Govt needs to keep decentralization on track

Indonesia has pursued decentralization since 2001, however, until now no authoritative measurement has been adopted to actually assess its progress. The Jakarta Post's Riyadi Suparno interviewed Roy Bahl, an expert in fiscal decentralization from Georgia State University, United States, on the issue of performance measurement of local government. Bahl, who has been engaged in Indonesia's decentralization process for some years, participated in a seminar organized by the World Bank and the Ministry of Home Affairs on performance measurement in Bali on Monday. The following is an excerpt from the interview.

Question: Why do we need performance measurement of local government?

Answer: Decentralization means letting local units do what they want, but at the same time, having a monitoring system allows you to check the excesses. Decentralization is about getting government closer to people. So, if it works, local officials become accountable down to the voters. Performance measurement sort of feels like local officials being accountable up to who's doing the monitoring.

Some local officials argue that they are accountable to local voters more than to the central government, because ultimately it is the voters who determine their fate? Your opinion?

All over the world, there are monitoring systems. There are good and legitimate reasons why central government opts to measure the performance of local governments. For example, conditional grants, or what you call here DAK (Special Allocation Fund): If you give a grant with a condition, then, you have to monitor whether local governments meet the condition. Another example, in order to have good financial practice, all local governments have to have financial accounts in the same format. The central government has to set that and monitor it. Also, every local government has to have their books audited, and the central government has to do that.

Every country has a limit on what local governments can do. Like in my country, the United States, local governments have a great deal of freedom, but they may be limited in terms of tax rates or in terms of their borrowing rate. Somebody has to monitor that. So, really, it's about striking the balance.

As the central government has to do the assessment, as you suggest, what areas need to be assessed by the central government?

If I were the central government, the Ministry of Home Affairs or the Ministry of Finance, I would be worried about how well decentralization is doing. I would want to monitor the performance of decentralization so that I can change policy to make it better.

If we put all these local governments on the learning curve of finance, for example, I might want to monitor how quickly they are learning financial management practices. Are their financial management practices proper? If not, what short of capacity building, training, procedural changes do we need?

So, I think, it's pretty broad. There are a lot of things to do. It would be a mistake to say that we would just watch after the local governments if they are doing the good job. That's part of it. To me, in Indonesia right now, what the central government most needs to know is whether they are succeeding in decentralization.

But measuring the success of decentralization is more than judging the performance of local governments, isn't it?

The point is it isn't just you judging each local government on how well they succeed in decentralization. What you are judging is also whether the central policy is any good.

One thing that should happen with this decentralization is that local governments should generate more revenues from their own sources, i.e. user charges and local taxes. You may find out that across the country that's not happening. Maybe it's because there are deficiencies in local administrations that need to be corrected. Maybe the central government does not give enough taxing power to the local governments.

So, the central government is doing the monitoring, but, in essence, they are monitoring themselves.

When the central government has conducted the monitoring, what needs to be done with the results, and what should be the priority?

Different things. In Indonesia, you are very concerned about disparity between rich and poor regions. If it is found that the next year, the disparity has widened in this country, this might lead you back to DAU (General Allocation Fund) to solve the problem. The question is whether the DAU is narrowing this disparity or widening it.