RI's chaotic decentralization

By Hans W. Vriens

JAKARTA (JP): Two months ago Indonesia overnight moved from one of the most centralized to one of the most decentralized states in the world. The first results are not promising. There is almost complete uncertainty, misunderstanding, and confusion among all parties about the meaning and direction of the decentralization process.

Jakarta has not clearly defined and explained the roles and responsibilities of different government bodies, or different layers of government.

That does not bode well for a country whose virtually blind president is addicted to a diet of continues overseas travel instead of focusing on solving problems at home.

Nobody in Indonesia seems to know what the responsibilities under so called "regional autonomy" are of the central government, the provinces and the municipalities.

Because the central government still has to promulgate hundreds of regulations the biggest overhaul of Indonesia's government in 56 years takes place in an almost complete legal vacuum, and amid great political uncertainty.

Worse, the president has abolished the ministry of regional autonomy that was responsible for introducing it.

What is clear is that Jakarta has devolved many powers to the municipalities. In theory it may make sense to give powers to local governments because they are closer to the people. In practice municipalities in Indonesia have no clue how to govern. They were never supposed to.

During the 32-year long kleptocratic rule of the authoritarian president Soeharto the huge Indonesian archipelago was ruled from Jakarta. All-important decisions were made by the president. Ministers, provincial governors and mayors were supposed to execute, not to make, policies.

To make sure mayors on outlying island understood their role the army and the central government had a presence in every province and every municipality. Nobody knows what to do with the more than two million central government civil servants who are based in the provinces.

Officially the regions have to employ them. However, many regions have already made clear that the Javanese representatives of the Jakarta elite in their municipality are somewhat less than welcome to join the local bureaucracy.

The old system of over-centralization made sure the political power, and the wealth of resource-rich Indonesia stayed within a small group consisting of the president, his family, their cronies and the Jakarta elite.

As a result, the oil rich province of Riau opposite Singapore produces two-thirds of Indonesia's oil, but received less than 5 percent of this revenue in the form of central government grants. That is why Riau is known for two reasons: oil and poverty.

After the overthrow of Soeharto three years ago the provinces and regions demanded a fair distribution of wealth and a say in their own affairs. The introduction of far reaching autonomy was widely seen in Indonesia as the only way to avoid a break-up of the fourth most populous country in the world.

It was also viewed by its architects as a way to break the power of the Jakarta elite, who are still very much in control. It would also make Indonesia more democratic. Revolutionary thoughts for a country where the word federalism is still taboo.

The fear is that a genuine federal state would make the 32 provinces too powerful. Once the provinces realized they longer needed Jakarta, they might try to break-away, as the provinces of Aceh and Irian Jaya have been trying to for a long time.

To avoid this dooms-day scenario for Indonesia the architect of "regional autonomy" Ryaas Rasyid decided to handover many powers directly to the 364 municipalities, and give the provinces a vague mediating role between municipalities. That these local governments were completely unprepared to take over was a minor concern.

One consequence of the introduction of "regional autonomy" is that mining companies no longer can negotiate about their contracts with the once powerful ministry for mines and energy. Instead they have to deal with the mayor in the area in which their mine is located.

The mayor of Kutai in East Kalimantan makes clear why people call him "little king". "For 32 years we handed the money over to Jakarta. Now it's our turn to benefit to benefit from the mines." Under "regional autonomy" the regions will receive 80 percent of government revenues generated by mining.

Unfortunately Indonesia is "decentralizing a dream", as an executive of an American mining company puts it. Tax rates in Indonesia are already so high that no new significant investment in the mining sector has come in during the last few years. Regional autonomy effectively kills the necessary foreign involvement in the mining sector.

"Try to get convince Citicorp in New York that you want a 10 year loan because you negotiated a contract with the mayor of Kutai on the island of Kalimantan instead of the central government," an executive said. The mining industry in Indonesia is expected to shrink by 30 percent in the next five years.

Surprisingly the fundamental change of Indonesia's government structure has been introduced by stealth. President Abdurrahman Wahid and his many opponents in the legislature are too busy trying to "impeach" or "dissolve" each other to even think about the far reaching implications of handing over many powers to the municipalities.

To make matters worse some influential people in Jakarta have second thoughts about having handed over so many powers to the regions in a moment of democratic euphoria. At the same time the provinces have started a counter-offensive to reclaim their powers.

While at the same time the municipalities make clear they are not willing to give up any of their newly won powers and budgetary responsibilities.

To make matters worse, the regions do not believe Jakarta is willing and able to relocate all the financial resources it is supposed to under "regional autonomy".

As a result the central government and many local governments are raising existing and inventing new taxes to make up for their expected budget deficits.

There is no doubt that decentralization of Indonesia is long overdue and that it will create good economic prospects in regions that are well governed. The problem is that very few regions in Indonesia have experience in governing.

The writer is Managing Director of APCO Indonesia, a wholly owned subsidiary of APCO Worldwide, a leading political risk and government relations firm.