MAKING GOVERNMENT WORK: DECENTRALIZATION AND REGIONAL AUTONOMY

byGinandjar Kartasasmita

National Graduate Institute for Policy Studies Tokyo, Japan

2012

CONTENTS

THE ARGUMENT FOR CENTRALIZED GOVERNMENT

DECENTRALIZATION: THE CONCEPTSHOW DECENTRALIZATION WORKS IN INDONESIA

THE OUTCOMESLESSONS TO BE LEARNED

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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’SCOAT 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.

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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 OFKEEPING 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 MUSLIMINSURGENCIES 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 OTHERMULTIETHNIC 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 WASMET 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 OVERLYCENTRALIZED 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. DECONCENTRATION2. DELEGATION TO SEMI‐AUTONOMOUS AGENCIES3. DEVOLUTION TO LOCAL GOVERNMENT4. TRANSFER OF FUNCTIONS FROM PUBLIC TO

NONGOVERNMENT INSTITUITION

(CHEEMA & RONDINELLI, 1984)


DECENTRALIZATION

TRANSFER OF AUTHORITY CLOSER TO THE PUBLIC TO

BE SERVED

TERRITORIAL FUNCTIONAL


Nature of Delegation Basic for Delegation

Territorial Functional

Within formal political structures Devolution (political decentralization, local government, democratic decentralization)

Interest group representation

Within public administrative or parastatal structures

Deconcentration(administrative decentralization, field administration}

Establisment of parastatals

From state sector to private sector Privatization of developed function (deregulation, contracting out, voucher schemes)

Privatization of national functions (divestiture, deregulation, economic liberalization)

Forms of decentralization

(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)


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.


DECENTRALIZATION IS NOT TOTAL DEVOLUTION

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.


CENTRALIZED DECENTRALIZED

CENTRALIZED DECENTRALIZED

OR

EITHER

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.


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

TWO APPROACHES ON SEQUENCING DECENTRALIZATION


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.

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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

1946-1966

Economic Crisis

Separatism

Social Unrest

Political turmoil

Law No. 22/1948 Decentralized

Law No. 44/1950 Federalized

Law No. 1/1957 Decentralized

Presidential Decree No. 6/1959

Centralized

Law No.18/1965 Decentralized

1966-1998High and stable economic growth

Authoritarian Regime

Law No. 5/1974 Centralized

Government Regulation No.8/1995

Pilot Program on Decentralization

1999

Economic CrisisSeparatismSocial UnrestPolitical turmoil

Law No. 22/1999Transition into Democracy and Decentralization

Law No. 25/1999

Law No. 18/1999

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Period Main Issues Legal Framework Intergovernmental Relation

1999-2000

Democracy

Economic Recovery

Second Constitutional Amendment 2000

Foundation for Enhanced Decentralization and Regional Autonomy

Law No. 18/2001Law No. 21/2001

Big Bang of Decentralization

2001-2004DemocracyEconomic Recovery

Implementation Law No. 22/1999 and No. 25/1999

Decentralized

2004- Democracy Implementation Law No. 32/2004 and No. 33/2004

Decentralized


DISTRIBUTION OF AUTHORITIES AND FUNCTIONS Central Local Government

Obligatory Function Optional1. Foreign Affairs 1. Planning and Monitoring 1. Mining2. Defense 2. Spatial Planning 2. Fishery3. Security 3. Social order and security 3. Agriculture4. Religion 4. Public infrastructure services 4. Farm5. Judicial 5. Health Services 5. Forestry6. Monetary and Fiscal 6. Educational Services 6. Tourism7. Others 7. Social

8. Labor9. SME’s and Cooperatives10. Environment11. Land (?)12. Civil administration13. Government Administration14. Investment Administration15. Other services16. Other obligatory function


LOCAL FINANCE IN INDONESIA

SOURCES

LOCAL REVENUES EQUITY FUND OTHERS

LOCAL TAXES

RETRIBUTIONS

REVENUES FROM LOCAL ASSETS

OTHERS

SHARING REVENUES

GENERAL ALLOCATED FUND

SPECIAL ALLOCATED FUND

GRANT

EMERGENCY FUND

LOAN


REVENUES SHARING BETWEEN CENTRAL AND LOCAL

Shared-Revenues

Before AfterCentral Province District/

CityCentral Province District/

CityShare to

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

operate55% 30% 15% 20% 16% 64%

4. Commission on Forestry Resource

55% 30% 15% 20% 16% 32% 32%

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%)


THE OUTCOMES

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.


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.


THE DOWNSIDE

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, MANYREGIONS HAVE INCREASED LOCAL TAXES AND IMPOSED NEW LEVIES THAT HAVE BECOME A SIGNIFICANTCONCERN 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

SOURCE: MOF, 2011

* AT 2000 CONSTANT PRICE


TRENDS OF SPECIAL ALLOCATION FUND

SOURCE: MOF, 2011


SOURCE: MOF, 2011

GROWTH OF GOVERNMENT EMPLOYEES


LESSONS TO BE LEARNED

GOOD THEORY POOR PRACTICE


POOR PRACTICEGOOD THEORY

•Basic Human Rights

•Democracy

•Decision Making

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

•Prevent disintegration

• Disunity

• Warlordism

• Nepotism

• Exclusivism

• Local Elites



•Debureaucratization•Efficiency• Effectiveness• Span of Control• Licence and Permit• Client Interaction• Representativeness• Populism/Pluralism• Differentiated Public• Better:i. Planningii. Executioniii. Supervisioniv. Monitoring

• Weak Institution

• Limited Human Resources

• Unclear Responsibility

• Decentralization of corruption



• Efficiency• Resource Optimization• Equity i. Resource allocation/distribution

ii. Povertyiii. Closing disparityiv. Opportunityv. Empowerment

• Demonopolization• Entrepreneurship• Environment• Inter‐Regional Cooperation• Inter‐Regional Competition• Ownership of Development

• Rich Region Richer• Poor Region Poorer• Regional Barrier to Commerce• Environment knows no

Administrative border• National vs Local Rules• National vs Local Taxes



• Efficiency in Delivery ofi. Education

ii. Healthiii.Other social

services.

• Local Capabilities in Service Delivery

• Responsive to Locali. Needsii. Potencialiii. Shortcomings

• Social Cohessivenes• Social Solidarity

•Different Level & Quality of i. Education

ii. Healthiii. Social

services.

• Social Immobility



• Plurality• Diversity• Preservation of local:i. Languageii. Artsiii. Traditition

• Dignity• Self Esteem• Confidence• Local Wisdom

•Primordialism

• Local vs Modern Values


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 ANDIMPLEMENTED, 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

Education

Transcript of MAKING GOVERNMENT WORK: DECENTRALIZATION AND REGIONAL AUTONOMY