A Regulatory Analysis of the Special Allocation Fund (DAK) and Horizontal Equalization in Indonesia

This chapter examines the regulatory arrangements implemented by the Republic of Indonesia governing intergovernmental fiscal arrangements relating to specific funding allocations. The Specific Allocation Fund (DAK) is a statutorily created and governed policy instrument enabling the central government to make specific fiscal transfers to regional and district governments that qualify for horizontal equalization assistance. The question that forms the basis of this chapter is whether the measures implemented to achieve DAK policy objectives constitute a coherent and operationally effective regulatory scheme. The mechanics and operational well functioning of the regulatory scheme are analyzed by examining the regulatory coherence of the statutory arrangements underlying the DAK. An outcome of this analysis includes consideration of the benefits of creating of a special administrative body to improve the functioning of the regulatory scheme.