Fiscal autonomy for regions<\/p>\n
President Soeharto's written address for the presentation of
\nbudgetary authorization documents on development projects for
\nimplementation in fiscal 1994-1995 to the 27 provincial governors on
\nThursday touched upon one of the major issues of development within the
\nnext 25 years -- decentralization of administrative responsibility to
\nprovincial and district administrations.<\/p>\n
The President warned the local administrators against abusing the
\nadministrative power accorded them by the central government. He said
\nthe central government was transferring more administrative authority to
\nlocal administrators and they should exercise the power in a productive
\nand responsible manner. He also asked the local administrations to
\nstrengthen their financing capacity by developing a broader source of
\nlocal revenues.<\/p>\n
As we noted briefly in this column on March 31, the decentralization
\nof power from the central government to local (provincial and district)
\nadministrations is one of the major tasks that has to be accomplished
\nwithin the next 25 years to sustain not only economic growth but the
\ndevelopment process itself. Indeed, our economic development over the
\npast 25 years has now reached such a stage that the present
\ncentralization of administrative power in such a vast archipelagic
\ncountry is increasingly untenable. In fact, decentralization should be
\nseen as the next most important agenda item after economic and
\nbureaucratic reforms. When we talk about decentralization we mean the
\ntransfer of more essential administrative and fiscal authority to local
\ngovernments.<\/p>\n
As the President stated in his March 31 speech, more administrative
\npower has been transferred to local administrations. But we feel the
\npace of the decentralization process has been much slower than what is
\nrequired to attain efficiency and encourage local initiatives. We should
\nremember that Law No.5\/1974, which stipulates the umbrella of legal
\nframework for the distribution of administrative power to local
\nadministrations, was enacted about 20 years ago.<\/p>\n
The October, 1993, package of reform measures did include the
\ntransfer of more administrative authority to local administrations with
\nregard to land ownership registration and titling. But many other
\naspects of the decentralization process have not been touched upon at
\nall, and more specific regulations to implement the law have yet to be
\nissued. The most often cited reason for this is that the administrative
\ncapacity of local governments is still inadequate to handle more
\nadministrative power.<\/p>\n
But what we think is lacking to the extreme in the decentralization
\nprocess is the fact that the gradual distribution of administrative
\npower has not sufficiently been accompanied by the transfer of
\nassociated budgetary resources or fiscal autonomy. Local administrations
\nstill depend on fund transfers from the central government for financing
\nmore than 75 percent of their expenditures. The collection of most taxes
\nand levies -- income and value added taxes, excise duties -- remains
\ncentralized in Jakarta and even such natural resource royalties as those
\ncollected from forests are entirely managed by the central government.
\nTherefore, local administrations have only a few, insignificant sources
\nof tax receipts, such as property tax and taxes on motor vehicles,
\nentertainment (cinema), hotels and restaurants, business registration
\nand slaughter houses.<\/p>\n
Without a more equitable assignment of tax bases between the central
\ngovernment and local administrations, the local administrations will not
\nbe able to develop initiative. They also will not be interested in
\nmaking concerted efforts to stimulate investment activities in their
\nareas. Further down the line, lack of own revenues will become a main
\nbarrier to the further development of the institutional capacity of
\nlocal administrations. We are afraid that without the transfer of
\nclearly-administered fiscal autonomy, the President's call for local
\nadministrations to increase their revenues might be misinterpreted and
\nlead to the imposing of new taxes, levies or fees which would cause
\nmarket distortions.<\/p>",
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"sponsor": "Okusi Associates",
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