The key issues and excesses raised by the latest World Bank report on the first two years of Indonesia's decentralization served to confirm the complaints of businesspeople, non- governmental organizations and other analysts.
Most of the major issues were certainly expected in the transition from a strongly centralized government to a decentralized one in a country as large and diverse as Indonesia.
It is worth recalling that the two laws on decentralization were hurriedly drawn up in 1999 under strong pressure from the regions after the fall of Soeharto.
The introduction of decentralization in 2001 was further complicated by clamoring in the regions, often stoked by groups with vested interests, for the creation of new provinces and districts, mainly in pursuit of power and control of local resources.
Now, after two years of experiment, it is time to review the basic rules of decentralization, to prevent the problems from worsening and eventually killing the program's very goal of bringing government closer to the people.
The report correctly identifies the key issues in four main areas: The assignment of functions over the three levels of government, institutional capacity, the intergovernmental fiscal system and government accountability.
The central government is aware of the problems, evidenced by its proposal last year to amend the two laws to strengthen the fiscal, legal and administrative framework for the decentralization process. However, public opinion of the proposed amendments was affected by the suspicions of regional politicians, who accused the central government of being capricious in its commitment to devolve power to the regions.
The central government should indeed tread carefully in balancing its desire, or its obsession, as many analysts say, to maintain the unitary state with the aspirations of the regions and the benefits and opportunities offered by a more decentralized system of administration.
It would perhaps be wiser to wait for the establishment of the Council of Regional Representatives in the 2004 legislative elections before making any comprehensive changes to the decentralization laws.
The government has correctly made its top priorities the strengthening of the procedures governing the issuance of regional regulations which contradict national laws and interests, local administrations' accountability through a more reliable budget reporting system and control of local government borrowing.
But there are many other issues that need to be resolved to safeguard the decentralization process, and the government certainly cannot address them all at once.
Moreover, many of the problems, such as those related to the need for more clarity in the assignment of government functions, will require time to resolve because they involve the amendment not only of the two laws on decentralization, but also of many other sectoral laws and regulations.
Likewise, building the capacity of local institutions is a long-term process that must be undertaken as an integrated part of a national campaign to build good governance. Institutional capacity building not only involves the establishment of rules but, most importantly, the development of human resources.
However, the government is well advised to strengthen the measures to force higher standards of accountability in local administrations. The system of reliable financial accountability being developed through an audited budget report is a good start. But facilitating direct elections of governors and district chiefs will go a long way toward enhancing accountability.
Next on the agenda should be improving intergovernmental fiscal relationships, notably the rules on the formulation of equalizing grants. This would help reduce inequalities between rich and poor regions, and inequalities in the power of taxation held by the central and local governments.
The early decentralization process has put most of the emphasis on devolving spending authority to regional governments, while the power of taxation remains largely concentrated in the central government. While this is necessary to give the central government more resources for allocating equalizing grants to poorer regions, it does not provide much incentive to local governments to create a good business climate.
Instead, the tendency among most local governments now is to impose improper taxes and levies on existing businesses, at the expense of scaring off potential new investors.
Giving local governments more power of taxation will encourage them to compete for more private investments, fully aware that new businesses create jobs, thereby increasing the purchasing power of locals and fueling economic activity on which local taxes or levies can be collected. Rapidly expanding businesses will in turn raise the value of local property and will enable local governments to raise more revenue from property taxes.