meant that the “winners” relative to 2002 also paid the most to make up for the no-harm deficit).<sup>36</sup> 21. Except for a different weights assigned to the fiscal capacity component, the 2003, 2004 and 2005 DAU’s were essentially allocated along similar principles, although with increasing formula shares and updated data, especially to reflect the growing number of localities in each round<sup>37</sup> . This new “hold harmless” condition has superseded the 2001 hold harmless condition, which guaranteed that no local government received less that the previous routine (SDO) and development (Inpres) earmarked grants. Simulations were always made using the previous years local governments (i.e., 370 for 2004), and the pro-rated to local governments that experienced a split.

# **Figure A1-DAU 2004: Hold Harmless Winners**

<!-- Start of picture text --> DAU 2004 Adjustment Winners<br>PC 000s Rps, Locality Ranked by DAU Adjustment Gain<br>2,000 PC Base DAU Allocation<br>PC<br>Winners" Adjustment"<br>1,500<br>1,000<br>500<br>0<br>Source: Ministry of Finance (2003)<br>Kab. NatunaKab. BulunganKota BontangKota MadiunKab. Kutai TimurKab. BerauKab. PasirKab. NunukanKab. KutaiKab. KarimunKota TarakanKab. Aceh UtaraKab. Kutai BaratKab. Indragiri HuluKab. SiakKab. BengkalisKota TegalKota SamarindaKota BalikpapanKab. KamparKab. Musi BanyuasinKab. Rokan HilirKota DumaiKab. PelalawanKota PayakumbuhKab. SumenepKab. Penajam Paser UtaraKab. Kepulauan RiauKab. Aceh BesarKab. Kepulauan MentawaiKota BatamKab. AlorKab. BatanghariKab. PasuruanKota PasuruanKab. BondowosoKab. Indragiri HilirKab. Rokan HuluKab. KendalKab. Kuantan SingingiKab. BloraKab. Sidenreng RappangKota TernateKota MetroKota Tebing TinggiKab. Hulu Sungai TengahKab. SarolangunKota Pagar AlamKota Tanjung BalaiKab. PidieKota DenpasarKab. BantulKab. BatangKab. KarawangKab. Tapanuli SelatanKota PontianakKab. SitubondoKab. SimalungunKota KupangKab. Lampung UtaraKab. Kulon ProgoKab. Halmahera TengahKota BinjaiKab. Tapanuli UtaraKota MojokertoKab. Wajo<br><!-- End of picture text --> 22. Figure 3 shows that the hold harmless adjustment for 2004 will benefit a few select local governments, depicted on the left hand side of this figure. 66 districts gained, led by Kabupaten Natuna in Riau. It received Rps. 1.22 million more DAU per capita than it would have in absence of the adjustment. Less than a fifth (17 percent) of the local governments gained from the adjustment. Not unexpectedly, the winners were wealthier regions. Their estimated total per capita revenues were on average Rps. 1.16 million compared to 720 thousand.

> 36 The second set of adjustments was to account for the twelve new cities for 2002.  A series of steps “fudges” then followed to arrive at the final allocations _._ The final allocation lumpsum allocation was dropped to 17.87 billion per local government to reflect the new total of 348 local governments.  Wage allocation for the twelve new cities was split from their old regions.  The revised fiscal gap FG allocations were based on the post-surplus (pre-contingency) redistribution amounts for the unchanged local governments minus the original minimum allocations (LS+PWBA).  For the split local governments and their new cities the FG allocations were distributed according to population and area criteria. 37 The new fiscal capacity formula used is FCi = (O.5 PADi* ) + STXi + SDAi

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