Balancing financial autonomy and control in agencification. Issues emerging from the Indonesian higher education

• Published date: 08 October 2018
• DOI: https://doi.org/10.1108/IJPSM-10-2017-0272
• Pages: 794-810
• Date: 08 October 2018
• Author: Budi Waluyo
• Subject Matter: Public policy & environmental management,Politics,Public adminstration & management

Balancing financial autonomy

and control in agencification

Issues emerging from the Indonesian

higher education

Budi Waluyo

Department of Financial Management, Polytechnic of State Finance STAN,

Tangerang Selatan, Indonesia

Abstract

Purpose –The purpose of this paper is to explore the practices of financial autonomy and control the

emerging issue of agencification in the higher education sector.

Design/methodology/approach –The practices are investigated using case studies from seven

semi-autonomous state universities in Indonesia. The data were collected through semi-structured interviews

with 17 respondents including university officials, policymakers, and experts. The interview results were

analysed using an inductive-deductive approach.

Findings –This research highlights an unstable balance between financial autonomy and control practices

in the universities. Autonomy supports agencification mainly by simplifying financial procedures and control

is seen by university managers to be overemphasised compared to in the other state universities. Despite

successes in introducing a business-like atmosphere within bureaucratic universities, questions about

balancing financial autonomy and control remain.

Research limitations/implications –The small number of cases implies limited generalisability. The two

characteristics used, size and parent ministries do not represent all university variabilities.

Practical implications –Agencification has become a key reform practice for state universities. Rather

than using a “one size fits all”approach, the government needs a repertoire of models for these institutions.

Originality/value –This study provides empirical evidence of agencification in the higher education sector

with an emphasis on the financial dimension of autonomy and control in a developing country setting.

Keywords Control, Autonomy, Indonesia, Higher education, Agencification

Paper type Research paper

Introduction

The delegation of tasks from government ministries to “arm’slength”agencies has been a

growing phenomenon driven by new public management (NPM) doctrines. The NPM

discourse proposes a separation between policy making or “political”tasks and policy

implementation or “administrative”tasks (Trosa, 1994) and the introduction of business

management techniques into these agencies (Hood, 1991). Therefore, governments across

continents have delegated administrative tasks to semi-autonomous agencies, in a processof

so-called “agencification”(Pollitt and Talbot, 2004).

Agencification fever has been accompanied by a rapidly growing body of scholarly

literature on agencyautonomy and control. Much of the recent literature on these aspects still

focuses on institutional structures (Overman et al., 2014) and human resource s autonomy

(see Bach, 2014).Several studies have discussedfinancial autonomy in the contextsof western

countries(e.g. Barbieri et al., 2013; James et al., 2016; Pollitt et al., 2004; Smullen,2004; Verhoest

et al., 2010). However, little research has been done on the practices of financial autonomy in

agencies from developing country settings. Given that the NPM doctrines are rooted in

western administration assumptions (Schick, 1998), observing agencification in developing

countries is essential to understand how this concept works in different politico-

administrative settings (OECD, 2002). Hence, this study focuses on the financial dimension

of agencification by exploring cases in Indonesia, the most rapidly growing developing

country, where agencification has been adopted in the last ten years (Suwarno, 2015).

International Journal of Public

Sector Management

Vol. 31 No. 7, 2018

pp. 794-810

© Emerald PublishingLimited

0951-3558

DOI 10.1108/IJPSM-10-2017-0272

Received 6 October 2017

Revised 23 January 2018

25 February 2018

Accepted 26 February 2018

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0951-3558.htm

794

IJPSM

31,7

The agencification phenomenon has been taking place in Indonesia since 2005, marked by a

massive adoption of semi-autonomous bodies, so-called Badan Layanan Umum (BLU, in

English: Public Service Agencies). The government has introduced financial autonomy and

control arrangements for the BLU. Details of this reform will be given below. In this country,

agencification has mostly been introduced in education institutions, healthcare services, fund

management, facility management, and other public service providers (Choi, 2016). Among these

agencies, education institutions form the majority (42.4 per cent) and they are dominated by

state universities (Ministry of Finance, 2016). The state universities (hereafter: “universities”)

differ in size and operate under different parent ministries. Universities under the Ministry of

Research Technology and Higher Education (MoRHE) mainly provide general academic

education. Meanwhile, vocational and professional education are primarily provided by

universities under the other ministries (hereafter: “Non-MoRHE”) such as the Ministry of Health.

Thus, there may be considerable variability in relation to this adoption.

Theworkingthesisoftheresearchisthatuniversities, which previously worked in a

bureaucratic way, have been driven to adopt a business-like approach by implementing the new

financial autonomy and control arrangement. Drawing on ideas from principal agent (PA) theory,

this study addresses two questions: how is financial autonomy and control practised in the

context of agencification? And do universities of different sizes with differing higher authorities

share similar or dissimilar perceptions in regard to the practices of financial autonomy and

control? It presents the variations in these practices across seven universities. From this, a key

finding emerges, which is an unstable balance between financial autonomy and control practices.

The autonomy does not cover the whole financial function and the steering mechanism is seen by

university managers as overemphasised. The study reveals that universities of different sizes

and with varying parent ministries share similar perceptions regarding these practices. A major

issuethatemergesisthatthebenefitsof financial autonomy are overstated.

This paper begins by briefly describing agencification in the Indonesian context and

exploring theoretical frameworks in regard to the topic. The method employed is

explained thereafter. The following sections describe practices of financial autonomy and

control, and emerging issues with regard to this phenomenon. A discussion in the light of

the theory and concluding remarks is provided in the final section.

Agencification in Indonesia

Following the global trend, the Indonesian government has made extensive use of

agencification. In the period 2005 to 2014, 680 agencies were “autonomised”at an arm’s

length distance from the bureaucracy, consisting of 141 agencies in the central government

and 539 agencies in the local government (see Figure 1). In terms of significance, central

BLUs held assets valued at IDR377 trillion as of 2015. As for growth, their revenue increased

from IDR3.7 trillion (2008) to IDR35 trillion (2015) and is projected to rise to IDR73 trillion by

2019 (Ministry of Finance, 2016).

According to the typology by Van Thiel (2012, p. 20), BLUs are a type 1 agency. They

have several degrees of autonomy without a separate legal entity status. Their autonomy is

focused on financial aspects, as they are exempted from general principles of the state

finance regulations (The Law No. 1/2004, 2004). Compared to other government agencies,

this privilege mainly includes generating own income, managing revenue, and managing

loan and investment (see Table I). A framework of regulation for semi-autonomous agencies

was introduced in 2005 (The Government Regulation No. 23/2005, 2005).

Meanwhile, financial control is developed through a combination of structural steering

and results-based monitoring for financial matters. Structural steering is implemented

by positioning agencies under the hierarchical lines of their parent ministry. This authority

enables the ministry to influence agencies’financial decisions by assigning supervisory

boards and monitoring them through internal and external audit mechanisms as well as

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Financial

autonomy and

control in

agencification