Thu, 25 Dec 2003

'Steady as she goes' on local autonomy

Bambang Brodjonegoro Department of Economics University of Indonesia

It has been almost three years since the first day of implementation of Law No. 22/1999 on local government and Law No. 25/1999 on intergovernmental fiscal relations, which also marked the beginning of a drastic and massive decentralization process in Indonesia.

It was drastic because Indonesia has been strongly centralized for more than 30 years and suddenly, beginning Jan. 1, 2001, Indonesia became a very decentralized country with power being shifted from the central to regency (kabupaten) administrations.

It was massive because most government powers were shifted to regency governments, leaving only five major responsibilities in the hands of the center, namely diplomatic relations, national defense, fiscal and monetary authority, the judicial system, and religious affairs.

Consequently, the central government had to reduce its size and, on the other hand, the regency governments had to expand. As a result, the central government closed down its "branch offices" at the local level, which used to be called kantor wilayah (kanwil), and their powers were taken over by local government agencies (kantor dinas).

With this massive shift, there has been a transfer of around two million civil servants, at least administratively, from the central government to both provincial and regency governments.

During the three-year period, the focus and discussion on regional autonomy has ebbed and flowed in line with the central government's commitment.

The first two years, 2001-2002, were marked by zeal on the part of both central and local governments in making regional autonomy work. The central government's commitment was quite firm as indicated by the existence of the Office of the State Minister for Regional Autonomy.

The central government was also busy producing legal products to support the implementation of regional autonomy in the form of government regulations, presidential decrees, etc.

However, this commitment seemed to weaken with the abolishment of the Office of the State Ministry for Regional Autonomy. Although, the government stated that the Ministry of Home Affairs would take care of regional autonomy matters, the tone has never been the same since then. Instead, the decentralization process has become a routine activity without any real breakthroughs in making regional autonomy benefit local people.

What makes ordinary Indonesians aware of regional autonomy are the reports, often bizarre, that emerge around the time of gubernatorial or regental elections. Of course, the process of electing local officials is now totally different compared to the centralized era and we have to admit that it is more democratic.

However, old (and disturbing) practices are still there, especially bribery and the shortsightedness of political parties. It is still questionable that candidates for local offices have any desire to improve the well-being of local people or their welfare.

The creation of new provinces, regencies, and municipalities is another trend that has made Indonesians aware that regional autonomy is still going on. Currently, there are 32 provinces with a total of 416 regencies and municipalities. The annual growth rate of new regencies and municipalities is a staggering 10 percent. If there was no general election in 2004, the number would still be increasing, but due to the administrative requirements for the election, the establishment of new local government units has been halted temporarily. However, after 2004, there will be many more new provinces, regencies and municipalities as the applications are still piling up in the Ministry of Home Affairs. It is debatable whether having more local governments will help the regional autonomy process, and eventually local people's welfare. One side of the argument is that a government that is closer to the people will be better able to identify the local people's public service needs. However, the other side says that having local government units that are too small cannot be justified economically, especially from the local capacity point of view. While the debate may be endless, the creation of new local governments has been a common phenomena following a decentralization process, as was the case in the Philippines during the 10 years of their decentralization process.

Although the current process of regional autonomy and decentralization emphasizes the empowerment of local government, many are still worried that local officials misinterpret the process as giving them the right to set up small fiefdoms. The small size of current local government units should make local officials think more about cooperation between local governments. Such cooperation should extend from the administrative arena into economic affairs. It would save a lot of money as regards the provision of local public services, and at the same time optimize economic capacity. One basic requirement for such cooperation is to allow the free movement of goods, services, capital and people between local government jurisdictions. There are still some regions where the local governments are imposing "export taxes" on the export of their local commodities to other parts of Indonesia. Another example is the "informal tolls" charged at the borders of regencies and municipalities, especially on trucks. While these two forms of charges will contribute relatively insignificant amounts to local (provincial/regency) own-source revenue, there is no doubt that the side effects will be devastating -- a high cost local economy, reduced local competitiveness and eventually a bad local investment climate.

Since revenue generation at the local level is still the focus of most local governments in Indonesia, it may be too early to evaluate the performance of local governments in planning their strategies to improve local people's welfare. Logically, the regencies and municipalities with significant amounts of revenue, especially under natural resources revenue sharing, do not have to rely too much on own-source revenue and, consequently, are not really interested in "illegal charges" such as local export taxes and unauthorized levies.

Some of them, however, are still interested in creating additional (but unnecessary and illegal) fees such as "third party contributions" (sumbangan pihak ketiga).

Some others, even though do not seek additional local revenue sources, do not spend their money wisely and optimally. There is still a tendency to focus on "white elephant" projects without any clear multiplier or spill-over effects that will benefit the local people.

People will question decisions to focus on big budget projects without any benefits for the local community.

However, there are some regions that have shown the ability to come up with innovative ideas to promote local development through local government cooperation and the enhancement of local public participation.

Some poor regencies (in terms of own-source revenue) have come up with breakthrough policies to accelerate their local economic development without relying on their own budgets.

The case of Jembrana regency in Bali could be cited as an interesting example. In this regency, the effectiveness of the local leader has been crucial factor in turning around the local economy. In doing this, he has been fully supported by the locals.

Making decentralization and regional autonomy work should be an attractive issue for political parties during the 2004 election as long as they can demonstrate their commitment to making the process beneficial to local people.

There are two big issues in the process that need to be taken into account, the amendment of Law No. 22/1999 and Law No. 25/1999, and horizontal and vertical intergovernmental coordination.

The amendment process in respect of Law 22/1999 is still going on with the minimum objective being to incorporate the direct election of local officials and the maximum objective being to optimize the monitoring and evaluation role of both the central government and the country's neglected provincial governments.

An increase in local taxing powers should be the main focus of the amendment of Law No. 5/1999. However, the effectiveness of these amendments will be lessened if there is no horizontal intergovernmental coordination in the form of sectoral law adjustments to both Laws No. 22 and 25.

There should be firm leadership on the central government side to enforce the decentralization spirit in every sector and ministry so that local governments do not complain that the central government is not fully committed to decentralizing powers. The imbalance between the number of deconcentrated projects (also known as DIP or Daftar Isian Proyek) and specific purpose grants (DAK) is one indicator on how some parts of the central government still want to retain their powers.

Leadership and good coordination are also needed in the cases of Papua and Aceh, which are now experiencing asymmetric decentralization.

The discrepancies between the special autonomy law on Papua and the formation of two new provinces in Papua has created nothing but local conflict and uncertainty. It is also clear that not much has been done to implement the special autonomy law in Papua except on the fiscal side through the payment of general allocation funds.

In the Aceh case, the question of the effectiveness of the special autonomy law, apart from the fiscal side, is still up in the air due to the current implementation of martial law.

On one hand, the special autonomy law could be a good solution for dealing with troubled regions, but on the other hand the inability to fully implement the law could lead to further problems, such as the potential disintegration of the country. The cases of special autonomy in Aceh and Papua also show that giving more money will not necessarily solve all the problems. Giving proper recognition might be the answer to the problems in Aceh and Papua without sacrificing the unity of Indonesia.