The Impact of Indonesia's Decentralization Reforms Two Decades On Introduction.

AuthorNegara, Siwage Dharma

Following the end of the New Order in 1998, Indonesia embarked on a far-reaching decentralization drive. Envisioned as a means of restoring political rights to citizens, disrupting the country's pervasive patronage networks, and quelling calls for regional autonomy, Jakarta devolved extensive governmental responsibilities to the subnational level.

To this end, sweeping changes were passed which curbed the power of the executive, revitalized the role of the legislature, and rolled back controls on political life. In addition, financial resources and administrative authority in a wide range of areas were devolved to local governments, namely municipalities and regencies.

These measures were drawn up in 1998, legislated in 1999, and implemented in 2001. The key provisions were the following: Law 1999/22 on regional government, which transferred a significant proportion of government responsibilities in areas such as education, health and infrastructure to the local level, and introduced elections for the local and provincial levels; and Law 1999/25 on the fiscal balance between the centre and the regions, which established the financial infrastructure to enable these changes (Ostwald, Tajima and Samphantarak 2016).

With these measures, Indonesia went from having one of the world's most centralized government structures to one of the most decentralized, with only a core set of responsibilities such as foreign affairs, defence, and monetary policy remaining at the centre. Early reviews carried out by organizations like the World Bank (2005) labelled Indonesia as a leader in Southeast Asia for the breadth and depth of its decentralization drive.

Two decades after the reforms were enacted, it is timely to review the effects of these changes. On the one hand, surveys have indicated broad-based support for the decentralization reforms (KPPOD 2017, 2021). However, much of this backing may have been derived from the decentralization's political rather than economic or service delivery implications. For example, the decentralization drive has: revitalized regional identities that were suppressed under the New Order; reduced the predominance of Java in the country's life (Mietzner 2014); and diversified the country's elite by opening alternative pathways to national-level political office (Ostwald, Tajima and Samphantharak 2016).

Yet, on the other hand, the record in terms of economic growth and public service delivery is more mixed. The decentralization reforms have led to demands for the creation of new provincial and, especially, local governments (Patunru and Rahman 2014). However, the efficiency-enhancing effects of competition between subnational governments for investment, as theorized by early proponents of fiscal federalism (Thiebout 1956), have yet to fully manifest themselves. The new government structures have varying degrees of capacity, which, in turn, has complicated service delivery and increased the potential for inefficiency (Lewis 2014). There also appear to be issues with the design of fiscal transfers from the centre to local and provincial governments, as they are not sufficiently linked to economic growth and investment (Fadliya and McLeod 2010).

Nonetheless, greater autonomy for subnational governments has allowed for local initiative in areas such as business licensing, regulations, and the quality and extent of infrastructure (von Luebke 2009). Furthermore, the country's more decentralized governance structure has allowed for more participatory decision-making processes in areas like urban planning (Padawangi 2019).

Given the haste with which the decentralization reforms were developed and put into operation--a process some have called "building the ship while sailing it" (Buente 2004)--policymakers have had to amend key provisions. Conscious of the inherent difficulty of the central government communicating with an ever-growing number of local governments, the coordinating role of provincial governments was strengthened in 2004 (UNDP 2009). That same year, direct elections were introduced for leaders at the provincial and municipal levels. And in 2007, a government regulation was passed that sought to clarify the roles and responsibilities of the various levels of government. Its aim was to reduce overlap and provide a measure of oversight by central government ministries of activities carried out by subnational governments (Ostwald, Tajima and Samphantharak 2016).

Furthermore, due to the sheer number of requests for new local governments, a moratorium on their establishment was declared in 2009, before being rescinded in 2012 (Simandjuntak 2015). In its place, Law 23/2014 provides a crucial measure of central government oversight of new subnational governments, by allowing underperforming ones to be re-absorbed by their originating provinces or local governments (Articles 46^17).

Conversely, national policymakers have also wavered in their commitment to decentralization--a pattern broadly replicated elsewhere in Southeast Asia (Malesky and Hutchinson 2016). While relatively expansive in political and administrative dimensions, Indonesia's decentralization reforms in terms of finance have been partial, with key revenue-raising responsibilities retained at the centre (Shah, Qibthiyyah and Dita 2012). In addition, the process has also been questioned and, at key junctures, very nearly reversed. In 2014, in the last weeks of the Susilo Bambang Yudhoyono administration, direct elections for local government leaders were very...

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