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)