'Businesses fear venality of office in autonony policy'

The following is an interview with Revrisond Baswir, an economist at Gadjah Mada University and the director of the Institute of Development and Economic Analysis in Yogyakarta, who discusses the implications of regional autonomy on many aspects including the livelihood of millions of civil servants.

Question: What will be the business implications of the regional autonomy law?

Answer: We first have to differentiate between Law No. 22/1999 and Law No. 25/1999. The first implies more authority for regional governments. This also means that regional governments' participation in managing business activities in their regions will be bigger, too.

The second law on the fiscal balance between the regions and the central government implies that regional autonomy will have positive implications for the business world.

Q: Could you elaborate?

A: If a balance of authority between regional governments and the central government really existed, there would also be an increase of funds managed by regional governments. That means that regional governments would provide more business opportunities.

And yet Law No. 25 contains contradictory provisions of autonomy. Why? Because it does not change the way state income is earned. As we all see, about 95 percent of state income is earned by the central government. The remaining 5 percent is earned by regional governments, and this is popularly known as original regional income. The law does not change this.

Therefore, the only change regulated in Law No. 25/1999 is the allocation of subsidies from the central government to the regional administrations.

Q: Can we say that Law No. 25/1999 retracts the regional autonomy regulated in Law No. 22/1999?

A: Yes, you may say that. In this case, autonomy only deals with the delivery of authority from the central government to the regional administrations, while the finances are still 100 percent under the control of the central government.

Q: And what are the implications of this situation?

A: When a person is given a lot of authority while still remaining financially dependent, he or she will look for ways to earn additional income. He or she probably will misuse their authority (to this end). What emerges then are efforts to raise illegal levies or retribution fees and the likes, in a bid to balance the increased authority he or she has. This will, of course, burden businesses in the regions.

What happens next will be quite different from our expectations. In spite of improving economic activity in the regions, regional autonomy will only make this (economic activity) difficult to carry out. In other words, it will only make investors more reluctant to invest there.

Frankly speaking, there is currently a lot of concern among businesspeople about the application of regional autonomy. First, they see that it is unclear about who has the authority to issue investment licenses, business licenses, etc. At the same time, they also see that regional governments have more authority, but are still financially dependent on the central government.

Therefore, they (businesspeople) see the threat of the regional governments executing their authority by applying any fee they can, which will only cause difficulties for them.

Q: Is there also the possibility government officials will misuse their authority for their own interests?

A: It is quite possible, especially if we relate it to the history of the Dutch colonial government here. There was the so- called "venality of office", or the renting out of authority to earn money. In that case, regional governments were given authority with which they earned their income, and with the authority they were given they were asked to pay bribes to the central government.

What happens with the regional autonomy (according to Law No. 25/1999) is similar to the "venality of office" in the context of the Dutch colonial government. The central government gives authority to the regional ones, by which they earn their own income, and they will pay the same "tribute" to the central government for the authority given to them.

This is what is called systemic corruption, in which authority is rented. The state tax is collected by the central government; regional governments are given authority but they are asked to earn their own incomes.

Q: The regional autonomy laws will soon come into effect, so what can be done to prevent such negative consequences?

A: I believe the Law No. 25 should be amended because it, from a financial point of view, is very centralistic. All the revenue is still collected by the central government, and it only regulates regional subsidies.

There is also an annoying article in the law which says "the central government will undertake a regional financing information system". This means that the information system will be under the authority of the central government.

That is why I strongly suggest an amendment so that regional autonomy will not be interpreted as the delivery of authority only.

Q: Which part of Law No. 25/1999 should be amended?

A: The one that regulates fiscal balance between the central government and regional governments. It should be amended so it will not only deal with the balance of spending, but also the balance in the finances.

In principle, the law should regulate which part of the central government's income can be allocated to the regional governments. Land and building taxes, for example, should fall under that jurisdiction and be collected by the regional governments, not the central government. The same thing can also be applied to the cigarette excise. In this way, we could prevent a situation where regional autonomy only benefited regions rich in natural resources.

What concerns me is not how income from non-natural resources is passed on as subsidies to regional governments, but how we make this part of the direct income of regional governments.

Q: Do you think we should postpone the enactment of the autonomy laws in order to amend them?

A: I think we can just go on with what we currently have while at the same time preparing to make the amendments.

I would also like to suggest the establishment of a regional audit board. The way it happens now, everything is audited by the central audit board, regardless of the fact that it is a state institution that is accountable to and must submit reports only to the House of Representatives.

There is no institution that is responsible to and must submit financial audits to regional legislative bodies. In other words, regional control of regional governments is currently very weak, because regional legislative bodies do not have the proper authority. (Sri Wahyuni)