwise, the lack of citizens’ financial literacy will
simply allow existing elites to carry on doing what has
always been done, whereby ruling political parties and
existing oligarchies continue to dominate and decide
government policymaking and programs according to
what they want.
This paper presents a qualitative case study on the
implementation of the VFI in Indonesia. This study
contributes to the literature by demonstrating that
along with the presence of low financial literary, unin-
tended consequences of NPM have excluded local and
indigenous people in helping develop policies, pro-
grams and allocation of public budgets in a new
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 337
democracy, Indonesia. The rest of the paper is orga-
nized as follows: (a) the aims and rationales of the
study; (b) a literature review on financial literacy and
the political role of NPM as critical challenges faced by
a new democracy; (c) methods employed in the study;
(d) findings and discussion; and (e) concluding
remarks.
Aims and rationales of the study
Despite substantive reforms have been carried in the
context of decentralization in Indonesia, limited studies
have been undertaken to critically explore the technical
and administrative aspects of the government’s pro-
grams relating to decentralization, including VFI
(Duncan, 2007; Harun, Mir, Carter, & An, 2019;
Power, 2018). In addition, prior studies on financial
literary and its impacts on government development
programs were focused on developed economies and
scant research in this sense has been undertaken out in
emerging economies such as Indonesia (Davies, 2015;
Vitt, 2000). Reflecting on the above issues the study has
three aims and these are to:
a. examine the key administrative features of VFI
and why it has been implemented in the context
of autonomy in Indonesia;
b. understand structural challenges faced by village
governments in implementing VFI; and
c. provide suggestions to develop an integrated bud-
getary and reporting framework for better
policymaking.
The rationale of this investigation is two-fold. First,
prior literature on the progress made in implementing
autonomy initiatives in emerging economies including
Indonesia have paid little attention to the role of financial
literacy. In fact, the public as a key stakeholder of govern-
ment institutions have political and legal rights to be
involved in making policies and implementing govern-
ment budgets and programs. Prior literature on NPM
models in emerging economies is scant on explaining
the politics and consequences of autonomy programs.
Despite numerous studies being carried out on the nature
and impacts of autonomy in Indonesia (Harun, An, &
Kahar, 2013; Harun et al., 2019; Lele, 2016; Lewi, 2015)
none of these studies have incorporated financial literacy
and how or the extent to which NPM reforms have been
institutionalized at the village level. This study contributes
to the literature by providing further evidence about:
firstly, how and why the autonomy program has been
implemented; secondly, institutional and structural chal-
lenges of the program at the village level; and thirdly, the
338 H. HARUN ET AL.
political impacts of NPM reform in an emerging economy
in Southeast Asia.
A review on critical challenges: low financial
literacy and NPM as a political tool
Along with institutional capacity, bureaucratic environ-
ment and corruption, one of the key challenges faced by
a democracy is the establishment of sound government
policies. In many ways it affects the extent to which a new
democracy sustains and effectively consolidates citizens’
participation in the political process (Lele, 2016; Suzuki &
Han, 2018). Beyond this, the level of education and
financial literacy affects the quality of citizens’ engage-
ment in the whole process of government in delivering
their promises and political commitments (Vitt, 2000). In
this sense, citizens’ financial literacy relates to the public’s
ability “to read, analyse, manage, and communicate
about the personal financial conditions that affect mate-
rial well-being. It includes the ability to discern financial
choices, discuss money and financial issues without (or
despite) discomfort, plan, and respond competently to
life events that affect every day financial decisions,
including events in the general economy” (Vitt, 2000,
p. xii). In the public sector context, a low level of citizen
financial literacy would allow existing elites, old ruling
political parties and existing oligarchies to dominate the
process of governance policymaking and the execution of
government programs. Commentators such as Pinto
(2013) and Davies (2015) highlight that financial educa-
tion for the public is crucial. Bryant (2010, p. 12) states in
stark terms: “if you don’t understand the language of
money, financial literacy, and if you don’t have a bank
account, you are just an economic slave”.
In many ways, low public financial literacy explains
why there have been limited meaningful economic and
political transformations achieved for most people in
developing countries such as South Africa, Bangladesh
and several nations in South America. It is argued, despite
a more democratic political system having been estab-
lished in these countries, that economic development and
improvement in people’s lives has been limited or not
actually occurred (Pillay, 2008; Sarkar, 2006). It is also
suggested that beyond the institutional and cultural chal-
lenges, a low level of public financial literacy has reduced
the quality of local government budgets. The conse-
quences of the lack of financial literacy include but are
not limited to the following (see Davies, 2015; Gibson,
McKenzie, & Rohorua, 2006; Pinto, 2013; Vitt, 2000):
– The lack of public understanding of how specific
budgets are formulated
– The exclusion of indigenous people in the budget
setting process
– The lack of public control and scrutiny in criti-
cally evaluating to what extent public budgets are
allocated against the economic, social and private
needs of local people
– The nature and types of capital spending specifi-
cally constrained by advice from central govern-
ment officials and private consultants.
Along with these consequences, a low level of public
financial literacy particularly in a new democracy is
exacerbated by the “taken for granted view” by policy-
makers leading to the extensive use of NPM-based
rules, technologies and procedures in the public sector
without considering the preparedness of the users for
these models (Schick, 1998). Because local people in
less developed areas have limited access to modern
knowledge and government organizations, the presence
of such technologies deepens the gap between social
and economic development of people in these areas
with those who live in urban areas and cities. In this
respect, the implementation of an autonomy policy or
programs which aims to assist local people in disad-
vantaged areas, ironically strengthens the roles of the
existing elites in central governments in deciding how
budgets and reports should be prepared by local autho-
rities. Therefore, scholars argue that the adoption of
NPM reforms in many developing countries is charac-
terized by a lack of participation of disadvantaged
groups, increased oppression of minorities and simply
increasing corruption (Lee, 2002; Mawdsley & Lewis,
2017; Neu, Everett, Rahaman, & Martinez, 2013).
Meanwhile, more active citizen involvement in public
affairs increases political awareness and interests, which
leads to more pressure on them to perform better in
doing their jobs (Suzuki & Han, 2018).
On the other hand, the dominant role of the elites at
the central government level contradicts decentraliza-
tion and the philosophy of providing opportunities for
local people including indigenous citizens to meaning-
fully engage in the political and policy-making process
involving their local government budgets. It is evident
that decentralization (as part of NPM) is usually imple-
mented along with private sector managerial technolo-
gies such as accrual accounting, performance
measurement systems and other tools. Under NPM-
based models, local and indigenous people are poten-
tially excluded from dialogical processes required in
a democratic governance system for the very essence
of government business: budgetary formulation.
Meanwhile, the ability to comprehend and understand
the strengths and weaknesses of these governance

technologies are beyond the capacity of the general
public (Chua, 1995; Lee, 2002; Mawdsley & Lewis,
2017; Neu et al., 2013). Such a fact drives critical
scholars to suggest NPM practices are not merely con-
structed based on economic principles but may func-
tion as a political tool used to mobilize actions and
move people in certain directions. It is in fact
a strategy for the elites to further advance their own
interests through corruption and other irregularities
(Chua, 1995; Lee, 2002; Mawdsley & Lewis, 2017; Neu
et al., 2013). The next section discusses how this study
was carried out.
Method
This qualitative case study is situated within the
Indonesian public sector at the village level. Drawing
from the work of Yin (1989) and Raciono (1999) this
study aims to examine in depth a phenomenon within
organizations. A case study approach is commonly used
by studies in the public sector because it provides
a deeper understanding of certain phenomena and
how they are played out in organizations (Christensen
& Parker, 2010). To collect the data, we conducted
a two-phase methodology comprising document collec-
tion and analysis, and in-depth case studies. For the
document analysis, we collected and analysed publicly
available, official and research documents in relation to:
(a) the nature of village governance, the reporting and
accountability framework of village funds initiative; and
(b) key problems associated with the reporting and
accountability practice at the village level in Indonesia.
With appropriate ethical clearance, we conducted
field research to observe and shadow the practice of
reporting and accountability mechanisms of village
governance generally and village funds specifically, in
12 villages in Indonesia. The study locations include the
districts of Sleman, Salatiga, Bima, Donggala, Enrekang
and Merauke in different provinces: Jogjakarta, Central
Java, Nusa Tenggara Barat, Central Sulawesi, South
Sulawesi and Papua, respectively. The selection of
these districts aims to represent the diversity of village
governments in key different islands in terms of social,
economic and development indicators as well as lan-
guages and cultural differences of villages throughout
the country. During the visits, we interviewed indivi-
duals engaged in the institutionalization of the VFI
program in Indonesia, ranging from village, district
and national levels. The interviews were carried out to
find relevant information with respect to the aims of
the study. The following issues are the examples of
questions asked to the interviewees:
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 339
– How a program relating to VFI is planned and
implemented in a village
– Institutional problems faced by VFI
– Key technical challenges of VFI programs at vil-
lage level
– How to improve the effectiveness VFI programs
– The expectations of interviewees with respect to
VFI
Our participants included 6 key officials in the national
government ministries which oversee the development
and planning issues of villages. These departments are
the Ministry of Village, Disadvantaged Regions and
Transmigration (MVDRT) and Ministry of Finance
(MOF). The interviews aim to document the perspec-
tives of those involved in national policymaking and
planning the implementation of village funding pro-
grams for the whole country. To deeply understand
how VFI is implemented we also interviewed village
government leaders, village technical staff, relevant dis-
trict government officials (inducing all chief district
leaders in the jurisdictions under study) and other
people involved in the management, implementation,
reporting and evaluation of village funds programs. We
successfully interviewed 61 participants representing
senior officials at the national government level and
those who were responsible for implementing the
VFI program at the village level. The length of the
interviewees ranged from 1 hour to 2 hours. Our
interviewees have been in their current roles from 3
to 20 years. To protect the identities of each partici-
pant, the real names and positions of our intervie-
wees are not revealed. Tables 1 and 2 depict the key
profiles of the villages being analysed and key infor-
mation of the participants interviewed in the study,
respectively.
The information collected from interviews and
document sources were analysed in order to reach the
aims of the study. The information was also system-
atically categorized, coded and labelled in accordance
with the suggestion of Yin (1989).
Table 1. Profile of villages under study.
Village (population) District Province (Island)
Ntori (2,500) Bima Nusa Tengaroa Barat (Sumbawa
Parangina (4,025) Island)
Wani I (2,183) Donggala Sulawesi Tengah (Sulawesi island)
Labuan (3,375)
Tongko (2,850) Enrekang Sulawesi Selatan (Sulawesi island)
Buntu Barana (2,400)
Caturharjo (11,516) Sleman Jogjakarta (Java Island)
Pondowoharjo (16,000)
Jembrak (3000) Salatiga Central Java (Java Island)
Yamuka (200) Merauke Papua (Papua Island)
340 H. HARUN ET AL.

Table 2. Summary of participant information.

Number of participants
National
government
level Village level
Ntori & Labuan & Tongko & Catur Harjo &
Ministry Parangina and Labuan Buntu Barana Pondowoharjo JembRak Yamuka
Role of participant VDRT MOF (Bima) (Donggala) (Enrekang) (Sleman) (Salatiga) (Merauke)
Development and planning officials 3 3
Senior officials at district level 2 3 2 2 2 3
Head of village 2 1 1 1 1 1
Administration staff of village 3 3 3 2 3 3
Representatives of villagers 3 4 3 3 2 2
Total participants 3 3 10 11 9 8 8 9
* MVDRT = Ministry of Village, Disadvantaged Regions and Transmigration (MVDRT), MOF = Ministry of Finance.

Findings and discussion Table 3. Village fund allocation.

The main findings are categorized in line with the three
research questions raised in the study and are explained
in more detail below.
Key features and political context of village
funds initiative
In response to the critiques about the lack of govern-
ment support for mobilizing social and economic
development in rural areas following the collapse of
Suharto’s regime, the central government led by
President Jokowi in 2014 issued Law 6/2014 on
Village Government. The purpose of the law is to
protect the traditional rights of people, organize and
take care of the interests of the local community and
provide the ideal of independence based on the
Republic of Indonesia’s 1945 Constitution (Law 6/
Article 1). To put the law into action, the government
decided to provide village funds totalling Rp 1 billion
nationally, which mean in effect funding 74,000 village
governments. This initiative is meant to provide sub-
stantive fiscal resources for village governments. One
participant at the Ministry of Ministry of Village,
Disadvantaged Regions and Transmigration stated:
One of the intentions of the national government to
launch the program is to reduce poverty at the village
level and remove economic gaps between developed
and less developed areas.
At the implementation level the funding is for village
governments to formulate their budgets and pro-
grams based on certain laws and rules. These rules
also require village authorities to report, monitor and
evaluate their budgets and programs which aim to
ensure that the funding management systems are
transparent and accountable. Village governments
are also responsible to ensure that any programs
and spending are prepared in line with what the
Year Amount (Rupiah)*
2015 20,7 trillion
2016 47 trillion
2017 60 trillion
2018 60 trillion
2019a 186 trillion
* 1 Rp Trillion is similar to $US 76 million (Bank Indonesia, 2019).
a
Budgeted fund.
public wants and are administered in a timely fash-
ion. Table 3 below summarizes the village funds
allocated by the national government from 2015 to
2019 (Ivoox, 2018).
Moreover, the implementation of VFI requires vil-
lage governments to ensure their budgets are consis-
tently formulated in accordance with the frameworks
issued by the central government. These frameworks
include:
– Law 6 (2014)
– Government Regulation 60 (2014)
– Ministry of Home Affairs Regulation 113 (2014)
– Government Regulation 43 (2014)
– Government Regulation 47 (2015)
– Government Regulation 22 (2015)
Added to this, the villages are required to prepare 12
annual reports which include village budgets, general
cash reports, cash flow reports, bank books, and vil-
lage balance sheets issued by the Ministry of Finance
(MOF, 2017). Every village government is also the
subject of administrative and financial regulations
issued by the district government and the province
where the village is located. For example, according
to our interviews the details on how specific funding
allocations for a village in Salatiga District are guided
by a decree issued by two sets of officialdom: one at
Salatiga District and the other based in Central Java
province. This principle applies to all villages through-
out the country.

Structural challenges to VFI implementation
Our study reports several features relating to the insti-
tutional challenges facing the autonomy policy imposed
by the central government through the VFI program.
In this regard we explore and analyse these challenges
to financial management and reporting of village gov-
ernments in institutionalizing an aspect of the auton-
omy program.
Low level of financial literacy
Most of our interviewees representing non-village gov-
ernment officials at the village level argue that villagers
lack a good understanding of the aims of VFI and how
it should reflect the real needs of villages. This reflects
low financial literacy concerning how a village budget
works. In many ways it highlights the discrepancy
between what government supports are needed by vil-
lagers and how the VFI policy formulation has been
articulated at the central government level. It is also
important to note that the problem is exacerbated by
the policies around the VFI and how they have deter-
mined the types of budgets that villagers can allocate.
A planning official in Merauke district states this
situation:
A low level of education and the understanding of
villagers on financial issues on how their aspiration
can be translated into the village budgets is difficult.
Let alone the budgeting system and reporting systems
of the program are set by the central government.
Our participants representing villagers in Merauke
(Papua Island), Enrekang and Donggala (Sulawesi
Island), and Bima (Sumbawa Island) share this opi-
nion. A national newspaper also reports that poor
financial literacy greatly hinders successful implemen-
tation of the VFI (Harian Nasional, 2018). We regard
this fact as reflecting the domination of the central
government in controlling the policy for budget struc-
tures of the VFI, which ultimately prevents villagers
from determining their own budgets. This situation is
very different from those villagers in more developed
areas such as Java Island. The head of a village and
three leading social figures in Jembrak village of
Salatiga District told us the VFI has been effective in
helping develop market and healthcare facilities. They
also stressed that several programs were initiated by the
village residents and supported by the VFI, and subse-
quently led to benefits for the village. The head of the
village states:
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 341
I am happy to tell you the VFI program is helpful in
supporting the economic development of this village.
We decided to develop the facilities in accordance with
the people’s aspirations. And I can see they were quite
active in proposing village programs to fulfil their
wishes.
A similar comment was made by the heads of two
villages in Jogjakarta Province of Java Island with
respect to the benefits of VFI for their communities.
This province is situated on a more developed island
compared to the villages observed in Sulawesi and
Papua. This confirms that villagers in more developed
regions have a better chance of utilizing the VFI pro-
grams to fulfil their aspirations. We argue that this
situation only deepens the gulf between the economic
progress of people on Java Island and those residing in
villages in less developed areas. This outcome is in fact
inconsistent with the aim of decentralization to reduce
the economic gap between different regions throughout
Indonesia.
The lack of coordination and willingness to accept
local values
This study finds that the implementation of VFI is
undermined by the lack of proper coordination
between government institutions and their willingness
to accept local people’s aspirations particularly in less
developed regions. We observe the administrative pro-
cesses required to manage and supervise the VFI over-
whelmingly consume the resources and time of
government officials at the national, local and village
levels. This becomes further complicated because the
police and judicial officers have the authority to super-
vise the management and reporting of VFI funded
programs (Jakarta Post, 2017). In fact, the three aca-
demics we interviewed argue that the police and pro-
secutors assigned to supervise VFI funded programs
did not have a good understanding of the purpose
and management of village funds. Our interviewees
also stress that these officials lack the skills to ensure
that VFI can be used effectively in accordance with the
economic, social and cultural values of villagers. This
raises a question of whether the incorporation of these
agencies has been carefully considered in supervising
the VFI program. Our interviewees in a village in
Enrekang on Sulawesi Island challenged the policy.
One of them said:
The involvement of police has the effect of increasing
fear of using village funds. National and local govern-
ments apply rules that may be appropriate for their
342 H. HARUN ET AL.

bureaucracy, but in fact may not be appropriate for our budget allocation for their local and village govern-
unique and traditional values. In this way the cultures, ments. According to one interviewee:
norms, and values in the village become neglected.
It is very hard for the program (VFI) to be meaningful
Such a statement not only reflects the domination of if the aspirations of these people are not reflected in
the central government in making policies regarding these budgets.
budget structures of the VFI; it also prevents villagers
However, given that the budgetary and reporting fra-
from determining their own budgets in accordance
meworks are regarded as too complex and rigid, this
with the needs of people at the village level. Our parti-
situation deters any meaningful engagement from local
cipants in Enrekang and Donggala (Sulawesi Island)
and indigenous citizens, in shaping how their villages
and in Merauke (Papua Island) share this opinion.
are managed. This point is stated by all the study’s
participants at the village level in Bima and Slamen
Complex and rigid frameworks districts. It is argued that these systems are very com-
plex and incorporate too many rules which still have to
Most participants interviewed at all villages told us that
be complied with. This problem is worsened by the lack
the existing frameworks used to formulate the budgets
of technical skills of village government officials in
and reports of FVI programs are too complicated to
preparing the budgets and reports of VFI programs,
apply. We argue such an arrangement contradicts the
coupled with an overall deficiency of expert human
aim of autonomy for local authorities to determine how
resources working in village governments throughout
local authorities should operate. We also found no
the country. As explained earlier, all villages are
villagers in this study were given the opportunity to
required to deliver twelve reports in order to access
articulate their views on how the contents and types of
the central government funds. Although the intervie-
budgets should be decided on in their own community.
wees in Jembrak in Salatiga and two village in Slamen
This problem indicates the lack of public engagement
on Java assert there are no significant technical issues in
in the formulation of village finance rules and budget-
preparing these reports, the opposite is very much the
ary systems. The head of the village government in
case for the interviewees in less developed areas such
Caturharjo Village (Java Island) states his view on this
Bima, Enrekang and Merauke districts. One interviewee
matter:
in Enrekang says:
It is true. The people in the village did not participate
We see there are potential benefits of the program
at all in the development of the budget and reporting
(VFI), but our aspirations to utilize the money is lim-
systems. We are only able to determine our budget
ited by the rigid administrative requirements we must
allocations of this village based on the templates issued
comply with.
by the central government.
This situation is more prominent in areas located far
Most of the participants in villages in Enrekang and
away from provincial capital cities such as the villages
Donggala districts on Sulawesi Island and from Bima
District on Sumbawa Island support such comments. including Sulawesi, Sumbawa and Papua islands.
A senior official in the Ministry of Finance recognises
A stronger sense demonstrating the lack of public par-
this problem in her statement as follows:
ticipation from indigenous people is very evident in the
Province of Papua, one of the least developed provinces The lack of technical skills is a significant obstacle in
of the country (BPS, 2018). A financial officer of this program. It is a problem particularly in the eastern
Merauke District remarked on this important issue: part of the nation including Papua Province.

Never mind the indigenous Papuans with limited

access to modern education who live in that area
(Yamuka Village), even the officers at the district gov-
ernment level did not participate to determine how the
budgetary systems look.
The head and two residents of a village in the Merauke
district of Papua also share similar concerns. This
emphasizes that meaningful economic and social trans-
formation under the notion of economic development
can only be achieved if the indigenous citizens in the
province are able to provide input in the policy forma-
tion and implementation of both budgetary policy and
Corruption
Although this study does not specifically examine cor-
ruption issues, these constitute a widespread problem
in Indonesia. The persistence of corruption within the
bureaucracy ranges from the national to provincial,
district and village levels. However, most corruption
cases of VFI involve the heads of villages and govern-
ment officials who have been assigned to control the
plans and disbursements of VFI budgets (Kompas,
2018). A recent report by the Indonesia Corruption

Watch (ICW) has found that in recent years the abuse
of village funds has increased. For example, from 2015
to 2018 there were 181 corruption cases that involved
government officials and financial losses totalling Rp
40.6 billion. The officials involved in these cases
included 700 village heads and other government offi-
cials (Tolo, 2019). Three participants from the Ministry
of Finance stated that one of these suspected village
heads is from a village observed in this study, and this
was confirmed by an interviewed village representative.
We believe that one of the contributing factors to this
problem is the lack of proper planning of VFI at the
central government level. The Jakarta Post (2017a) also
reported on this situation:
Alleged corruption related to the use of village funds
has hampered the absorption of the funds in Malang,
East Java, according to reports. […] [Village govern-
ment staff are] still confused about technical matters
related to the use of village funds that should be in line
with existing regulations. […]. Three main problems
had been identified namely delayed disbursement, the
misuse of funds and irregularities.
Ineffective and low-quality infrastructure projects
Another feature that indicates the lack of proper plan-
ning is related to ineffective and low-quality infrastruc-
ture projects caused by how the VFI is implemented.
This is important to note as reflected by our partici-
pants in Enrekang and Merauke, who indicated that
much of the funding was allocated to build new roads
and bridges. This eventually ended up in producing
poor quality projects and infrastructure and impaired
program outcomes as reported by the media in recent
years (Kompas, 2017). This situation confirms Lewis’s
(2015) prediction that decentralizing the political struc-
tures in nearly 74,000 villages for the intention of
improving service delivery, reducing social inequality
and poverty is being hampered by the lack of a clear
plan. One planning official in Bima District states:
One problem that makes the VFI program ineffective is
that a lot of projects wanted by villagers should be
planned and developed by district or provincial
level – but they are not.
This statement is also shared by one financial district
official in Enrekang:
In many village governments just develop a bridge or
other project with very low quality. Sometimes
a building consultant is not involved to plan the
bride, because it is costly.
Similarly, a planning official in Donggala district
commented:
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 343
Some months ago, we constructed a new building for
public utility – it is now collapsed – due to the lack of
proper construction and low quality of materials used
to construct the building.
Policy recommendations
Reflecting upon the findings of this study, the following
recommendations are suggested to improve the quality
of management and effectiveness of VFI programs.
First, the allocation of VFI budgets should be chan-
nelled to provide direct aid for the poorest groups of
people at the village level. This is important to note as
we found in the villages we investigated, many disabled
and sick people do not have the financial capacity to
solve their health issues. Reducing the allocation of VFI
budgets to develop physical facilities that simply help
local business interests will potentially stop or deter
corruption. It is widely reported that most corruption
cases related to VFI are caused by budget mark-ups and
other misuse of funds used for building physical facil-
ities in many villages (Republika, 2019).
Second, the planning, operational and reporting sys-
tems used to manage VFI programs should be simpli-
fied. We suggest the budgeting and reporting VFI
programs should use a cash-based reporting system as
it reduces the complexities of the existing system. In
addition, the cash outflows of VFI programs should be
reported as annual expenses of village governments,
instead of treating these expenses as capital spending.
By reducing the complexities of the existing system,
villages’ administrative staff could be mobilized to facil-
itate local people to plan and formulate their own
programs in accordance with their expectations, social
and economic needs.
Third and finally, it is important to remember that
FVI programs are seen by many people as an ideal
budget policy which can potentially tackle economic
and social problems of villages. What the government
needs to do is to ensure consistent evaluations on the
implementation progress of village funds are carried
out and made enforceable. It is also important for the
government to devise better strategies to make FVI
budget policy more meaningful for village authorities
throughout the nation.
Concluding remarks
After the demise of Suharto’s regime in late 1998, the
Indonesian government introduced a democratic poli-
tical system for the elections of presidents, governors
and parliamentary positions. The country since the
early 2000s has implemented autonomy policies aimed
344 H. HARUN ET AL.
to prevent national disintegration, empower local com-
munities and reduce unequal economic development
that the regions have long experienced. This study
was designed to investigate how the autonomy policy
has been conducted in the form of VFI at the village
level.
With the introduction of VFI from 2014, Indonesian
village governments have been granted more autonomy.
To support this strategy, the central government’s initiative
provides substantive additional fiscal resources for village
governments to accelerate development programs and
reduce poverty. However, as Antlöv et al. (2016) argue
the implementation of decentralization and other initia-
tives such as VFI still face considerable institutional chal-
lenges. Our study finds that low financial literacy is the
main problem faced by VFI and makes its goals difficult if
not impossible to achieve. There is a lack of coordination
and willingness to accept local values in less developed
regions for making policies and specifically what VFI
should fund. Altogether, certain technical and institutional
issues prevent local people in less developed regions to
meaningfully engage in the planning and implementation
processes of development programs. Finally, we find that
the persistence of corruption due to the lack of proper
planning within Indonesia’s bureaucracy and economic
problems present a significant challenge for the allocation
of VFI funding.
From a critical perspective, this study strongly
reveals the power of the neoliberal agenda through
decentralization policies, accounting and budgeting sys-
tems. It very much applies to the implementation of
VFI across more than 74,000 village authorities in
Indonesia. This study contributes to NPM literature
by showing a new insight in which the presence of
low financial literacy and top down NPM-based poli-
cies have undermined the aspiration of local and indi-
genous people the planning and implementation
processes of decentralization programs through VFI in
a new democracy, Indonesia. In many ways this study
reinforces previous analyses that found that the adop-
tion of NPM policies is characterized by a lack of
participation from disadvantaged groups of people,
increased oppression and bullying of minorities in the
workplace (women) and educated minorities (Lee,
2002; Mawdsley & Lewis, 2017) and facilitates corrup-
tion (Neu et al., 2013). Our findings demonstrate that
NPM ideologies further strengthen the continuing
domination of authoritarianism and structures that
support the elites, despite the praise of international
commentators for Indonesia becoming a model of
a new democracy following the demise of Suharto
(Huntington, 1991; Lane, 2014; Power, 2018). Finally,
as this paper indicates, successful implementation of
VFI is limited particularly for reducing the economic
gaps between rich and poor in Indonesian society.
Further research into factors that impact on the suc-
cessful implementation of the program is encouraged.
Acknowledgments
The project has benefited from the financial supports pro-
vided by CPA Australia, The Australian National University’s
Indonesia Project, The University of Canberra (Australia)
and Tadulako University (Indonesia).
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