Managing Public Health Expenditure in Indonesia

Abstract

Following decentralization in Indonesia there is evidence of a mismatch between spending responsibilities at the local level and local government’s ability to effectively manage resources. This research investigates the relationship between institutional arrangements for public expenditure management (PEM) and inequalities in health outcomes in selected districts of Bengkulu Province, Indonesia. The primary aims of this study are to identify factors contributing to health outcome attainment differences and efficiency determinants. The role of the central government and the own-source capacity of district-level governments in financing health resources are also explained. This research differs from previous works by focusing on the inefficiency of the district-level health sector that is associated with weak PEM systems in order to explain the significant disparity in health outcome attainment within a country, using the new institutional economics (NIE) perspective as a guideline. Mixed methods procedures were adopted: quantitative and qualitative data were collected concurrently. The quantitative study utilized secondary data from data sets of government institutions. A correlational analysis, using the software package SPSS, was applied to assess the relationship between public health expenditure and other determinants with health outcomes at the provincial level. The qualitative study used primary data from in-depth face-to-face interviews with 20 key actors involved in the budget process for the health sector in four district governments of Bengkulu Province. Qualitative data were analysed using the QSR NVivo software program. This study reveals that changes in public health expenditure as a percentage of GRDP and real public health expenditure per capita and other determinants can be important factors behind observed declines in infant and child mortality and increases in life expectancy in Bengkulu Province. Other determinants of health outcomes comprise real GRDP per capita, the percentage of population participation in managed care, the percentage of delivering mothers assisted by health personnel, the ratio of midwives per 100,000 population, and the female literacy rate. The role of central government in financing health resources in the districts studied is also very prominent. These districts rely heavily on the central government and have limited financial capacity. Consequently, district governments have difficulty in performing their functions in the health sector properly because of frequently insufficient and reduced public health spending that originates from the central budget. This study also finds that the inability of institutional arrangements to adopt PEM principles has undermined the efficiency of government intervention in the health sector at district level. Weak institutional arrangements in PEM have had harmful effects on the size, allocation and use of public health expenditure, which contributes to inequalities in health outcome attainment in Bengkulu Province. Such weaknesses include the absence of constructive political engagement, lack of policy clarity, consistency and affordability, the presence of poor predictability, lack of transparency, the presence of poor comprehensiveness and integration and a lack of accountability. District governments also face severe inefficiencies in PEM that are created by delays in the budget approval processes. The introduction of market-based practices in PEM of the district governments studied has been unable to prevent potential opportunistic political behaviour. This has led to failure in reducing or eliminating the costs of negotiating and enforcing political agreements in allocating public resources by policy makers, since the budget can be viewed as a contract. These findings reinforce the criticism that the applicability of the PEM technique is country-specific. Proper institutional arrangements that address an Indonesia-specific context are required for the success of PEM. Using the NIE perspective, the findings support the view that hierarchies as an alternative mode of governance are more appropriate than markets, which cannot reduce transaction costs. Results-oriented cultures of the PEM approach cause difficulty in implementing this approach due to serious measurement problems in the health service.