Although various attempts have been made to repair the various regulations and rules, but still there are many concerns about the effectiveness of regulations and rules in creating equitable development results by the government. There are three main functions of government in the development of the other functions of the allocation, distribution and stabilization functions, which support each other and maintain and improve the sustainability of development, therefore, the birth of the regional autonomy law is the embodiment of the three functions, which aims to provide funding to local authorities at the same time, to overcome the limitations of the funds needed for the provision of public services (Musgrave and Musgrave,1993:3-15).
One form of authority and financing local governments will be able to overcome the limitations of development finance authority to make loans given. Although lending area is still controlled by the center or center must consent, but at least the loan is an alternative source of local revenue. According to the Devas (1989; 222) there are three main factors controlled central government borrowing;
- Lending sector as a whole needs to be controlled, because it primarily
deals with monetary policy to rein in inflation;
- In order to avoid local government mired in financial difficulties,
because the loan is used to cover routine expenses;
- The central government wants to keep control of capital expenditure
patterns of local governments.
This difference led to economic progress is uneven across regions, which investments tend to go to areas that are already economically developed and have adequate infrastructure, rather than to the area and the potential of natural resources and limited infrastructure. As a result, the area that has the potential of natural resources but limited infrastructure will be very difficult to develop and explore their potential. According to Santoso (1995:19) said that in the era of globalization, each region will be able to compete between the region to other local governments in improving the sources of funds for regional development.
According to the classical theory of economic growth citing quoting Boediono (1999:9), which was pioneered by Adam Smith in his book "The Wealth of Nations 1776", stated that the sources of growth in national production consists of the growth of labor and capital, improved efficiency in the use of capital by labor through specialization and technological progress and international trade to expand markets. Furthermore, according to Adam Smith in his book "The Wealth of Nations 1776" citing posts Arsyad (1997:51), the greater the stock of capital, the greater the possibility of specialization and division of labor that will increase the productivity per capita, which will produce output. So economic growth shows the extent to which economic activity would generate additional income in a given period.
Based on this theory, because of differences in natural resources and human resources between regions, will cause the difference in growth between regions. For areas with natural resources such as oil and natural gas tends to have a fairly high growth rate (Syafrizal, 1997:27-38).
In general, regional growth policy is the result of a combination of central government policy with local government, but in this case higher government holds power over local government, so that the dominant policy of the central government over local government (Nazara, 1994:19-36). The implications of the policy embodied in the fiscal balance between central and local government, that affect development activities in the area, because there are areas that have the potential of natural resources which is pretty much, but not fully enjoy the results of its resources.
According Devas (1989:179), central and local financial relationship involving the division of responsibilities for carrying out certain activities between levels of government and the distribution of revenue sources to cover expenses due to these activities. The main objective relationship between the center and regions to achieve a balance between the potential and the distribution of resources according to the role played by local government.
Mahi says (2000:56) that to determine the availability of funds among local governments use the principle of regional needs through the distribution functions (affairs) are reflected in the policy of regional autonomy, in which regulates the division of authority between the central government as well as financing and local government.
According Simanjuntak (2000:15) there are two views expressed on the public debt, which has different ideas from each other. Classical flow states, that public borrowing would hinder development, because it is non-productive public spending, while according to the Keynesian school states that public credit can serve as a base amount of money in circulation and can increase productivity, because debt can help to achieve economic transformation in the following way;
- Cover the shortage of human resources and capital in the short term;
- Increasing economic activities Strategic;
- Improving government performances is positively;
- Provide resources that allow carrying out structural reform its economy.
From the second view shows, that the loan can be allowed as long as it is used to cover the shortage of funds and the things that are productive, that can directly generate revenue for the region, such as establishing market, terminals and hotels (Devas, 1989:221). In general, the wisdom to make the loan, a local government policy, but in this case, higher government holds power over local government, for local government loans will be available if approved by the central government. This meant that government borrowing should be arranged on activities that can drive revenue, so the area will be able to pay back loans made. Thus, how much debt do not become a problem area; throughout the region have the ability to pay.
Author: Nataluddin
Economic Developmet "1999"
Gadjah Mada University
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