The Implementation of Decentralization Policy in Indonesia: Benefits and Challenges

INTRODUCTION

Since President Suharto resigned in May 1998 caused by the people power led by students, there have been remarkable changes toward democracy in Indonesia. The strong indication can be seen from the success of Indonesia in carrying out general election, where according to some observers both domestic and foreign observers, it was the most democratic general election which had ever been carried out in Indonesia; freedom of press which was formerly tightly regulated and monopolized by the central government; a dramatic increase up to 181 in the number of political party within ten months, from May 1998 to February 1999, (Fatah 2000) ; amendment of 1945 Constitution which was taboo to be done during New Order Era, then to be conducted thorough plenary session of People Assembly in 1999. In short, nearly all sectors of national life experienced dramatic democratization process. This process is nation widely called for reformasi.    

One of the most important and fascinating aspects of changes in Indonesia during this period is the evolution of the relationship between the central government and the local governments thorough the implementation of decentralization policy. During the time, the demands from the local governments to apply local autonomy have become important issue and seem impossible to be neglected by the central government. Its is viewed that the local autonomy is the right way to bring the policy makers closer to citizens and to improve the poor quality of public services, as well as to solve disintegration issues caused by unequal development felt by different regions. Then Law No 22/1999 and 25/1999 on Local Government or Local Autonomy (UU PD) and Fiscal Balance between Central and Regions (UU PKPD) respectively were launched by Habibie’s government to accommodate local demands for the central government to decentralize its power and responsibility.

Of course, there has been a great expectation on this new policy. It is expected that this new policy would create political, economical, and social stability and bring a better life to Indonesian community as well as enable to solve disintegration threat which has become more crucial recently. However, some people including central government argue that decentralization instead create more problems. A range problem that has been happening in some parts of Indonesia is viewed by the supporters of this perspective as results of the implementation of local autonomy, (Bali Post, 2002). For this reason, the Ministry of Home Affairs on behalf of the central government intends to revise the Law No 22/1999 on Local Autonomy.

This essay will try to find out the benefits of decentralization policy, as well as the challenges faced by all national components, particularly local government and its community as a central of authority in the implementation of decentralization policy in Indonesia. The first part of this essay will briefly elaborate the Indonesian political, economical and social spheres under the Soeharto’s rule which was known as centralistic policy. It will be then continued by discussing the demands for decentralization policy. The benefits and challenges faced by the Indonesian government on the implementation of this new policy as an essential part of this essay will also be presented. Finally it will be a brief conclusion.   

INDONESIA UNDER NEW ORDER RULE

As soon as Indonesia became an independent country, particularly under the Soehartos’s rule commonly called New Order, Indonesia committed to applying centralization policy, which means supporting and increasing power of the central government. Under this policy, Indonesia had shown remarkable development in all sectors. The indication can be seen from some essential changes, covering political and economic stability, over 32 years of the New Order rule, from 1966 to 1998. Based on the report of World Bank, the enrollment of primary-school had soared up since 1971, infant mortality had shown a significant decrease by 25 per cent since 1969, life expectancy had increased by 6 years since 1969, adult literacy had doubled, 62 per cent in 1989 against 39 per cent in 1960, and GNP (Gross National Product) had shown a dramatic change over the last ten years from US$ 100 in 1972 to US$ 530 in 1989, (Holloway 1989).       

These changes rose from the success of the development programs introduced by the New Order government that brought Indonesia more economically self-sufficient, and reached all levels of society in all parts of Indonesia, (Colin Mac Andrews 1985). While Birch (2001) states that the key to this success come from the ability of the state to monopolize political, social and economical power. These successes contributed to national integration and internal stability, as well as strengthen the role of the central government.

Geographically, Indonesia was beginning much more integrated due to the success of government to cope with communication problems caused by its geographic diversity, and the most important thing is the success of central government to unify and maintain the integrity of Indonesia, which consists of more than 13,000 islands with a range of communal groups, ethnics, religions, tribes, and cultures.

Economically, the New Order rule had succeeded in reaching a significant improvement for 27 years with relatively high economic growth at 6.5 of annual average growth, (Tambunan 2000). In effort to attain political legitimacy, the New Order put emphasize on economic development by adopting “an open-door policy”, (Suryadinata 1998). Such policy led to the increase of investment either from foreign or domestic investors throughout the year. In short, “the economic achievements of the New Order were at one time described as a miracle.” (Suryadinata 1998)

Birch (2001) concludes, there are two important factors contributing to the success of development in some Asian countries, including Indonesia both economically, politically and socially, which are domination of single political party which create “authoritarian or a limited form of democracy” and the widespread promotion of ethnic diversity following the strategies for resolving ethnic conflict.

Despite, the development shown by the New Order for 32 years was examined in the middle of 1997 when Indonesia underwent a crucial monetary crisis. In this period, all national capitals, including political, economic, and social capital disintegrated. The Indonesian economy did not have any power to prevent the decline of the Indonesian currency toward the US Dollar which reached unbelievable rate of more than Rp 15,000 per US dollar, whereas before monetary crisis Indonesian currency remained stable at around Rp 2,000 per US dollar for 32 years. The prices of daily needs rocketed. The society did not believe the government anymore and this obviously led to ineffective government. The political situation was very bad; riots and students demonstrated which could endanger national security happened nearly in all parts of Indonesia. In this situation, the development, which was shown during the Soeharto’s rule, began to be questioned.

In fact, the Indonesian economic development had generated uneven income distribution and contributed to the increasing gap between rich and poor. In regards to the political situation and stability, in fact, hurt society. Under the circumstances, people, then, realized the negative impact following the development which had shown by centralized government for 32 years.

Under the centralization policy, the central government had played a dominant role and even tended to be authoritarian. The Indonesian bureaucratic structure was characterized by a top-down decision making policy in which power was in the hand of the top official at the various levels of government structures. Over the 32 year period, Indonesia was under only a single ruler and even it seemed taboo to discuss leadership regeneration, whereas substitution of national leadership is very important to avoid tyrannical government (Ndiaye 1999). This was one of the efforts of the .central government to extend their strength by centralizing political power and administrative structures (Kingsbury 1998).

Another prominent characteristic of New Order rule is the widespread of corruption, collusion and nepotism (KKN). During the centralization policy, the central government monopolized resources as it controlled every economic activity. By monopolizing the resources, the central government became the center of power and it used this position to increase its influence. As Soeharto consolidated his political power, he built power with their loyalties, particularly with their families, (Kingsbury1998). Members of the ruling party took advantage of this situation by collecting wealth. In short, corruption, collusion and nepotism grew and spread in all levels of Indonesian administrative structures.

THE IMPLEMENTATION OF DECENTRALIZATION POLICY

After over 30 years under a highly centralized government, Indonesia decided to implement a policy of decentralization, as a reaction against the failures of centralized policy in dealing with administration, political, social, economic, and even cultural management. This momentum is signified by establishing the Law No 22/1999 and 25/1999 on Local Government (UU PD) and Fiscal Balance between Central and Regions (UU PKPD) respectively which officially became effective on 1 January 2001. Law No. 22 /1999 on Local Government has devolved central government powers and responsibilities to local governments in all government administrative sectors excepts security and defense, foreign policy, monetary and fiscal matters, justice, and religious affairs. The implementation of this policy is existing local autonomy which gives more authority to the local governments to manage and arrange their resources to meet local communities’ interest based on their aspirations.

Actually, decentralization is not a new term in the government system of Indonesia. In the former Law No. 5/1974 on Local Government, the notion of decentralization has been explicitly loaded. However, it was only ‘lip service’ because in practice, central government consistently showed centralistic policy and even the policy maker was not only centralized to the central government but it was centralized to a single person, president as a state leader, (Kingsbury 1998).

Conceptually, the implementation of decentralization policy is based on the willingness to create democracy, equity and justice, efficiency, community participation and empowerment, and strong local legislatures. These principles are supported by visions of reformasi which have been declared by students that is to eradicate the practice of corruption, collusion and nepotism, commonly called KKN (Korupsi, Kolusi dan Nepotisme) within the government bureaucracy. It is assumed that decentralization will create democracy thorough local community participation. Hence, democratic policy is believed encouraging the spread of development, particularly to rural area where most of the Indonesian community live.

According to Rondinelli (1981), decentralization is a wide-ranging concept, covering four heading classifications, including deconcentration, delegation, devolution and privatization. Deconcentration means transfer of some responsibilities from a central government agency to local administrative units. Delegation means transfers managerial responsibility to local governments to execute certain functions on behalf of central government. Devolution means giving a wide decision-making authority to local governments and substantially there is no any direct control from the central government. Privatization means transfers some government functions to private sectors or Non-governmental Organizations. Regarding these two laws, which are theoretically meant to complement each other, in case of Indonesia, there is a still unclear specific area of deconcentration, and it has not specified the local agents in the delegation process. This indicates that there is still uncertainty in defining decentralization in Indonesia (Tambunan 2000).

In order to get a clear understanding, firstly, it will be useful to explain Indonesia's government structures, then summarize what or to whom is being decentralized. The structure of government begins with national (central) government on the top, led by the President, Vice-president and assisted by Cabinet Ministers. Below the national government are local governments, including the provinces (propinsi), led by Governors (Gubernur); districts/municipalities (kabupaten/kota), led by District Heads (Bupati or Wali Kota), and sub-districts (kecamatan), led by Sub-district Heads (Camat). The fourth and lowest level of government are the villages (desa or kelurahan), led by Village Chiefs (Kepala Desa or Lurah).

The design of decentralization based on Laws No. 22/1999 and No. 25/1999 implicates to the changes in central and local power relations in Indonesia’s government structure. All central government departments’ authorities excluding departments of foreign affairs, defense, religion, judiciary, and monetary and fiscal control were transferred to provincial and particularly district or municipal levels.

The detail of list activities and authorities of the central and provincial governments is loaded in the Central Government Regulation (PP) No. 25/2000. All activities and authorities excluding in the regulation belong to district or municipal governments. In this stage, provinces have a double status as autonomous regions themselves and also as representatives of the central government in regions. As autonomous regions, provincial governments have authority to manage or coordinate certain matters in terms of interrelations among districts or municipalities. As the representatives of the central government, they manage certain administration tasks delegated by President, vice president or ministers. At the same time, semi-autonomous provincial governments will also be decentralized. The provincial governments should give more power to district levels as well. This indicates that the aim of designing decentralization policy is that giving more political and economic power to the district or municipalities (kabupaten kota) level rather than provincial level.

THE BENEFITS

As the aim of the decentralization policy, the implementation of the local autonomy has, in fact, brought the governments closer to their constituents, (Wardhono 2001). The implication is that the government services can be delivered more effectively and efficiently. This is based on the fact that district and municipal governments have a better understanding of the needs and aspirations of their communities than the central government. Furthermore, the problems appear within community are easily identified by local community. Therefore, it does not need a long bureaucracy to gain assists from the local governments.

The other significant change in the implementation of decentralization policy is the empowerment of local parliaments at the district and municipal levels. In the past, Local legislative bodies were simply subordinate of governors or head of districts. In such relation, local parliaments did not have any significant political role to control and supervise the local governments, and at the same time, both governors and head of districts did not have any obligation to deliver responsibility to local parliaments but instead they had right to guide meaning to ‘intervene’ all political forces, including the local parliaments. Unlike under the centralization policy, the establishing Law No. 22/1999 has put the local parliaments in strong position. They have right to formulate the local regulations which in the past should be reported to the central government to get approval. They also have right to elect and even impeach the governors or head of districts without any intervention from the central government. Besides, there has been change in the relation between the provincial governments and the districts or municipal governments since the hieratical relationship has been abolished in the Law No. 22/1999. With this Law, the head of districts do not have any obligation to responsible to the governors but they have to responsible to the district or municipal parliaments. This, again, potentially contribute to the effort of strengthening good governance in terms of empowerment, accountability and democratization in the local level.

In term of local government financial, the establishing Law 25/1999 on Fiscal Balance between Central and Regions also bring a significant benefit to the local governments, particularly those who are rich of natural resources, such as East Kalimantan, Riau and West Papua. The implication on the implementation of this Law has changed the amount of fund received by local governments from the central government. With this law, the central government has to give 25 per cent of the whole domestic income to the local governments thorough General Allocation Fund (DAU) where in the past, there was no any formula of how much money should be share to the local governments. This law also introduces income sharing for the provincial and district or municipal governments, particularly income sourced from natural resources, Earth and Building Tax (PBB), Income Fee for Right on Land and Building (BPHTB) and Private Income Tax (PPh Perorangan), (UU No. 17/2000 and PP No. 115/2000).

The detail of provincial and district incomes, loaded in the Law No 114 of 2000 which explicitly mentions: The income from PBB is 10 per cent for central government and 90 per cent for local governments (16.2 per cent for provincial governments and 64.8 per cent for District or municipal governments). The other income is from BPHTB, which is 20 per cent for central government and 80 per cent for local governments (16 per cent for provincial governments and 64 per cent for district or municipal governments). The national income generated from natural resources, including forestry, general mining and fishery are shared by 20 per cent for central government and 80 per cent for local governments. While DAU, at least 25 per cent from the domestic income which is stated on the National Budget (APBN) has to be shared to the local governments by way 10 per cent for provincial government and 90 per cent for district and municipal governments.

The others Law No. 17/ 2000 on Private Income Tax (PPh) and PPh article 21 obviously mention that all income generated from Private Incomer Tax and PPh article 21 have to be shared by way 80 per cent for central government and 20 per cent for local governments (40 per cent for provincial government and 60 per cent for district or municipal governments). Although some observers argue that those kinds of figures still show unfairness since the income sharing for resources which generated more income still given more to central government than to the local governments (94 per cent for central government and 6 per cent for the districts producing oil), however, these figures has indicated that the local governments, particularly the district and municipal governments have a great opportunity to manage development in their regions thorough the excessive funds received from the central government which are very different than before.

THE CHALLENGES

Despite strong support for decentralization, it is not surprising that many observers still regard the new policy as a threat. It remains becoming a big question whether both local governments and the broader community are able to manage the excessive responsibility and funds which have been passed on by the central government. There is widespread concern about the role of some of the government officials who are currently responsible for implementing local autonomy, and their relationship with the previous highly centralized government which was characterized by the practices of corruption, collusion, and nepotism (KKN). In several regions, practices of money politics almost become common discussion following the election of governors or head of districts. The strong evidence has been taken place in the new province of North Maluku where the result of election has been withdrawal due to the money politics practice. It seems that transferring power from central government to local government also means transferring practices of corruption, collusion and nepotism (KKN), (Pratikno 2002). This phenomenon has become challenge for the local governments in effort to eradicate KKN practices and promote transparency in the local level.

It is already apparent that the consequence of implementing Law No. 22/1999 and 25/1999, the central government has to decentralize political and economical power to the local governments. This means that the local governments have broad opportunities as well as challenges to be more creative in effort to develop their regions. However, this has not been an easy process to achieve in the district and municipal levels since both the political culture and the excessive control of the central government during the New Order period had not encouraged the decentralization of political and financial power. Moreover, almost all local interest groups, including political parties, still remain weak and poorly organized (The SMERU Research Institute 2001). For this reason, some observers suggested that decentralization should be implemented at the provincial level since provinces have greater capacity to handle all these expanded responsibilities than the districts or municipalities. Nevertheless, it is widely accepted that the central government felt that it was politically undesirable to build strong, self-governing provinces. The basic reason behind this is that if more power were to be decentralized, it might be easier for the provinces, particularly in the areas like Aceh and West Papua where independence movements are already posing a challenge to the central government, to break away from the national unitary system.

Another implication in the implementation of Law 22 is the eradicating of all local offices (Kanwil) that formerly acted as representatives of central government in provincial level. This has emerged a serious problem in terms of employment mutation. Based on this Law, all central government’s employees who formerly worked in the province or district levels as representative of central government have automatically become local government’s employees. Consequently, local governments have to reform their internal structures to accommodate the huge increase in the number of employees that has been passed on from the central government. A significant part of this process includes placing a large number of ex-central government high officers who demand the same position after mutating to local government. This has become challenge since local government has been reluctant to mutate them to high position because at the same time, the local government also has a huge number of employees demand to be promoted to high position. The delay of a detailed plan of the transition process and the supporting regulations to clarify the procedures and processes that need to be undertaken by the local government to cope with this problem, have complicated this employees mutation. This problem still becomes ongoing issue in most local governments in Indonesia.

The other thing that becomes a big concern in implementing decentralization is geographical and monographic reality of Indonesia with a population of over 203 million consisting of so many diverse religious, ethnics and socio-cultural elements. There is an indication that the implementation of local autonomy has created unrest in some part of the country which potentially lead to the national disintegration. This is due to response of some regions which identified local autonomy as notion of locality, ethnicity and religious group. Although the evidence does not seem indicating that the increasing number of ethnic conflicts in some parts of Indonesia has directly relationship with implementing of decentralization, the conflicts among ethnics which have been happening in some parts of Indonesia like Ambon, Sampit, and Poso occurred when the decentralization becomes a popular issue.

These conflicts has been suspected connecting with Putra Daerah (native son) issue following the implementation of decentralization, where some regions has responded that people from other regions, can not live in the Putra Daerah regions. Strong evidence can be seen from the conflict between Dayak and Madura when Dayak drifted away all Madura who have settled in Sampit for a long time, and even they have been likely become original residents.

Another case related to Putra Daerah issue is the response of West Sumatera and South Sulawesi community to take over the corporation of Padang Cement and Tonasa Cement which have been managed by central government thorough its state enterprise, with the reason, it would be more beneficial for the local community if those corporation managed by the local people. The Spokesman of Parliament, Akbar Tanjung (cited in Kompas 2002) states that this problem is one of the proven evidence that some of our community still do not understand comprehensively the essential aim of decentralization. Besides, those reactions are not in accordance with the spirit of 45 Constitution, particularly Article 33. A range issue following the implementation of decentralization policy in Indonesia has become grounds for the central government to revise Law 22 on Local Autonomy. 

However, according to Mallarangeng and Rasyid (cited in Jakarta Post 2002 and Media Indonesia 2001), the effort of the central government to revise the Law 22 was based on unfounded assumptions and illogical reasons. The assumption that local autonomy would jeopardize the sustainability of the country’s natural resources is totally wrong because the damages suffered by Indonesian forests and other natural ecosystems were the result of the centralized authority of the central government. The other questionable reason is the concern that the decentralization process would eventually generate the national disintegration. This, again, was not based on empirically evidence because most of the rebellion and separatism movements in some part of Indonesia were generated by the widespread dissatisfaction over the centralized authority of the central government. Those who see decentralization contradict with 45 constitution, in particular Article 33, which explicitly states that all natural resources belong to the state, have failed to see that the word ‘state’ in the Constitution does not simply mean the central government but the local government as well as the representation of the state. They claim that the strongest reason behind the revision was that the central government was afraid of loosing its economic power and rights. 

The other challenge or if I can say problem taking place in the implementation of decentralization is that the existing political tensions among regions due to the significant different of income levels. As mentioned above, some regions, like Riau, East Kalimantan and West Papua which are considered as rich regions ‘celebrated’ this policy while the others which have minus natural resources have to struggle to afford their needs. In order to survive, most of the local governments both provincial and district or municipal level have produced new Local Regulations (PERDA) in relation with the effort to generate local owned revenue where according to The Indonesian National Chambers of Commerce (KADIN) those thousands of local regulations (PERDA) have been jeopardizing economic development in Indonesia, both at the local and national level since most of the regulations were identified potentially inhibit inter-local trade and investment interest as well as increase high-cost economy, (Pratikno, 2002). For Instance, The provincial government of Lampung collects tax from traders who are transporting agriculture products from Lampung to other regions. As well as the district of Pasaman which obligates traders to pay charge in order to get approval letter from the local government to transport good from Pasaman to the other territory. This kind of regulation has been viewed potentially constrain the economic development.

Still in relation with the effort of the local government to gain local revenue, some conflicts have been appearing among regions. Recently, land disputes among regions become mayor issue due to the effort of each region to manage maximally their resources to increase their income. The conflict happened among fishermen in Central and East Java is an evidence of this potential issue.

             

CONCLUSION

In fact, Indonesia has implemented decentralization policy. Nevertheless, its existence is still ongoing debate whether it is the best way to solve all problems which ongoing happen in Indonesia, or its presence instead will create new problems. 

Instead of these two different perspectives, those problems or challenges faced by the whole national components, including central and local governments may not make unsure to implement decentralization policy because I do believe that the implementation of this policy will create economic, social, and political stability as well as bring peace and security to all Indonesian community because the roots of all problems which are taking place Indonesia come from these factors.

In my opinion, we do not need to debate about the positive and negative impacts of decentralization policy because the experience of this nation under the centralization policy has given proven evidence that centralized government has failed to create good governance which are civil society, sustainability, democratization, accountability, equity, and efficiency which become demand of Indonesian community. What we need to do now is both central and local governments have to commit implementing decentralization policy and try to improve the weakness of the law No.22/1999.

Implementation of local autonomy must also involve all social components outside the boundary of government and the bureaucracy. The responsibility of local communities in each autonomous region must also be taken into account, so that government and the community can share the responsibility for the successful implementation of local autonomy. This implies that implementing local autonomy will be a long-term process, which must be widely understood not only by local governments but also by civil society.

The most important thing that needs to be taken account by local community, particularly local government is that decentralization will obviously fail if local governments become autocratic and centralized administrations in the regions as the central government did under the new order rule. They have to democratize their operations, increase transparency, and allow a greater level of control by the public. Without such processes, I believe that decentralization will generate the risk of re-establishing some of the worst features of centralized Indonesia’s autocratic and corrupt style of government in the regions. In other words, decentralization will merely move corruption, collusion and nepotism from central government to local governments. 

References can be provided if it is required