Academic journal article Journal of Southeast Asian Economies

Indonesia's Decentralization Experiment: Motivations, Successes, and Unintended Consequences

Academic journal article Journal of Southeast Asian Economies

Indonesia's Decentralization Experiment: Motivations, Successes, and Unintended Consequences

Article excerpt

1. Introduction

Indonesia's "big bang" decentralization, which took effect in 2001, saw the country transform from highly centralized (Smoke and Lewis 1996) to highly decentralized governance (World Bank 2007). Unlike in many other countries that were part of the decentralization wave, this process was driven primarily by the extraordinary political circumstances of the time, rather than by attempts to capture efficiency gains in governance or economic performance. After three decades of heavy-handed and centralist authoritarian rule under President Soeharto's New Order (1966-98), Indonesia faced strong centrifugal forces along its periphery and political instability caused by elite fragmentation. Rapid decentralization was the chosen method to address both crises.

Under the decentralization laws of 1999 (Law 22/1999 and Law 25/1999), the primary responsibilities for a large range of government functions--with the exception of national defence, international relations, justice, police, monetary policy, and finance--were transferred to the district level of government. (1) While central transfers account for roughly 90 per cent of sub-national government expenditures, the decentralization laws grant localities significant autonomy over the ability to allocate resources according to local preferences, subject to standard-setting from the centre (Shah, Qibthiyyah and Dita 2012).

Concurrent with the decentralization process, Indonesia also underwent a democratic transition that saw the introduction of competitive direct elections across multiple levels of government. (2) Directly elected district-level legislatures acquired significant powers over local budgets, laws and regulations. While this devolved administrative decision-making significantly, variation in local capacities has also exacerbated differences in the quality of governance.

Arguably, there are two significant successes of Indonesia's decentralization process. First, decentralization has increased autonomy for the periphery of Indonesia's vast and ethno-culturally diverse archipelago, thereby allowing local cultural expression to thrive, enervating the centrifugal forces that have long complicated centre-region relations (Aspinall 2010; Mietzner 2014). Second, decentralization has played a role in dispersing political power across political levels and geographic areas, thereby inhibiting the extreme concentration of power that characterized Soeharto's New Order government.

While decentralization has been theorised to affect development by improving the responsiveness of governance to local conditions, we argue that a review of the evidence from Indonesia is decidedly mixed. Specifically, there is little evidence that decentralization has led to an increase in economic growth. Some aspects of public service delivery may have benefited from increased local autonomy and accountability, but the net effect is unclear at best. Elite capture and rampant administrative overspending limit the positive impact of decentralization on governance.

This paper proceeds as follows. The second section outlines the history of decentralization in Indonesia, focusing on the perpetual tensions between unity and diversity in the vast archipelagic country. The third section details the current status of sub-national-central relations. The fourth section examines current political debates around decentralization, while the fifth section provides an overview of research on the outcomes of decentralization.

2. History of Decentralization

The modern boundaries of Indonesia are a colonial creation that tie together an extraordinarily diverse and improbable population, currently the world's fourth largest at a quarter billion people. Its 17,000 islands stretch over 5,000 kilometres from Papua in the east to Aceh in the west; the country's vast diversity and size engender an inevitable tension between administrative unity and regional autonomy, as well as ensure the virtual isolation of many communities. …

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