Economic freedom for provinces 'indispensable'

Economic freedom for provinces 'indispensable'

JAKARTA (JP): The government must provide provincial
administrations with real economic autonomy to prevent the
country from disintegrating, according to the Institute for
Development, Economics and Finance (Indef).

Nawir Messi, a senior economist at the privately-owned think
tank, said on Wednesday that the first step toward granting
greater autonomy to the regions was to restructure the state
financing system, under which the central government currently
collects almost all of the revenue which could potentially be
retained by provincial administrations and redistributes the
money it collects in an imbalanced way.

He said the centralized financing system had made provincial
administrations highly dependent on the central government, which
provides them with almost half of their annual budgets.

"With this kind of system, the process of provincial
development depends on the mood of the central government ...
this has the potential to trigger national disintegration because
provinces which are rich in natural resources could become very
dissatisfied," Nawir told a discussion on Wednesday.

"It also discourages the local government from participating
wholeheartedly in the development process because the benefits go
straight to the central government."

He said the state financing system was among the most
centralized in the world, even when compared to China, whose
provincial administrations are completely self-financing.

Nawir said the centralized system has forced provincial
governments to lobby the National Development Planning Board
(Bappenas) for funding on an annual basis.

"This non-standard and non-transparent way of securing a
budget results in massive leakage," he said.

Nawir explained that the centralized financing system was
created during Soeharto's rule to preserve political stability at
the expense of the people's welfare.

"Only a limited amount of provincial output is enjoyed by
local people," he said, pointing to Freeport's multi-billion
dollar gold mining operation in Irian Jaya which has frequently
been criticized for doing very little to improve the welfare of
local inhabitants of the province.

He said the IMF ranks East Kalimantan and Riau as the richest
regions in Southeast Asia excluding Singapore and Brunei, but
pointed out that consumption per capita of residents of these two
provinces was very low compared to the regional average.

"That means the local population is not enjoying the fruits of
development," he said.

He also said the situation in Aceh, which is ranked as one of
the richest provinces in the country, was no different.

"This problem could trigger widespread social unrest if the
government fails to deal with it effectively," he said.

People in Irian Jaya, Aceh, and Riau have all recently
protested against this injustice and have demanded greater
autonomy.

Nawir said the dominant role played by the central government
has caused investment to become overly concentrated on the island
of Java and the greater Jakarta area in particular.

As a result, 70 percent of the value added from the country's
three decades of industrialization has gone to Java and Jakarta
at the expense of the provinces which are most abundant in the
natural resources which fueled this process, he explained.

He also said that the centralized financing system has caused
a financial outflow from regions outside Java to finance the huge
deficit spending on the latter island. (rei)