THE EAST KALIMANTAN EXPENDITURE BUDGET AND ITS IMPACT ON HUMAN DEVELOPMENT INDEX
The radical changes regard to the policy of decentralisation has been implemented in Indonesia since the 1 st of January 2001. By designing this policy, Indonesia was to change the formulation of economic resources movement between the Central and provincial governments in Indonesia. This project aims to explore the relationships between the Central and provincial governments in Indonesia, specifically in the economic interchange field. In particular, the thesis focuses on how the flow of funds between the Central government and East Kalimantan provincial government occurs and how the flow of funds in terms of a provincial budget from the Central Government to East Kalimantan province takes place and in what way the East Kalimantan province"s provincial budget and decentralisation policy impacted on the province"s economic growth and human development. Based on the premise that fiscal decentralisation formulation and its implementation were designed to improve the province"s Human Development Index (HDI) of the East Kalimantan provinces. The HDI was found to have a significantly increasing trend during 1990 2007, but there is no significant structural break in HDI due to decentralisation. The teacher/student ratio does not have a significant trend but has a significant positive structural break due to decentralisation suggesting that the values of this variable are, on average, higher during the decentralisation era than in centralisation era. Doctors per 1000 of population have a significantly decreasing trend with no significant structural break due to decentralisation. The HDI (human development index) regression estimated using data for the period 1990 2007 found that the budget real expenditures during both the centralisation period and during the decentralisation period have had a significant and positive impact on East Kalimantan province"s human development index (HDI) However, the magnitude of the impact of budget real expenditure on East Kalimantan"s HDI during both the decentralisation period and the centralisation period are similar. The estimated elasticity of HDI with respect to budget real expenditure during both the centralisation period and the decentralisation period is 0.013, implying that an increase of 1 per cent in budget real expenditure, ceteris paribus, results in a 0.013 per cent increase in HDI. There is a need for the design and implementation of appropriate policies and programs to enhance government expenditure, domestic and foreign investment, employment and work opportunities, and exports of East Kalimantan province so that the province"s GDP can be increased faster and at higher rates. There is also a need to improve doctor/population ratio and health facilities of East Kalimantan. This, together with enhanced life expectancy, educational facilities, literacy, and GDP growth will improve the human development index (HDI) of East Kalimantan province.