MAKING GOVERNMENT WORK: DECENTRALIZATION AND REGIONAL AUTONOMY

by
Ginandjar Kartasasmita

National Graduate Institute for Policy Studies
Tokyo, Japan
2012

CONTENTS

 THE ARGUMENT FOR CENTRALIZED
GOVERNMENT
 DECENTRALIZATION: THE CONCEPTS
 HOW DECENTRALIZATION WORKS IN
INDONESIA
 THE OUTCOMES
 LESSONS TO BE LEARNED

Day3_GRIPS 2012 www.ginandjar.com 2

THE ARGUMENT FOR
CENTRALIZED GOVERNMENT

 THE INDONESIAN PEOPLE HAVE ALWAYS CHERISHED UNITY
ABOVE ANYTHING ELSE. ALTHOUGH IT IS COMPOSED OF
MANY ETHNIC GROUPS, THE SENSE OF BEING ONE NATION
HAS ALWAYS BEEN STRONG.
 BHINNEKA TUNGGAL IKA, UNITY IN DIVERSITY, THE
NATIONAL CREED AS ENCAPSULATED IN THE COUNTRY’S
COAT OF ARMS, CONSTITUTES THE CORE FOUNDATION OF
ITS NATIONALISM OR “STATENESS.”
 IT IS THE MOST VALUABLE HERITAGE OF THE INDEPENDENCE
MOVEMENT, WHICH, WHEN IT BEGAN ALMOST SEVEN
DECADES AGO, USED AS ITS RALLYING CRY FOR
INDEPENDENCE: ONE COUNTRY, ONE NATION, ONE
LANGUAGE: INDONESIA.


 IT IS EMBODIED IN PANCASILA, THE NATION’S GUIDING
PRINCIPLES THAT FORM THE BASIC PHILOSOPHY OF ITS
CONSTITUTION WHEN IT WAS FIRST FORMULATED AND
REMAINS TODAY, EVEN AFTER THE CONSTITUTION HAS BEEN
AMENDED.
 THIS CONCEPT HOWEVER, HAS NOT BEEN FREE FROM
CHALLENGES IN THE HISTORY OF THE NATION. FROM THE
BEGINNING, WHEN THE DUTCH RETURNED TO THEIR
FORMER COLONY ONLY TO FIND THAT THEY HAD LOST IT,
THEY TRIED TO WIN IT BACK, IF NOT WHOLLY AT LEAST
PARTIALLY, IF NOT DIRECTLY, AT LEAST INDIRECTLY, THROUGH
PUPPET STATES.


 HENCE THE BIRTH OF THE SHORT LIVED UNITED STATES OF
INDONESIA (RIS), AS THE OUTCOME OF PEACE
NEGOTIATION WITH THE DUTCH TO RECOGNIZE
INDONESIAS INDEPENDENCE, IN ROUND TABLE
CONFERENCE IN THE HAGUE, DECEMBER 1949.
 IN LESS THAN A YEAR, THE FEDERAL STATE WAS ABOLISHED
AND INDONESIA RETURNED TO UNITARIAN STATE.


 HOWEVER, THE FACT THAT INDONESIA IS A MULTIETHNIC
AND MULTICULTURAL COUNTRY MAKES THE TASK OF
KEEPING IT FROM FALLING APART A CONTINUOUS EFFORT IN
NEED OF CONTINUOUS VIGILANCE. EVEN THOUGH THE
DUTCH FAILED TO DIVIDE THE COUNTRY INDONESIA FACES A
CONSTANT THREAT OF SEPARATISM.


 IN THE 1950S, AFTER INDONESIA RETURNED TO A UNIFIED
STATE, THERE WERE REBELLIONS AGAINST THE CENTRAL
GOVERNMENT IN MANY AREAS. SOME WENT AS FAST AS
DECLARING THEIR REGION’S INDEPENDENCE OR THEIR OWN
GOVERNMENTS—SUCH AS THE RMS IN MALUKU, PRRI IN
CENTRAL SUMATERA AND PERMESTA IN NORTH SULAWESI
 THE GOVERNMENT —AT THAT TIME STILL WEAK AFTER LONG
WARS OF INDEPENDENT, WAS CONFRONTING THE DUTCH
ON WEST IRIAN, AND CHALLENGED BY MUSLIM
INSURGENCIES IN VARIOUS PARTS OF THE COUNTRY—WAS
DETERMINED KEEP THE COUNTRY TOGETHER AND HAD
DEALT WITH THE SECESSIONIST MOVEMENTS WITH FORCE.


 EVEN TODAY IN SOME PARTS OF THE COUNTRY THERE ARE
ACTIVE SEPARATIST MOVEMENTS. ACEH FOR A LONG TIME
HAD BEEN A TROUBLE SPOT AND PAPUA WITH ITS
ORGANIZATION OF INDEPENDENT PAPUA (OPM ) IS STILL
SIMMERING.
 APART FROM ITS OWN HISTORY, THE EXPERIENCES OF OTHER
MULTIETHNIC AND MULTICULTURAL COUNTRIES THAT HAVE
DISINTEGRATED ALONG ETHNIC AND CULTURAL FAULT LINES
IN THE PAST TWO DECADES, INCLUDING THE SOVIET UNION,
YUGOSLAVIA, SRI LANKA AND CZECHOSLOVAKIA HAVE
TAUGHT INDONESIA A LESSON THAT UNITY IS NOT
SOMETHING THAT CAN BE TAKEN FOR GRANTED.


 THE COST OF APPLYING FORCE TO KEEP THE COUNTRY
UNITED IS VERY EXPENSIVE IN SOCIAL, POLITICAL AND
ECONOMIC TERMS. ALTHOUGH SOME ELEMENTS OF THE
INSURGENCIES ARE MOTIVATED BY POLITICAL
OPPORTUNISM, THE MAJORITY ARE DRIVEN BY GENUINE
FEELING OF INJUSTICE, ECONOMIC INJUSTICE IN
PARTICULAR.
 THE REGIONS THAT HAVE BRED THE SEPARATIST
MOVEMENTS ARE GENERALLY RICHLY ENDOWED WITH
NATURAL RESOURCES BUT THE PEOPLE HAVE NOT
BENEFITED MUCH FROM THE EXPLOITATION. IRONICALLY, IT
IS PRECISELY THE RESOURCE‐RICH REGIONS THAT ARE
AMONG THE MOST BACKWARD OF THE PROVINCES.


 BECAUSE OF THIS, LOCAL HUMAN RESOURCES CANNOT
MEET THE DEMAND FOR HIGH SKILLED LABOR REQUIRED BY
DEVELOPMENT ENTERPRISES SUCH AS MINING, LOGGING,
MODERN FARMING, CROP CULTURE OR DEEP‐SEA FISHING.
AS A RESULT THE DEMAND FOR TRAINED MANPOWER WAS
MET BY AN INFLUX OF PEOPLE FROM OTHER REGIONS.
 THE INDIGENOUS PEOPLE OF THE REGIONS REMAINED POOR
OR WERE EVEN DISPLACED—OR UPROOTED—FROM THEIR
ANCESTRAL LANDS TO MAKE WAY FOR INDUSTRIAL AND
URBAN SETTLEMENT OR LARGE‐SCALE DEVELOPMENT
PROJECTS.


 THE RESULT WAS WIDENING INCOME DISPARITIES THAT
LED TO A GROWING FEELING OF INJUSTICE AND SOCIAL
TENSION THAT WAS JUST WAITING FOR A SPARK TO
FLARE INTO LARGE‐SCALE COMMUNAL HOSTILITIES.
 MORE OFTEN THAN NOT, THE GOVERNMENT WOULD
REACT REPRESSIVELY TO ANY PERCEIVED THREAT TO
NATIONAL UNITY AND STABILITY, AND IN THE PROCESS
CAUSE WHAT WAS TERMED AS COLLATERAL DAMAGE
BUT IN REALITY, WERE VICTIMS OF THE INDISCRIMINATE
USE OF FORCE.


 ANOTHER FACTOR WAS THEN ADDED TO THE
GRIEVANCES: VIOLATION OF HUMAN RIGHTS. DURING
THE NEW ORDER, AS ECONOMIC GROWTH TOOK
PRECEDENT OVER OTHER MATTERS, THE SOCIAL AND
POLITICAL INJUSTICE CAUSED BY RELENTLESS PURSUIT
OF GROWTH AND STABILITY WAS OVERLOOKED AND
THE VOICES AIRING THEM WERE MUTED.


 AFTER THE FALL OF THE NEW ORDER, THERE WAS AN
OPPORTUNITY ADDRESS THE PROBLEM. ALTHOUGH
INCOME AND REGIONAL DISPARITY IS A COMPLEX
PROBLEM AND WOULD TAKE TIME AND EFFORT TO
RESOLVE, IT WAS IMMEDIATELY RECOGNIZED THAT AT
THE HEART OF THE PROBLEM WAS THE OVERLY
CENTRALIZED GOVERNMENT STRUCTURE AND
DECISION MAKING PROCESS.


 IT WAS DECIDED THAT DEVOLVEMENT OF CENTRAL
AUTHORITY SHOULD BE THE FIRST STEP TOWARD
ADDRESSING THE PROBLEM. AS PART OF THE
DEMOCRATIZATION PROCESS DURING THE HABIBIE
GOVERNMENT, THE PROCESS OF DECENTRALIZATION
WAS STARTED WITH TWO FAR‐REACHING LAWS, THE
LAWS NO. 22 AND NO. 25 ENACTED IN MAY 1999.


DECENTRALIZATION

THE CONCEPTS

 FEW ISSUES HAVE CREATED AS MUCH CONTROVERSY
OVER THE PAST HALF CENTURY AS HOW GOVERNMENTS
AND POLITICAL SYSTEMS SHOULD BE STRUCTURED AND
HOW PUBLIC POLICIES SHOULD BE MADE AND
IMPLEMENTED. IN GEOGRAPHICALLY LARGE AND
DEMOGRAPHICALLY DIVERSE SOCIETIES THE TREND IS
TOWARD LESS CENTRAL CONTROL AND MORE
DECENTRALIZATION.


WHY DECENTRALIZE?

 A MAJOR OBSTACLE TO THE EFFECTIVE PERFORMANCE OF
PUBLIC BUREAUCRACIES IN MOST DEVELOPING
COUNTRIES IS THE EXCESSIVE CONCENTRATION OR
DECISION‐MAKING AUTHORITY WITHIN CENTRAL
GOVERNMENT.
 PUBLIC SECTOR INSTITUTIONS ARE COMMONLY
PERCEIVED TO BE GEOGRAPHICALLY AND SOCIALLY
REMOTE FROM 'THE PEOPLE' AND TO TAKE DECISIONS
WITHOUT KNOWLEDGE OR CONCERN ABOUT ACTUAL
PROBLEMS AND PREFERENCES.


 THE POPULAR REMEDY FOR SUCH CENTRALIZATION
IS DECENTRALIZATION, A TERM WHICH IS IMBUED
WITH POSITIVE CONNOTATIONS‐PROXIMITY,
RELEVANCE, AUTONOMY, PARTICIPATION,
ACCOUNTABILITY AND EVEN DEMOCRACY.
 SO GREAT IS THE APPEAL OF DECENTRALIZATION
THAT IT IS DIFFICULT TO LOCATE A GOVERNMENT
THAT HAS NOT CLAIMED TO PURSUE A POLICY OF
DECENTRALIZATION IN RECENT YEARS.


SOME IMPORTANT DEFINITIONS

 DECENTRALIZATION IS THE TRANSFER OF AUTHORITY
AND RESPONSIBILITY FOR PUBLIC FUNCTIONS FROM
THE CENTRAL GOVERNMENT TO SUBORDINATE OR
QUASI‐INDEPENDENT GOVERNMENT ORGANIZATIONS
AND/OR THE PRIVATE SECTOR.
(WORLD BANK, 2001)


DECENTRALIZATION IS THE EXPANSION OF
LOCAL AUTONOMY THROUGH THE TRANSFER
OF POWERS AND RESPONSIBILITIES AWAY
FROM NATIONAL BODY.
(HEYWOOD, 2002)


 DECENTRALIZATION IS NOT MERELY POLITICALLY
EXPEDIENT FOR DEALING WITH REBELLIOUS REGIONS. IT
HAS MORE BASIC VALUE TO DEMOCRACY AND
DEMOCRATIC CONSOLIDATION. MANY SCHOLARS HAVE
PRESENTED THE ARGUMENT THAT DECENTRALIZATION
ENHANCES THE LEGITIMACY, AND HENCE, STABILITY OF
DEMOCRACY.


IMPORTANT OBJECTIVES OF DECENTRALIZATION:

1. BETTER MATCH BETWEEN SERVICE PROVISION
AND LOCAL VOTER PREFERENCES.
2. BETTER ACCOUNTABILITY THROUGH CLOSER
LINKAGES OF BENEFITS WITH COSTS.
3. INCREASED MOBILIZATION OF LOCAL RESOURCES.
4. BETTER PARTICIPATION OF CLIENTS IN SELECTION
OF OUTPUT MIX.


TYPES OF DECENTRALIZATION

1. POLITICAL

2. ADMINISTRATIVE

3. FISCAL

4. MARKET


POLITICAL DECENTRALIZATION

POLITICAL DECENTRALIZATION AIMS TO GIVE
CITIZENS OR THEIR ELECTED REPRESENTATIVES
MORE POWER IN PUBLIC DECISION‐MAKING.

(WORLD BANK, 2001)


FISCAL DECENTRALIZATION
 FISCAL DECENTRALIZATION INVOLVES SHIFTING SOME
RESPONSIBILITIES FOR EXPENDITURES AND/OR
REVENUES TO LOWER LEVELS OF GOVERNMENT.
 THE EXTENT TO WHICH LOCAL ENTITIES ARE GIVEN
AUTONOMY TO DETERMINE THE ALLOCATION OF THEIR
EXPENDITURE.
(WORLD BANK, 2001)


ADMINISTRATIVE DECENTRALIZATION
ADMINISTRATIVE DECENTRALIZATION SEEKS TO
REDISTRIBUTE AUTHORITY, RESPONSIBILITY AND
FINANCIAL RESOURCES FOR PROVIDING PUBLIC
SERVICES AMONG DIFFERENT LEVELS OF
GOVERNMENT.

(WORLD BANK, 2001);;


ECONOMIC OR MARKET DECENTRALIZATION

ECONOMIC OR MARKET DECENTRALIZATION WILL
INCLUDE PRIVATIZATION AND DEREGULATION. THEY
SHIFT RESPONSIBILITY FOR FUNCTIONS FROM THE
PUBLIC TO THE PRIVATE SECTOR .

(WORLD BANK, 2001)


FORMS OF DECENTRALIZATION

FORMS OF DECENTRALIZATION INCLUDE:
1. DECONCENTRATION
2. DELEGATION TO SEMI‐AUTONOMOUS AGENCIES
3. DEVOLUTION TO LOCAL GOVERNMENT
4. TRANSFER OF FUNCTIONS FROM PUBLIC TO
NONGOVERNMENT INSTITUITION

(CHEEMA & RONDINELLI, 1984)


DECENTRALIZATION

TRANSFER OF AUTHORITY
CLOSER TO THE PUBLIC TO
BE SERVED

TERRITORIAL FUNCTIONAL


Forms of decentralization
Nature of Delegation Basic for Delegation

Territorial Functional
Within formal political structures Devolution (political Interest group
decentralization, local representation
government, democratic
decentralization)

Within public administrative or Deconcentration Establisment of parastatals
parastatal structures (administrative
decentralization, field
administration}

From state sector to private sector Privatization of developed Privatization of national
function (deregulation, functions (divestiture,
contracting out, voucher deregulation, economic
schemes) liberalization)

(TURNER AND HULME, 1997)


AUTONOMOUS LOCAL GOVERNMENT
 LOCAL GOVERNMENT CAN BE SAID TO BE
AUTONOMOUS IF THEY ENJOY A SUBSTANTIAL
DEGREE OF INDEPENDENCE, ALTHOUGH AUTONOMY
IN THIS CONNECTION IS SOMETIMES TAKEN TO IMPLY
A HIGH MEASURE OF SELF‐GOVERNMENT, RATHER
THAN SOVEREIGN INDEPENDENCE.
(ADAPTED FROM HEYWOOD, 2002)


DECENTRALIZATION IS NOT TOTAL
DEVOLUTION
 IT MUST BE NOTED THAT THE DECENTRALIZATION DOES
NOT IMPLY THAT ALL AUTHORITY SHOULD BE DELEGATED.
THE CENTRAL GOVERNMENT MUST RETAIN A CORE OF
FUNCTIONS OVER ESSENTIAL NATIONAL MATTERS AND
ULTIMATELY HAS THE AUTHORITV TO REDESIGN THE
SYSTEM OF GOVERNMENT AND TO DISCIPLINE OR
SUSPEND DECENTRALIZED UNITS THAT ARE NOT
PERFORMING EFFECTIVELY.
 HOW EXTENSIVE THIS CORE OF CENTRAL GOVERNMENT
FUNCTIONS SHOULD BE REMAINS A MAJOR IDEOLOGICAL
AND INTELLECTUAL DEBATE OF THE LATE TWENTIETH
CENTURY.


 ALL SYSTEMS OF GOVERNMENT INVOLVE A COMBINATION
OF CENTRALIZED AND DECENTRALIZED AUTHORITY.
HOWEVER, FINDING A COMBINATION OF CENTRAL
CONTROL AND LOCAL AUTONOMY THAT SATISFIES
REGIME NEEDS AND POPULAR DEMANDS IS A PERSISTENT
DILEMMA FOR GOVERNMENTS.
 CENTRALIZATION AND DECENTRALIZATION ARE NOT
ATTRIBUTES THAT CAN BE DICHOTOMIZED; RATHER THEY
REPRESENT HYPOTHETICAL POLES ON A CONTINUUM
THAT CAN BE CALIBRATED BY MANY DIFFERENT INDICES.


EITHER

CENTRALIZED DECENTRALIZED
OR

CENTRALIZED DECENTRALIZED

CONTINUUM


FEDERALISM AND
DECENTRALIZATION

 THERE IS NO BROAD‐BASED GENERALIZATION THAT
CAN BE MADE ABOUT THE CORRELATION OF
FEDERAL/UNITARY STATES AND DECENTRALIZATION.
 SOME FEDERAL STATES ARE HIGHLY CENTRALISED ‐
SUCH AS MALAYSIA, WHILE SOME UNITARY STATES
HAVE A HIGH DEGREE OF DECENTRALIZATION SUCH
AS CHINA.


TWO APPROACHES ON SEQUENCING
DECENTRALIZATION

 A NORMATIVE APPROACH:
 GRADUAL/INCREMENTAL PROCESS
 SYSTEMATIC PREPARATION
 NORMAL CONDITION IN TERMS OF POLITIC, SOCIAL
AND ECONOMY

 A BIG‐BANG APPROACH:
 ONCE FOR ALL
 LEARNING BY DOING
 TRANSITION CONDITION IN TERMS POLITIC, SOCIAL
AND ECONOMY

HOW DECENTRALIZATION
WORKS IN INDONESIA

 INDONESIA FOLLOWED THE “BIG BANG” APPROACH
TO DECENTRALIZATION.
 IT STARTED IN 1999, BUT MUCH OF THE
RESPONSIBILITY FOR PUBLIC SERVICES WAS
DECENTRALIZED IN 2001 AFTER THE SECOND
AMENDMENT TO THE CONSTITUTION IN 2000.


 BY THE END OF THE OLD REGIME, AT THE ONSET OF THE
DEMOCRATIZATION PROCESS AND POLITICAL REFORMS
IN 1999, THERE WERE 26 PROVICES [NOT INCLUDING
EAST TIMOR], 234 DISTRICTS OR KABUPATEN AND 59
CITIES OR KOTA, IN TOTAL 319 AUTONOMOUS REGIONS.
 IN 2010, THERE ARE 33 PROVINCES, 398 DISTRICTS AND
93 CITIES, IN TOTAL 524 AUTONOMOUS REGIONS,
INCREASING IN TEN YEARS BY 205 AUTONOMOUS
REGIONS OR BY ALMOST TWO THIRD.


 THE PROCESS WAS BASED ON THREE BASIC LAWS 1)
REGIONAL AUTONOMY; 2) FISCAL RELATIONS; AND 3)
REGIONAL GOVERNMENT TAXES AND FEES PASSED
BETWEEN 1999 AND 2000. THE PROCESS HAS BEEN A
WORK IN PROGRESS AND BOTH THE REGIONAL
AUTONOMY AND FISCAL RELATIONS LAWS WERE
AMENDED IN 2004 TO PROVIDE MORE CLARITY.


 A SECOND PHASE OF DECENTRALIZATION IN 2006
INCREASED FINANCIAL TRANSFERS TO THE REGIONS BY
50 PERCENT, FOLLOWED BY A FURTHER 15 PERCENT IN
2007.
 INDONESIA’S 524 LOCAL GOVERNMENTS NOW
UNDERTAKE 34 PERCENT OF THE NATIONAL BUDGET
WITH MOST SERVICES PROVIDED BY KABUPATEN/KOTA
[DISTRICT/CITY] GOVERNMENTS WHO ARE RESPONSIBLE
OF APPROXIMATELY 75 PERCENT OF THE TOTAL
REGIONAL SPENDING.


 THE BASIC DECENTRALIZATION LAWS PROVIDE THAT MORE
NATURAL RESOURCE REVENUES ARE TO BE RETAINED IN THE
REGIONS WHERE THE RESOURCES ARE EXTRACTED.
 AS RESOURCES [ESPECIALLY OIL AND GAS] ARE
CONCENTRATED IN ONLY A FEW REGIONS, THE PROCESS OF
DECENTRALIZATION HAS INCREASED REGIONAL INEQUALITY
AND, WITH RISING ENERGY PRICES, THE INEQUITY IS MORE
PRONOUNCED.
 FISCAL BALANCE FUNDS HAVE BEEN DESIGNED TO
COMPENSATE FOR THIS AND THE EVIDENCE IS THAT THE IT IS
ASSISTING TO EQUALIZE FINANCIAL CAPACITIES.


INTERGOVERNMENTAL RELATION IN INDONESIA
Period Main Issues Legal Framework Intergovernmental
Relation
Economic Crisis Law No. 22/1948 Decentralized
Law No. 44/1950 Federalized
Separatism
1946-1966 Law No. 1/1957 Decentralized
Social Unrest Presidential Decree No.
Centralized
6/1959
Political turmoil Law No.18/1965 Decentralized
High and stable Law No. 5/1974 Centralized
1966-1998 economic growth
Government Regulation Pilot Program on
Authoritarian Regime No.8/1995 Decentralization

Law No. 22/1999
Economic Crisis
Law No. 25/1999 Transition into
Separatism
1999 Democracy and
Social Unrest Law No. 18/1999 Decentralization
Political turmoil
Law No. 34/1999

Intergovernmental
Period Main Issues Legal Framework
Relation
Foundation for
Democracy Second Constitutional Enhanced
Amendment 2000 Decentralization and
1999-2000 Regional Autonomy
Economic Recovery Law No. 18/2001 Big Bang of
Law No. 21/2001 Decentralization
Democracy Implementation Law No.
2001-2004 Decentralized
Economic Recovery 22/1999 and No. 25/1999
Implementation Law No.
2004- Democracy Decentralized
32/2004 and No. 33/2004


DISTRIBUTION OF AUTHORITIES AND FUNCTIONS
Central Local Government
Obligatory Function Optional
1. Foreign Affairs 1. Planning and Monitoring 1. Mining
2. Defense 2. Spatial Planning 2. Fishery
3. Security 3. Social order and security 3. Agriculture
4. Religion 4. Public infrastructure services 4. Farm
5. Judicial 5. Health Services 5. Forestry
6. Monetary and Fiscal 6. Educational Services 6. Tourism
7. Others 7. Social
8. Labor
9. SME’s and Cooperatives
10. Environment
11. Land (?)
12. Civil administration
13. Government Administration
14. Investment Administration
15. Other services
16. Other obligatory function

LOCAL FINANCE IN INDONESIA
SOURCES

LOCAL REVENUES EQUITY FUND OTHERS

LOCAL TAXES SHARING GRANT
REVENUES
RETRIBUTIONS EMERGENCY
GENERAL FUND
REVENUES FROM ALLOCATED FUND
LOCAL ASSETS LOAN
SPECIAL ALLOCATED
OTHERS FUND


REVENUES SHARING BETWEEN CENTRAL AND LOCAL
Before After
Central Province District/ Central Province District/ Share to
Shared-Revenues City City Other
District/
City

1. Property Tax 10% 16.2% 64.8% 16.2% 64.8%
2. Property Title Transfer Tax 20% 16% 64% 16% 64%
3. Levy on Forestry Right to 55% 30% 15% 20% 16% 64%
operate
4. Commission on Forestry 55% 30% 15% 20% 16% 32% 32%
Resource
5. Land Rent on Mining Sector 20% 16% 64% 20% 16% 64%
6. Royalties from Mining Sector 20% 16% 64% 20% 16% 32% 32%
7. Tax on Fisheries Operation 100% 20% 80%
8. Tax on Fisheries Output 100% 20% 80%
9. Oil Revenues 100% 85% 3% 6% 6%
10. Natural gas Revenues 100% 70% 6% 12% 12%
11. Personal Income Tax 100% 80% 8% 12%
Source: Government Regulation No. 104/2000 and Law No. 17/2003

 SUBSTANTIAL AMOUNT OF GOVERNMENT BUDGET HAS BEEN
TRANSFERRED TO THE REGIONS.
 FOR 2012, ALMOST ONE THIRD [32.8%] OR $52 BILLION IS
DIRECT TRANSFER TO THE AUTONOMOUS REGIONS’ BUDGET,
IN THE FORM OF NATURAL RESOURCES SHARING FUND FOR
$11 BILLION, GENERAL ALLOCATION FUND FOR $30 BILLION,
SPECIAL ALLOCATION FUND FOR $3 BILLION AND SPECIAL
AUTONOMY FUND FOR THE TWO PAPUA PROVINCES AND
ACEH, $1.3 BILLION, AND ADJUSTMENT FUND [FOR
INFRASTRUCTURE DEVELOPMENT] FOR $6.5 BILLION.
 BUT OVERALL GOVERNMENT BUDGET THAT GOES TO THE
REGIONS THROUGH VARIOUS SCHEMES IS MUCH HIGHER,
CLOSE TO TWO THIRD [62%].


DECENTRALIZATION 1999
% INCREASE
BEFORE AFTER
RURAL VILLAGE 59.834 68.442 8.608 (14,4%)
URBAN VILLAGE 5. 935 8.068 2.133                 (35,0%)
SUB‐DISTRICT 5.480 6.519 1.039                 (18,9%)
DISTRICT 234 398 164                  (70,0%)

MUNICIPAL 59 93 34                 (57,6%)
PROVINCE 27 33 6                 (22,2%)


 DECENTRALIZATION IN INDONESIA IS STILL IN THE
EARLY STAGES OF IMPLEMENTATION; THE RESULTS
SO FAR ARE MIXED. TO A CERTAIN EXTENT IT HAS
DEFUSED THE POLITICAL PRESSURE ON THE
GOVERNMENT COMING FROM UNHAPPY REGIONS.


 DECENTRALIZATION BRINGS DECISION‐MAKING
CLOSER TO THE PEOPLE AND THEREFORE YIELDS
PROGRAMMES AND SERVICES THAT BETTER ADDRESS
LOCAL NEEDS.
 BRINGING STAKEHOLDERS TOGETHER TO DEFINE
PRIORITIES FOR PROJECTS AND PROGRAMMES
INCREASES INTEREST AND SENSE OF OWNERSHIP,
WHICH IN TURN PROMOTES SUSTAINABILITY.


 COMPREHENSIVE SURVEYS OF PERCEPTIONS INDICATE,
HOWEVER, THAT SATISFACTION WITH SERVICE DELIVERY IS
IMPROVING. WHEN ASKED ABOUT WHETHER THINGS HAVE
IMPROVED IN THE LAST TWO YEARS, OVER 70 PERCENT OF
PUBLIC SERVICE USERS INDICATE THAT THEY BELIEVE THAT
THERE HAVE BEEN IMPROVEMENTS IN HEALTH AND
EDUCATION SERVICES, 56 PERCENT IN ADMINISTRATIVE
SERVICES AND 45 PERCENT IN POLICE (NOT DECENTRALIZED).
THIS MATCHES EARLIER SURVEY THAT HAD A SIMILAR
OUTCOME.


THE DOWNSIDE

 DECENTRALIZATION IS EXPECTED, ASIDE FROM KEEPING
THE COUNTRY TOGETHER, TO IMPROVE GOVERNANCE.
HOWEVER THERE IS IN GENERAL YET LITTLE EVIDENCE
THAT THIS HAS HAPPENED.
 INDEED THERE IS EVIDENCE THAT THE MULTIPLE LAYERS
OF BUREAUCRACY HAVE RAISED THE COST OF DOING
BUSINESS IN THE PROVINCES, BOTH FOR INDONESIAN
INVESTORS AS WELL AS FOR FOREIGN INVESTORS.


 DECENTRALIZATION ALSO HAS GENERATED A NEW VOGUE IN
THE REGIONS. MANY REGIONS OR ETHNICS ARE
DEMANDING TO HAVE THEIR OWN PROVINCES. WITHIN THE
PROVINCE THERE ARE ALREADY PROLIFERATION OF NEW
“KABUPATENS” OR AUTONOMOUS DISTRICTS.
 SOME ARE GENUINELY CONCERNED WITH DEVELOPING
LOCAL DEMOCRACY, AND THE NEED TO ESTABLISHED A
SEPARATE ADMINISTRARIVE ENTITIES OUT OF EXISTING
ONES, FROM SOCIAL AND ECONOMIC POINT OF VIEW. BUT
NOT A FEW ARE JUST THE IDEAS OF LOCAL ELITES TO CREATE
NEW POLITICAL JOBS.


 THE MAIN PROBLEM, LIES IN THE POLITICAL SYSTEM. HEADS
OF REGIONAL GOVERNMENT—PROVINCIAL AS  WELL AS
DISTRICT/MUNICIPAL—ARE DIRECTLY ELECTED.  BY LAW THEY
HAVE TO BE NOMINATED BY A POLITICAL PARTY OR A GROUP
OF POLITICAL PARTIES.
 AS THEY HAVE TO WORK WITH LOCAL COUNCILS
(PARLIAMENTS) THEY HAVE TO SOLICITE SUPPORT FROM
OTHER POLITICAL PARTY (PARTIES) USUALLY BY AGREEING TO
RUN ON A  TICKET FOR VICE GOVERNOR (VICE HEAD OF
DICTRICT/MUNICIPALITIES) FROM THE COALITION
PARTY(PARTIES).


 ALONG THE WAY, MORE OFTEN THAN NOT THEY ARE
CONFLICTING WITH OTHER, BECAUSE COACH HAS HIS/HER
POLITICAL PARTY (PARTIES) INTEREST. IT IS CONCEIVABLE
THAT THE PRESENT JUNIOR PARTNER IS ALSO ENJOY
PREPAIRING TO BECOME THE CHIEF HIMSELF/HERSELF IN
FUTURE ELECTION.


 ANOTHER CONSEQUENCE OF THE SYSTEM IS THAT
LOCAL GOVERNMENT BUREAUCRACY HAVE BEEN
POLITIZED, THE SITUATION.  WHICH WORSE THAN IN
THE CENTRAL GOVERNMENT.  IT IS CREATING
JEALOUSLY, CONFLICT, DISCORD. ENMITY IN AMONG THE
LOCAL CIVIL SERVANTS.
 AND THE WORSE IS THE PRACTICE OF MONEY POLITICS.
TO  GET ELECTED THE CANDIDATES NEED TO SPEND SO
MUCH MONEY THAT ONCE ONLY GET ELECTED USUALLY
THEY MAKE EFFORTS TO RECOUP THE INVESTMENT.


 AS ALSO POINTED BY THE WORLD BANK, (2001) THE
RISKS OF AN INCREASE IN CORRUPTION FOLLOWING
DECENTRALIZATION ARE HIGH. IT HAS BEEN WIDELY
OBSERVED THAT SO FAR NOT ONLY POWER AND
REVENUE THAT HAVE BEEN DECENTRALIZED BUT ALSO
CORRUPTION.
 IN THIS IT SEEMS THAT INDONESIA IS NOT THE ONLY
COUNTRY FACED WITH THIS PROBLEM FOLLOWING
ATTEMPTS TO DECENTRALIZE.


 SOME ANALYSTS COMMENT THAT DECENTRALIZATION
HAS STRENGTHENED THE POSITION OF THE LOCAL
ELITES AND THEIR CLIENTELISTIC NETWORKS IN SOME
LATIN AMERICAN COUNTRIES (HUBER, RUESCHEMEYER
AND STEPHENS, 1999: 182). FURTHERMORE, MANY
REGIONS HAVE INCREASED LOCAL TAXES AND IMPOSED
NEW LEVIES THAT HAVE BECOME A SIGNIFICANT
CONCERN FOR INVESTORS.


 ON FISCAL DECENTRALIZATION MANY STUDIES
HAVE SHOWN THAT MANY NEW AUTONOMOUS
REGIONS ECONOMICALLY ARE NOT VIABLE. THEY
CONTINUE TO NEED FINANCIAL SUPPORT FROM
THE CENTRAL GOVERNMENT. IN MANY REGIONS,
THERE ARE JUST NOT ENOUGH QUALIFIED PEOPLE
TO MAN THE NEWLY ESTABLISHED LOCAL
GOVERNMENTS.


 BY ANY CRITERIA, REGIONS, EVEN THE POOREST, HAVE
RECEIVED LARGE INCREASES IN TRANSFERS IN RECENT
YEARS—SOME NOW HAVE SURPLUSES—AND THE
CHALLENGE HAS MOVED TO SPENDING WISELY.
 IT IS IMPORTANT, BECAUSE REGIONAL EXPENDITURES AT
BOTH THE PROVINCE AND REGENCY LEVEL ARE DOMINATED
BY ADMINISTRATIVE SPENDING [USUALLY FOR SALARIES FOR
THE ADMINISTRATION, LOCAL PARLIAMENT, BUILDINGS ETC]
AT CLOSE TO 30 PERCENT OF BUDGETS.
 IN SOME SUB‐PROVINCIAL LOCAL GOVERNMENT IT RUNS
MUCH HIGHER AS HIGH AS 70 TO 90%.
 BY CONTRAST BEST PRACTICE ACCORDING TO THE WORLD
BANK IS USUALLY CLOSER TO 5 PERCENT.


 THE CHALLENGE IS HOW TO STRENGTHEN THE
EQUALIZING IMPACT BETWEEN OWN‐SOURCE AND
NATURAL RESOURCE REVENUES AND EMPOWER
REGIONAL GOVERNMENTS TO FIND THE OPTIMAL
COMBINATION OF INPUTS [SIZE OF WORKFORCE, CAPITAL,
INTERMEDIATE INPUTS AND OUTSOURCING] FOR PUBLIC
SERVICE DELIVERY.


 IN CONCLUSION CAPACITY PROBLEMS AT THE LOCAL LEVEL
REMAIN ACCUTE. REGIONAL GOVERNMENTS HAVE HAD
DIFFICULTY SPENDING INCREASED RESOURCES AND
SURPLUSES HAVE BUILT UP IN MOST SUB‐NATIONAL
GOVERNMENTS.
 SUB‐NATIONAL GOVERNMENTS HAVE NOT HAD EXPERIENCE
IN DEALING WITH BUSINESSES AND TYPICALLY LACK
UNDERSTANDING OF WHAT IT MAKES TO CREATE A GOOD
BUSINESS ENVIRONMENT.


 IN ADDITION TO ADDRESSING ADMINISTRATIVE AND
REGULATORY ISSUES, IMPROVING DECENTRALIZATION
OUTCOMES REQUIRES INCREASING THE CAPACITY AND
ACCOUNTABILITY OF LOCAL GOVERNMENTS. THE
ACCOUNTABILITY OF LOCAL GOVERNMENTS TO THEIR
CONSTITUENTS IS CRUCIAL FOR THE SUCCESS OF
REGIONAL AUTONOMY OVER TIME.


 IN PARTICULAR AN IMPROVED SYSTEM FOR
MONITORING OF SUB‐NATIONAL GOVERNMENTS
WOULD PROVIDE INCENTIVES FOR GOOD PERFORMERS
AND TECHNICAL ASSISTANCE FOR THOSE LAGGING
BEHIND.
 A CREDIBLE PERFORMANCE SYSTEM WOULD PROVIDE
TRANSPARENCY, ATTRACT INVESTORS TO STRONG
REGIONS AND PROVIDE A BASIS FOR AN ALLOCATION
SYSTEM BASED ON PERFORMANCE AND NEEDS.
 SO A COMPETITIVE ENVIRONMENT WILL EVOLVE WHICH
IS HEALTHY TO MOTIVATE HARD WORK AND
DETERMINATION.


GROWTH OF GENERAL ALOCATION FUND (GAF)
VS AVERAGE FOR LOCAL GOVERNMENT

TOTAL GROWTH AVERAGE GROWTH

SOURCE: MOF, 2011


AVERAGE GAF/SUB‐PROVINCIAL GOVERNMENT

* AT 2000 CONSTANT PRICE

SOURCE: MOF, 2011


TRENDS OF SPECIAL ALLOCATION FUND

SOURCE: MOF, 2011


GROWTH OF GOVERNMENT EMPLOYEES

SOURCE: MOF, 2011


GOOD THEORY POOR PRACTICE



•Basic Human Rights • Disunity

•Democracy • Warlordism

•Decision Making • Nepotism

•Participation : • Exclusivism
i. Grass Root,
ii. Empowerment, • Local Elites
iii. Responsiveness

•Prevent disintegration



•Debureaucratization
•Efficiency • Weak Institution
• Effectiveness
• Span of Control • Limited Human Resources
• Licence and Permit
• Client Interaction • Unclear Responsibility
• Representativeness
• Populism/Pluralism • Decentralization of corruption
• Differentiated Public
• Better:
i. Planning
ii. Execution
iii. Supervision
iv. Monitoring



• Efficiency • Rich Region Richer
• Resource Optimization • Poor Region Poorer
• Equity •
i. Resource allocation/distribution
Regional Barrier to Commerce
ii. Poverty
• Environment knows no
iii. Closing disparity Administrative border
iv. Opportunity • National vs Local Rules
v. Empowerment
• Demonopolization • National vs Local Taxes
• Entrepreneurship
• Environment
• Inter‐Regional Cooperation
• Inter‐Regional Competition
• Ownership of Development



• Efficiency in Delivery of
i. Education • Different Level & Quality of
i. Education
ii. Health
iii.Other social ii. Health
iii. Social
services.
services.
• Local Capabilities in Service
• Social Immobility
Delivery
• Responsive to Local
i. Needs
ii. Potencial
iii. Shortcomings

• Social Cohessivenes

• Social Solidarity


• Plurality • Primordialism
• Diversity
• Preservation of local: • Local vs Modern Values
i. Language
ii. Arts
iii. Traditition

• Dignity
• Self Esteem
• Confidence
• Local Wisdom


 MORE NEEDS TO BE LEARNED FROM INDIVIDUAL
EXPERIENCES AND THESE LESSONS NEED TO BE
TRANSLATED INTO PRACTICAL ACTIONS.
 FURTHER ANALYSIS IS NECESSARY IN ORDER TO BETTER
UNDERSTAND WHICH FORMS AND UNDER WHAT
CIRCUMSTANCES DECENTRALIZATION CAN HAVE A
PRODUCTIVE ROLE IN SUPPORTING SUSTAINABLE
HUMAN DEVELOPMENT AND HOW GOVERNMENTS AND
STAKEHOLDERS SHOULD APPROACH THESE PROCESSES.
 NEW METHODS OF MONITORING AND EVALUATING
DECENTRALIZATION POLICES NEED TO BE DEVELOPED
AND APPLIED.
 MORE CAPACITY DEVELOPMENT IS NEEDED AT ALL
LEVELS OF GOVERNANCE.

 DECENTRALISED GOVERNANCE, IF PROPERLY PLANNED AND
IMPLEMENTED, OFFERS IMPORTANT OPPORTUNITIES FOR
ENHANCED HUMAN DEVELOPMENT.
 DEVOLVING SOME POLITICAL, ADMINISTRATIVE AND FISCAL
AUTHORITY TO SUB‐NATIONAL LEVEL GOVERNMENTS
DEVELOPS A SYSTEM OF CO‐RESPONSIBILITY BETWEEN
INSTITUTIONS AT THE CENTRAL AND LOCAL LEVELS, THUS
INCREASING THE OVERALL QUALITY AND EFFECTIVENESS OF
THE SYSTEM OF GOVERNANCE WHILE IMPROVING
AUTHORITY AND CAPACITIES OF SUB‐NATIONAL LEVELS.
 DECENTRALIZATION STRENGTHENS BOTH CENTRAL AND
LOCAL GOVERNMENTS, BUT SHOULD ALSO CREATES
PARTNERSHIPS WITH CIVIL SOCIETY ORGANIZATIONS AND
THE PRIVATE SECTOR.

 THE CONCEPTS OF DECENTRALIZATION HAVE CHANGED
RAPIDLY OVER THE SECOND HALF OF THE LAST CENTURY
IN TANDEM WITH THE EVOLUTION IN THINKING ABOUT
GOVERNANCE.
 DISCOURSES OVER THE STRUCTURE, ROLES, AND
FUNCTIONS OF GOVERNMENT QUESTIONS THE
EFFECTIVENESS OF CENTRAL POWER AND AUTHORITY IN
PROMOTING ECONOMIC AND SOCIAL PROGRESS AND ON
THE POTENTIAL ADVANTAGES OF DECENTRALIZING
AUTHORITY TO SUBNATIONAL UNITS OF ADMINISTRATION,
LOCAL GOVERNMENTS, OR OTHER AGENTS OF THE STATE
INCLUDING THE PRIVATE SECTOR AND CIVIL SOCIETY.


 FROM THIS BROADER PERSPECTIVE ON GOVERNANCE NEW
CONCEPTS OF DECENTRALIZATION EMERGED AS WELL. AS
THE CONCEPT OF GOVERNANCE BECAME MORE INCLUSIVE,
DECENTRALIZATION TOOK ON NEW MEANINGS AND NEW
FORMS.
 IT GUIDES TRANSFORMATION AND EVOLUTION OF
CONCEPTS AND PRACTICES OF DECENTRALIZATION FROM
THE TRANSFER OF AUTHORITY WITHIN GOVERNMENT TO
THE SHARING OF POWER, AUTHORITY, AND
RESPONSIBILITIES AMONG BROADER GOVERNANCE
INSTITUTIONS.


 THOSE ARE THE CHALLENGES THAT NEED TO BE CONSIDERED
AND ADDRESSED PROPERLY IF DECENTRALIZATION AND
DEVOLUTION OF CENTRAL AUTHORITY TO THE
AUTONOMOUS LOCAL ENTITIES ARE TO FUNCTION
EFFECTIVELY MAKING PROVISION OF PUBLIC SERVICE
BETTER, THE LOCAL PEOPLE EMPOWERED AND THEIR
WELFARE IMPROVED.


MAKING GOVERNMENT WORK: DECENTRALIZATION AND REGIONAL AUTONOMY

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MAKING GOVERNMENT WORK: DECENTRALIZATION AND REGIONAL AUTONOMY