Conditional Grants

Conditional grant transfer programs are being implemented internationally as a new approach to assistance in solving social problems. These programs are intended to reduce current poverty levels and to support the development of society by stimulating investment in various sectors of basic needs, such as health, education and nutrition (Behrman, Gallardo-Garcia, Parker, Todd, & Velez-Grajales, 2012). Conditional grants can be referred to as specific, earmarked, categorical, restrictive, or selective grants (Boadway & Shah, 2007; Smart & Bird, 2009).

Conditional grants are intergovernmental grants from the national government to its lower level governments with certain reporting and purchasing requirements (Chen et al., 2014, p. 2). The local government that receives conditional grants is bound to spend the funds for predefined services or functions as required by specific regulations and standards. The local government must obey the regulations and report to central government after using the grants. These grants are mainly intended to

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encourage local governments in the rigorous implementation of specific programs or activities. The conditional grants can be regular, mandatory, discretionary or ad hoc (Boadway & Shah, 2009; Shah, 2006).

Mandatory grants (entitlements) are legal, regulation-based obligations for the government that issues the grants (Bergvall et al., 2006, p. 6). If not issued, the local government has the right to appeal to a court or administrative judicial authority in order to obtain the grants/funds. Most intergovernmental grants transferred to a local government on a regular basis are mandatory (Bergvall et al., 2006). The regulations bind the central government to transfer funds regularly, regardless of its own financial situation. Meanwhile, the law also binds the local government to spend the funds in the manner prescribed by the regulations.

2.7.2Unconditional Grants

In contrast to conditional grants, unconditional grants are issued by the central government as general budget to support the local government(s) without any regulatory requirements attached. These grants are intended to preserve local autonomy and enhance inter-jurisdictional equity (Boadway & Shah, 2009). This implies that an unconditional grant does not demand any particular behaviour on the part of the recipients (Osterkamp, 2014). These grants can be used by local government for any purpose, including funding unanticipated programs, such as programs for the benefit of the elderly or households affected by natural disaster. Most local governments prefer to receive unconditional grants due to the flexibility they provide, in order to achieve their own objectives.

However, unconditional grants often provide poor incentives for local governments with respect to raising their own-source revenue, which affects their accountability to their citizens (Caldeira & Rota-Graziosi, 2013). In this sense, the local government may rely heavily on the grants and reduce the commitments of the local political rulers towards implementing strategic policies towards producing their own revenue. If any emergency contingency situation arises locally, such as earthquake or flood, the local government may not worry at all because the

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unconditional grants can be transferred whenever required. Such grants can also be decided on an ad hoc or discretionary basis by the central government.

Intensive and regular monitoring of such unconditional grants to the grantee becomes essential due to the flexibility they provide the receiver because of the absence of central regulations in terms of usage (GAO, 2001). Without systematic, perpetual and strong supervision, the grants are prone to be misused by the local government elites. Yilmaz et al. (2008b) recommend the implementation of strong control systems as a safeguard against any abuse, misuse or fraud in these unconditional funds. Previous studies (e.g. Bird & Wallich, 1993; Heredia-Ortiz & Rider, 2005) highlight the misuse of such intergovernmental transfers by local elites, who can use these transfers for their own vested interest, such as sustaining their power within local government.

2.8Conclusion

Chapter 2 has drawn from theoretical concepts in the literature dealing with politics and the three elements of power, order and justice to clarify the concept and various categories of elites. The focus was on how the politics of patronage can be used by elites to influence and control local government, decentralisation processes and, in particular, intergovernmental financial transfer from central to provincial levels of government. The theoretical frameworks covered in the chapter inform the data analysis in later chapters (5, 6, 7 and 8), and provides a basis for understanding how local elites emerged within East Kalimantan and how they continue to maintain their power and influence in the province. The literature dealing with the politics of patronage, in particular, sheds light on how local elites in East Kalimantan were able to establish and maintain certain patterns of interpersonal relations with others that can be characterised as patron–client relations, and why citizens who were not part of these arrangements were denied equal access to the benefits derived from intergovernmental financial transfer. Based on the theoretical insights derived from the literature, the following chapter discusses the methodology for the research in terms of the research paradigm, data gathering and data analysis.

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CHAPTER 3

METHODOLOGY

3.1Introduction

Chapter 2 reviewed the literature, particularly the theoretical literature, relevant to this research exploring the role of elites and the politics of patronage in relation to intergovernmental financial transfer in Indonesia. As outlined in this chapter, to understand the role of elites in the context of a system of patronage, the study adopted a qualitative case study approach, focusing on the interaction of local government officials, local members of parliament, NGO leaders, academics, and business, religious and ethnic elites. As outlined below, the study design broadly followed the steps proposed by Corbin and Strauss (1998) and Harding (1987), who argued that a qualitative case study is an appropriate way to undertake this kind of research.

Central to the case study methodology was the use of individual interviews to answer the research questions posed in Chapter 1. The interviews were tape-recorded and transcribed, and the responses entered into Nvivo version 10.6 and analysed according to the themes that emerged. This was followed up with various other forms of communication, such as email and telephone conversation, and website searches. The study also included analysis of East Kalimantan budget documents, Medium Term Regional Development Plans/Rencana Pembangunan Jangka Menengah (RPJMD) and other relevant documents. These techniques were systematically employed in order to obtain accurate research results (Cresswell, 2009; Fossey, Harvey, McDermott, & Davidson, 2002) likely to be accepted as valid and reliable by the wider East Kalimantan community. Community acceptance has been an important consideration, as a primary motivation for the research has been not only to arrive at valid conclusions but also to persuade East Kalimantan stakeholders as to the desirability of certain systemic changes in intergovernmental transfers and decentralisation.

56 3.2Research Design

The study’s research plan is outlined in Figure 3.1, which reflects the research stages connecting the literature review, the empirical data gathering process and the analysis of that data. The main empirical component of this research is an interpretive case study, with the case of East Kalimantan enabling an understanding of the roles of local elites in using the politics of patronage to control intergovernmental financial transfer more generally in Indonesia.

Figure 3.1 Research Design

Figure 3.1 shows how this study connects the various processes that came together to answer the research questions posed in Chapter 1. Semi-structured interviews with 36 interviewees during two field visits with follow-up telephone and email contact generated the data required to answer the research questions. The data was coded in

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three stages—initial, open and selective—and then analysed using NVivo to arrive at the findings.