RURDS Vol. 21, No.

2/3, July/November 2009

doi: 10.1111/j.1467-940X.2010.00165.x

DECENTRALIZATION REFORM AND LOCAL-GOVERNMENT PROLIFERATION IN INDONESIA: TOWARDS A FRAGMENTATION OF REGIONAL DEVELOPMENT
Tommy Firman School of Architecture, Planning, and Policy Development, Institute of Technology, Bandung, Indonesia

The local-government proliferation practice, as an implementation of Indonesias decentralization reform, has resulted in a fragmentation of regional development, in which many local government consider themselves of their own kingdom of authority. This attitude could in turn inhibit local and regional development. The phenomenon of Indonesias localgovernment proliferation is unique, as not many countries in the world have experienced as rapid growth in regional proliferation as Indonesia.

Under high political pressure from the public, politicians, students and many local governments, and in the midst of a severe economic crisis, the Indonesian Parliament passed Law 22/1999 and 25/1999 regarding regional autonomy and scal decentralization in May 1999, essentially to cope with separatist sentiment in Indonesia during the end of 1990s and early 2000s. The threats were managed by giving more autonomy to a large number of smaller local government units, and controlled through a divide and rule strategy (Fitriani et al., 2005). Moreover, the laws are expected to make democratization works and to improve the public welfare in Indonesia, although one might argue that the main political reason behind these two legislations is not to give power to the local governments, but rather to shift the burden and responsibilities of governance from the central government to the local governments, after the prolonged economic crises. The big-bang decentralization policy in Indonesia is considered one of the most ambitious decentralization schemes in modern history, involving more than 225 million people by today, with various levels of socio-economic conditions, cultures and ethnicity, quite apart from the geography of the country, and with little experience in practice of decentralization. Nevertheless, Indonesia has now become a more democratic country although one may say that Indonesias democratization is essentially a democratization from the top, as the government did not emerge from public needs, and the gap between government and the public is still wide. Indonesia was transformed from an authoritarian to a parliamentary system, and at the same time to a presidential system at all level of governments, from central to local governments

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010. Published by Blackwell Publishing Asia Pty Ltd.

144

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

(Matsui, n.d, pp. 19). The new decentralization policy was intended to make the government closer to the people by empowering local and provincial governments, local legislature councils and local communities, and the use of public funds becomes more effective and efcient in line with local development needs and improvement in the quality of public service provisions. The legislations were then amended in 2004 becoming Law 32/2004 and 33/2004, and later in 2008 becoming Law 12/2008, without changing the main objectives. One of the implementations of Indonesias decentralization reform is local-government proliferation (Pemekaran Wilayah Kabupaten) practice, whereby a local government can be divided into two or more new local governments for the reasons of improving public service in the region and creating more effective local government, and bringing local political leaders closer to their constituents. This in turn has resulted in a large number of new local governments with their own region of jurisdiction, and could potentially create fragmentation in regional development. The present study will focus on links between local-government proliferation, as an implementation of decentralization reform, and regional fragmentation, which is currently one of the most important issues in local and regional development in the era of new decentralization in Indonesia. There have been numerous studies and research on Indonesias decentralization reform. However, the research and studies have focused on scal decentralization (see for instance Lewis, 2003; USAID, 2006; Brodjonegoro, 2006; Azis, 2008; Mardiasmo, 2008), with little, if any, emphasis on how the local-government proliferation under decentralization policy has affected local and regional development. Likewise, there have been studies on local government proliferation in Indonesia (see Fitriani et al., 2005; Bappenas, 2005), but these are not particularly focused on how the proliferation has affected local and regional development. In fact, there is very little research on the impact of regional proliferation on local and regional development in developing countries, and therefore not many concepts or theories that can be applied. The few cases that are somewhat similar to Indonesia, are Nigeria (Nwanko, 1984; Ukiwo, 2006) and Albania (World Bank, 2004, in Ferazzi, 2007). According to Fitriani et al. (2005) the number of districts in Nigeria had almost doubled, from 301 to 589, by the early 1990s (p. 58). The creation of new local governments had triggered violent conicts between ethnic and communal groups, because the process became less transparent, while the military rulers dispensed local governments as patronage to favored groups (Ukiwo, 2006, pp. 32). Similarly, the fragmentation of local governments in Albania has weakened implementation capacity and may have adversely affected the already precarious quality of and access to local public services (World Bank, 2004, in Ferazzi, 2007, p. 7). The latter situation seems to have emerged in Indonesia. It should be emphasized from the outset that local-government proliferation could potentially result in positive impacts for local and regional development, including acceleration of economic development in the new poor established regions, improvement in national control and surveillance over remote areas, avoidance of horizontal conicts, and a shortening of the local government span of control as Pratikno (2008, pp. 48) argues, however it could also lead to regional and spatial fragmentation which in turn could inhibit local and regional development, if it is not approached with caution. With the above context in mind, this study will examine the extent to which the local government proliferation under the new decentralization policy has resulted in a fragmentation of spatial development, which could potentially inhibit local and regional development. The study will be exploratory in nature, because not much empirical data related to spatial fragmentation

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

145

is available. It should be pointed out there are more anecdotal data and information available than empirical data at present. Apart from the introduction, this article will be divided into ve parts. Part one will discuss the links between decentralization and local and regional development in developing countries to provide a theoretical background for the present study. Part two will examine the decentralization in the Indonesias reform era. Part three will analyze the extent to which the local-government proliferation, as an implementation of decentralization policy, has created a fragmentation of regional development, while part four will specically focus on adverse impacts of recent practice of regional proliferation. Part ve, the will conclude the discussion. 1. Decentralization and local and regional development During the 1950s and 1960s, many developing countries adopted centralized planning as a means of using scarce resources to spur economic growth and more importantly to unify the nation after the experience of long western colonial rule. This was advocated by the modernization theories dominant at the time, which were built on a belief that the poor would benet from continued economic growth through spread effects (see Cheema and Rondinelli, 1983). Nevertheless, the results indicated that the theories did not work that way in practice. On the contrary, the disparities between the rich and the poor, and between core and peripheral regions, were greatly widened. The disillusionment of centralized planning for economic development caused many developing countries to decentralize responsibility for socioeconomic development planning and management to the local agencies and local government beginning in the 1970s. It becomes increasingly difcult to administer and manage development programs efciently and effectively under centralized planning, because the socioeconomic and political conditions become much more complex. At present many developing and developed countries have shifted themselves from a centralized to a decentralized system due to a global trend resulting from democracy and urbanization (Freire and Stren, 2001; Freire, 2007). Decentralization is not intended to weaken the role of central government, but to make local governments empowered and more responsive to local needs. It opts to diminish dependence on a central government; to improve accountability; to institutionalize change; and to encourage economic development (Grindle, 2007, pp. 178183). Nonetheless, decentralization will involve a transfer of a signicant degree of responsibility and authority for public revenues and expenditures from the central government to the local government under the principle of as much as autonomy as possible and as much as central power as necessary (Koswara, 2000, p. 39; and Alm et al., 2001, p. 84). It is believed that wider local autonomy could trigger local development, as it could encourage the local government and communities to take initiatives for necessary action and regulation for their own benets. However, often the decision for decentralization might have more something to do with short-term of political interests and gains of the politicians, rather than on the basis of the expected advantages of decentralization in the longer term (Shah and Thompson, 2004, p. 4). As Rondinelli (1990) argues, decentralization in developing countries can be divided into three general types, including political, administrative and spatial decentralization: (1) Political decentralization is essentially a process of democratization, granting more power over decision making to the local government and citizens to decide for themselves what local public good they need. According to Bird and Smart (2002), local governments receiving transfers of

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

146

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

responsibility and authority will need a clear mandate, sufcient resources and enough exibility in their decision making process and should be held accountable for the results both to their citizens and to a higher level of government (p. 899); (2) Administrative decentralization refers to a transfer of responsibility for planning and management of resources from central to local government; and (3) Spatial decentralization refers to a process of redistributing and diffusing economic activities spatially to prevent over concentration in few cities or regions, and to create more balanced local and regional development (see also Shah and Thompson, 2004). As a general rule, decentralization is expected to generate efciency, but it is not always the case. It is not a panacea to cure all socioeconomic and political problems, while in contrast it might create macroeconomic instability and endanger national unity if not applied properly. In some countries, regional growth is slower and social indicators are worsening, despite decentralization (Azis, 2008). According to Seymour and Turner (2002) decentralization, as has been implemented in many developing countries at present, does not necessarily encourage development or democratic outcome. In fact, it is seldom an effective poverty-reducing strategy. Decentralization has actually widened existing regional disparities, and degraded the quality of public service provision (p. 35). However, there is potential for decentralization to improve and transform the development capacities of states at a local level, if proceeded with carefully and planning for institutions, coordination, law enforcement and conict resolution (Shah and Hutter, 1998, p. 1; see also Grindle, 2007). There are some risks with decentralization. If the process is not conducted with caution, decentralization could jeopardize its own goals. As Azis (2003) argues, in the context of Indonesia, the greatest risk of decentralization is the vulnerability of local government to be captured by local elites. Nonetheless, the most common risk in decentralization is the increase of barriers to entry due to collusion and corruption among local interest groups, which could in turn halt regions to develop optimally and worsen the inter and intra regional disparity (p. 2). As Hadiz (2004) strongly argues, that in the case of Indonesia, the new decentralization policy has been characterized by the emerging decentralized corruption practiced by local ofcials and political gangsters, and the fact is that decentralization does not empower the most disadvantages parts of civil society, but has take off without them (pp. 711715). Therefore, empowering local institutions and improving the capacity of local leaders are critical for decentralization to move forward. 2. Indonesias decentralization in the reform era Decentralization in Indonesia at present is essentially political and administrative, in which the central government has ceded more authority to the local and provincial government, but is still reluctant to release assets to the lower levels of governments, most notably state-owned corporations, arguing that most local governments are not properly prepared to manage assets, due to their lack of capacity. In fact, there have been many disputes between central and local governments over assets, where local governments strongly argue that under the new decentralization policy, the central government should give up their assets in the region to the local governments. Nevertheless, the local governments now play more important functions in local and regional development, especially in promoting private sectors in regional economies, although they tend to become rent-seeking actors (see also Mitsui, 2005). Indonesias decentralization policy reform involves a shift in several government functions, responsibilities and tasks from the central to the local government domain. Decentralization

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

147

gives opportunities for responsive local governance, but it will need clear and strong mechanisms for coordination. On the contrary, under the new policy there is a general tendency for local authorities and local leaders to improve the region according to their own socioeconomic and political interests. In fact, the new decentralization policy has brought about a new tendency for local governments to exploit their local resources and physical assets even more intensively, to maximize their own income (Pendapatan Asli Daerah), without giving consideration to the socioeconomic and political conditions of the region. In turn, it could make investors discouraged from investing in the region. In fact, the new decentralization policy in Indonesia has also been characterized by an excessive issuance of local ordinance (Peraturan Daerah) intended to boost local government revenues. Local governments have much greater authority to implement development programs. Indonesias decentralization reform has been criticized for neglecting bottom-up accountability; design aws in scal equalization; and deciencies in the operational capacity of local governance (Shah and Thompson, 2004, pp. 2533). Despite the success of Indonesias decentralization reform for its achievements over a short period of time, as Shah and Thompson argue, its longer term success is not assured as the reform has failed to recognize or give incentives for local governments to be accountable and responsive to the public (p. 34; see also Matsui, 2005). The progress of decentralization policy implementation in Indonesia in nearly 10 years (19992008) has been uneven in character, in which some provinces, districts, and municipalities have been able to develop impressively under the reform, but some others not, and even negatively, depending upon the quality of leadership of the local elites, especially the heads of the districts and municipalities (see Firman, 2003 and 2008). There is anecdotal evidence that some heads of districts and municipalities (Bupati and Walikota) have been able to show excellent leadership by bringing their regions into improved economic development and better quality of public service provisions. As Lewis (2003) argues, provincial and local governments have been too aggressive in creating new revenue instruments, while the central government has allowed too many of them to stand (p. 177). In fact, there were about 1,000 new taxes and charges authorized by provincial and local governments in 2001 alone, focusing mostly on primary sector goods, but only about two-fths of them were submitted to the central government for review, as required by taxation law. Another three-fths are likely implemented without central government evaluation, and therefore illegally implemented. Although the provincial and local governments argue that a lack of scal capacity has been the reason for the creation of new taxes and charges, Lewis argues there is no evidence to support these claims (p. 177). This situation may discourage investors to invest in the region, due to a high-cost economy, which could then adversely affect economic development in the region (see also Eckardt, 2008). The new scal decentralization system has the potential to lessen vertical (state/sub-state) disparities, but it has tended to widen horizontal disparities, especially between Jakarta, the capital, and some of the oil producing districts (most notably Aceh, Riau and East Kalimantan) on one hand, and the other municipalities and districts on the other. The oil rich provinces have enjoyed windfall income from revenue sharing, while other provinces have received much smaller resource allocation (see appendix, note 1) (see also Brodjonegoro, 2006, and Hill, 2007). From the local and regional development perspective, decentralization in Indonesia is needed for the effective and efcient provision of infrastructure and public services, because until very recently this task had been largely responsibility of the central government which was often poorly organized and did not necessarily meet local needs. Only very recently, local

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

148

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

government has been involved with it, although still limited due to a lack of capacity. Moreover, the dominance of central government in this function has weakened the local authority to provide infrastructure and services to the local communities (Firman, 2003; see also Rondinelli, 1990). During the Suharto era, infrastructure development and public service provision were greatly under the control and direction of the central government through presidential grant allocation (Inpres) and ministerial programs, resulted in widening regional disparities between Java, most notably Jakarta, and the other provinces; between the western and the eastern part of Indonesia; and between urban and rural areas. One of the major problems of the new decentralization policy in Indonesia is the weakness of institutional capacity to carry out the implementation of this policy, at both a national and local level. The ability of the local government to respond to decentralization has been varied, depending on their capacity. For example, the transfers of funds from the central to local and provincial government is largely unutilized in government bonds and Bank Indonesia (central bank) certicates, amounting to more than US $10 billion (Hill, 2007, p. 22), reecting low capacity of local government to absorb and utilize development funds. Under the state of euphoria, local governments perceive decentralization and autonomy as meaning more power given to them, but rarely perceive it as more responsibilities for them to provide better quality of public services to the local citizens or to bring about economic development for the region. In fact, many heads of the districts and municipalities think that they have the discretion to determine what is good for them without necessarily considering the interests of their neighboring districts or municipalities, even the province in which they are part of. The local governments feel like small kingdoms of their own (Raja Kecil), in which even provincial and central government have no right to intervene with their autonomy. In fact, as Matsui (n.d) strongly argues, the local and provincial governments have misused decentralization to operate a local centralistic system, without any continued process of decentralization towards reaching the citizens in the regions. In short, Indonesias new decentralization policy could potentially encourage local and regional development, because under the policy it becomes local affairs, whereas in the past it was strictly subject to central governmental control. Nonetheless, decentralization has tended to change the horizontal pattern of disparity, from the disparity between Jakarta and the rest of the country to become disparity between resource rich regions and resource poor regions (see Firman, 2003). Now, every district (Kabupaten) and municipality (Kota) can decide what is needed to develop for its own region, according to local needs and aspirations. However, the decentralization reform has fragmented regional development due to local egoism and parochial attitudes (see Firman, 2008). 3. Proliferation of local government and regional development Local government proliferation is actually not a new phenomenon in Indonesia. During the President Suharto era, the government practiced it, but proliferation was done with a topdown administrative approach and was highly selective. Initially any new district candidate was given the status of Administrative District or Municipality status (Kabupaten or Kota Administratif ), still under the jurisdiction of the mother districts (Kabupaten Induk). If these new district candidates were considered able to perform governmental functions after a long period of observation and careful evaluation, the central government with the approval of the national legislature, could then establish them as new districts independent of the mother districts. In

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

149

contrast, in the new decentralization era, local-government proliferation is done at a much faster rate and using a bottom-up approach which is highly political in character. The laws regarding regional governments also allow two or more local governments to merge but this has never taken place. In fact, local governments are not interested in mergers, because simply there is no incentive for an amalgamation of local governments, although it could make local government operations more efcient and effective. On the contrary, incentives for regional splitting are too great, and efciency and effectiveness are not a concern at all. Likewise, not many local government leaders are aware that decentralization could also mean the need to establish more cooperation with neighboring districts and municipalities, because they might not be able to solve their local development problems by themselves alone, without such cooperation (see also Von Luebke, 2009). The parochialism attitude of many local governments has caused a number of problems in services which require cross-border cooperation, including solid waste management and water supply, in many regions in Indonesia. The procedure for present provincial, district and municipal proliferation is regulated by the Government Regulation (Peraturan Pemerintah) 129/2000, which includes the establishment of a potential area (Daerah Persiapan); the development of the potential area; and establishment of a denitive area, which can be done at least ve years after the establishment of the potential area. The proposal for establishment a new district, municipality or province should be approved the Advisory Council of Regional Autonomy (Dewan Pertimbangan Otonomi Daerah DPOD), an inter-ministerial committee coordinated by the Ministry of Home Affairs, which should then be endorsed by the President to the National Parliament (Dewan Perwakilan Rakyat). However, a new region establishment can also initiated by legislature. Proposals for regional splitting can proceed to one of three gates, namely, the national Parliament (Dewan Perwakilan Rakyat, the Senate (Dewan Perwakilan Daerah), and the Ministry of Home Affairs (Departemen Dalam Negeri), but interestingly enough, most proposals have proceeded through Parliament. The Government Regulation 129/2000 on Regional Proliferation (Pemekaran Wilayah) was then revised and superceded by Government Regulation 78/2007, which could make regional proliferation more difcult to do as it should meet some stringent criteria. In the new regulation, provinces and districts/municipalities can only be split if they have been established for 10 years and seven years at least, respectively. In the former regulation, theoretically a district/municipality or province could be proliferated at any time. The minimum number of sub-districts needed for a proposed new district is added from four to ve, likewise the minimum number of districts needed for proposed new provinces. The problem is that both of these regulations employ mechanistic criteria and scoring methods in establishing new local governments and do not include the specic socio-economic and geographical conditions of the area concerned. A head of the new local government for the rst year is appointed by the Minister of Home Affairs. The originating district region or municipality should support the new local government for certain period of time until the new local government receives its scal transfer from the central government. The main task of the appointed head of the local government is to prepare for a denitive head of local government election, based on the law of regional government. Regulation 78/2007 also stipulates that newly established districts, municipalities and provinces which cannot manage regional autonomy after ve years of proliferation can be liquidated and consolidated with adjacent regions, following a comprehensive evaluation (Article 22 and 23). As Ferazzi (2007) maintains, in many cases, new region creation has raised

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

150

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

concerns and some remedial actions, and many countries are nding it is necessary to consolidate regions (p.5). During nearly ten years of reform era, 1999 to 2008, as many as 191 new regional autonomies have been established, including 7 provinces; 153 districts (Kabupatens) and 31 municipalities (Kota). In 2009 the total number of regional autonomies in Indonesia amount to 510, including 33 provinces, 386 districts and 91 municipalities (Government of Indonesia, 2008). New municipalities and districts are legalized by laws (Undang-Undang) passed by the National Parliament, and signed by the President. During 2001 until August 2008 alone, the establishment of local government laws reached 137, including 22 for new municipalities and 115 for new districts, with its peak in 2003, when as much as 49 laws of new local governments were promulgated (Table 1). The promulgation of laws of new local government establishment seems to dominate the law making in the period 20012008 (Table 2). In 2001, 2003 and 2008 the legalization of new local government establishment reached more than half of all laws made by the national parliament in these years, while in the whole period, the total new local government establishment laws reached more that one-third of the total laws produced in the period (Table 2). This reects how intense the process of establishing new municipalities and districts in Indonesia is. The policy and practice of regional proliferation has greatly contributed to the process of local government fragmentation, due to local egoism and a parochial attitude of many local governments, which in turn could potentially inhibit local and regional development. There has been anecdotal evidence about conicts or disputes between the mother Kabupaten, and the new Kabupaten in Indonesia located side by side, including in Papua, Sumatera, Sulawesi and other places, mostly over natural resources and administrative boundary. A study on the evaluation of regional proliferation in Indonesia with respect to economic growth, poverty reduction, and local scal management in some newly established local government over the period 20012007 conducted by the National Planning Agency (Bappenas) and the UNDP (2008) reveals that the new autonomous regions economic growth has uctuated compared to the parent regions, while the new regions have not been able to manage to close the gap with the parent region (see also USAID, 2006). This study also indicates that the regional budgets in new region play a less effective role in encouraging economic activity. With respect to the performance of the public service, this evaluation shows a low level of performance in the new region, due to a lack of effective use of funds, low utilization of the services, and a lack of skilled personnel in the public service provision. However, the Bappenas study is narrowly focused on newly established regions as individual entities and does not see the extent of the phenomenon of spatial fragmentation emerging due to local government proliferation. As Fitriani et al. (2005) argue, the local-government proliferation has been a fundamental in changing Indonesias sub-national administrative, political and scal landscape (p. 57). This might be good in a way, but in reality it has been largely manipulated by many local and central politicians for their own political interests and nancial opportunities in the name of local community aspiration. The reason for local-government proliferation is essentially Bureaucratic and Political Rent Seeking. The other reasons for regional proliferation may include one or a combination of the following: (1) administrative dispersion, because the jurisdiction is too large; (2) preference of homogeneity, with respect to ethnicity, religion, language and so on; (3) scal spoils, since splitting could bring additional scal resources (p.66). The likelihood of regional splits positively correlates with geographic dispersion, political and ethnic diversity, natural resource wealth and scope for bureaucratic rent seeking (p. 57).

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

151

Table 1. Numbers of New Established Municipality (Kota) and Districts, 2001- August 2008 Year 2001 2002 2003 2004 2005 2006 2007 2008 (August) Total New Municipality 12 4 2 3 1 22 New Districts 31 47 20 17 115 Total 12 35 49 23 18 137

Source: Analyzed from The Ministry of State Secretary, Republic of Indonesia (www.indonesia.go.id)

Table 2. Numbers of laws of new municipalities and districts establishment as percentage of total number of laws made, 2001- August, 2008 Year (1) 2001 2002 2003 2004 2005 2006 2007 2008 (August) Total Total Laws Made (2) 22 32 40 33 12 23 48 35 245 Laws of Establishment of New Municipalities and Districts (3) 12 12 23 0 0 0 23 18 88 (3) as percentage of (2) 54.5 37.5 57.5 0.0 0.0 0.0 47.9 51.4 35.9

Source: Analyzed from The Ministry of State Secretary, Republic of Indonesia (www.indonesia.go.id)

To a large extent, the situation of local government proliferation in Indonesia at present also happened in Nigeria in the late 1970s and early 1980s, where the proliferation of local governments was derived in part from the objective of promoting local development, but the managerial capacity of the existing local government did not meet this expectation (Nwanko, 1984). In summary, the local-government proliferation practice, as an implementation of the decentralization reform, has brought about fragmentation in regional development, in which many new local governments feel like their own kingdom of authority, and provincial and even central government has little right to intervene with their authority. This attitude could in turn inhibit development in these regions, as local and regional development should be planned, implemented and monitored across jurisdictional boundaries. 4. Adverse impacts of recent practice of local-government proliferation Once the national legislature has passed a law establishing a new provincial (Pemerintah Provinsi) or local government (Kota or Kabupaten), there should be new apparatus for it, including a head and vice head of the province (Gubernur and Wakil Gubernur), and those of Kabupaten government (Bupati and Wakil Bupati) and of Municipality (Kota) (Walikota and

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

152

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

Table 3. General Allocation Funds (DAU) for Districts and Municipalities in Indonesia, 20012009 DAU for local governments (billion Rp) 54,311.22 62,243.46 69,280.11 73,917.81 79,888.86 131,086.71 148,308.66 161,556.43 167,772.69 Number of local governments 336 348 370 410 434 434 434 451 477 Average DAU distribution (billion Rp) 161.64 178.86 187.24 180.29 184.08 302.04 341.73 358.22 351.71 Average DAU increase/decrease (%) 17.22 8.38 (6.96) 3.79 117.97 39.68 16.49 (6.50)

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: The Ministry of Finance (cf Mardiasmo, December 2008).

Wakil Walikota), and new local legislature (Dewan Perwakilan Rakyat Daerah DPRD). The newly established provincial or local government is also entitled to a General Allocation Fund (Dana Alokasi Umum- DAU) and other sources stipulated in Law 33/2004 regarding scal balance. Obviously, it becomes a great additional burden to the national budget. In fact, in 2003 the central government distributed as much DAU as Rp. 1.3 trillion for 22 new districts and municipalities from the national budget, which then increased almost double to Rp. 2.6 trillion for 40 new districts and municipalities in 2004 (Institute for Research on Economics and Society, LPEM, University of Indonesia, www.lpem.org). The local-government proliferation has resulted in the decrease of average DAU received by districts and municipalities in Indonesia (Table 3). According to Mardiasmo (2008) every newly established Kabupaten or Kota on average needs about Rp. 7 billion rupiah for establishing new government apparatus. The new laws of local government also regulate assets transfers from the mother regions (Daerah Induk) to the new regions, and jurisdictional boundaries between regions (Article 3335). Nevertheless, the present practice of regional proliferation in Indonesia is largely characterized by disputes and conicts in communities over resources, assets and borders between new and old districts. At the local level, the new Kabupaten Bandung Barat in West Java which was established in 2007 is still having disputes over the source of local income with Kabupaten Bandung, which is the mother Kabupaten, over the source of revenues. More recently, the Municipality of Tangerang Selatan (City of South Tangerang) has been established and split from its mother District (Kabupaten Induk) of Tangerang in the Jakarta Metropolitan Area. In the past, all public service to this new municipality was provided by the mother district, but since the separation, the district has stopped providing garbage collection services in Tangerang Selatan, which obviously at present does not have its own infrastructure for garbage collection, and also has forbidden the new municipality to use the dumpsite located in the District of Tangerang. As a result, Tangerang Selatan is facing a problem of having no dumpsite. At present, garbage is mounted in the new city and cannot be discarded in the dumpsite. Likewise, the neighboring district of Bogor, also rejected providing waste disposal for Tangerang Selatan, Nevertheless, now the new municipality has issued some local ordinances, requiring the residents of Tangerang Selatan to pay local taxes and retribution to the municipality, not to the District of Tangerang, the parent

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

153

district. This basically shows the conicts of mother district and new established region over the resources, which in turn could inhibit urban and regional development in the area. In short, the practice of local government proliferation has resulted in adverse impacts, both at national and local levels. At the national level, it has made additional substantial burdens to the national budget, but it does not result in improvement in the local and regional development or better provision of public services. Meanwhile, at the local level, the local government proliferation has created tensions, disputes and even conicts between local governments, especially between the mother districts and newly established districts and municipalities, over the use of assets, resources, and administrative border lines. 5. Summing up The new decentralization policy era in Indonesia since 1999 has brought about several signicant changes in socio-economic and political condition in the country, including the trend of changing the spatial disparity pattern. The new decentralization policy has brought about opportunities for local government to manage local and regional development according to their own aspirations and potential. However, the outcome seems to be patchy, in which some districts and municipalities under excellent leadership (Bupati and Walikota) have been able to use the new decentralization and autonomy policy as instruments in bringing about local and regional economic development and for improving the quality of public service provision in the districts, with more transparence and accountability, but some other districts and municipalities did not perform as expected. Over a nearly ten year period, the numbers of local governments (districts and municipalities) with their own autonomous areas have increased by more than 130 percent, that is, from 324 in 1999 to 477 by the mid-2008, to more than 500 by the end of 2009. Indonesias decentralization policy has also resulted in sub-national (district, municipal, and provincial) fragmentation, in which many local governments consider themselves the Kingdom of their own authority and provincial and central government have only a little right to intervene with their policies and practice of development. Likewise, many local governments and local politicians have no concern over the need for cooperating with neighboring districts or municipalities for the purposes of larger regional development. Obviously, local governments will not be able to bring about socio-economic development without such cooperation. In the past, during the Suharto new order era, it did not present a problem, because local governments simply obeyed the instructions of provincial and central governments. The situation has changed greatly, as local governments now have more authority and discretion to decide development programs and practice by themselves. Local government proliferation is an implementation of decentralization reform intended to improve the socio-economic condition of an area, including local and regional development, provision of public service, and poverty alleviation. As the National Planning Agency (Bappenas) and the UNDP (2008) indicate, economic growth of the new autonomous regions have uctuated compared to their parent regions, and the new regions have not been able to close the gap with their parent region. The regional budgets in the new regions play a less effective role in encouraging economic activity. Meanwhile, the performance of public service in the new regions are considered low, due to lack of effective use of funds, low utilization of services, and lack of personnel skilled in public service provision. Indonesias local government proliferation policy has become a highly political issue, while the original objectives and purposes have been misused and manipulated by many local

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

154

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

politicians for their own political and economic interests in the name of local aspirations, i.e., local capture. In turn, the proliferation has created demand for several new positions and institutions, most notably, heads of the newly created districts and local legislatures, and the new districts are entitled to some transfers of funding, including the block grant of General Allocation Fund (DAU), natural resource shared revenues and a Special Allocation Fund (DAK). This practice has been and will be an additional burden to the national budget. Moreover, local government proliferation has created conicts, disputes and tensions among the local governments over the use of resources, assets, and border lines, especially between mother districts with the newly established districts and municipalities. Indonesias decentralization reform has also resulted in a fragmentation of local and regional development, because of local egoism, meanwhile the policy and practice of local government proliferation has essentially reinforced this fragmentation. At present, it is much more difcult to build coordination for regional development. In fact, it is a big question whether the local government proliferation has encouraged economic development; alleviated poverty; or improved the quality of public service provision in the new created regions. From the local and regional development perspective, local government proliferation in Indonesia at present seems to be out of control, and it is therefore necessary to temporarily stop this practice, until a comprehensive evaluation has been made, which might result in new schemes, criteria and mechanisms for local government proliferation. The evaluation should also include how to make regional amalgamation attractive for local governments to make the administration and management of economic development and provision of public services more efcient and effective. In other words, there should be incentives for regional consolidation and for inter-local government cooperation. Understandably, amalgamation could also bring conicts between the local governments to be merged over the matter of who should be the head of the merged local governments. In addition, there should be disincentives for local-government proliferation (Pemekaran Wilayah), including stopping DAU (general allocation funds) to new established regions. The law of local government (Law 32/2004) actually allows for both regional proliferation and amalgamation, with objectives to give opportunities for the local region to provide a better quality of public service and to improve local and regional economic performance. However, regional amalgamation is not attractive for local governments, simply because of no incentives or disincentives. The old regulation of regional proliferation (Government Regulation 129/2000) has been replaced by Government Regulation 78/2007 which sets more stringent criteria, but it seems not enough to cope with the growing local-government fragmentation and might not be able to deal with the proliferation effectively. The new decentralization policy, including the practice of regional proliferation in Indonesia, is supposed to make inter-local government cooperation work under a good governance institutional aimed at local and regional development, because the local and regional development cannot be properly implemented by one local government alone, without effective cooperation with neighboring districts and municipalities. The law of local government administration encourages such cooperation, but until recently, not much progress has been made on this matter. This challenge is similar to the New Regionalism phenomenon which emerged in several developed and developing countries, that is, creating or strengthening the structures of sub-national and sub-provincial governance, following long periods of authoritarian regime (Pike et al., 2007, p. 130).

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

155

The central government is trying to nd out an ideal number for local governments in Indonesia. This may be an elusive idea, which might reect the futility of the central government in dealing with local government proliferations, as the main issue is not in the total number in itself, but whether the established new local governments perform well in improving public service provision and then encourage economic growth. The policy of local government is aimed at making the established local governments able to perform the minimum tasks that they should to function. In other words, if a proposed new local government is unlikely able to perform the minimum functions, then it should not be allowed to establish, regardless of the pressures from the elites who have political and economic interests over the proliferation. Moreover, the establishment of new autonomous regions should be based on local and regional economic development prospects individually and inter-local government cooperation schemes, and should not be based on rigid criteria as adopted by both Government Regulation 129/2000 and Government Regulation 78/2007. To deal with the problems of spatial fragmentation there should be incentives and disincentives for local governments to merge to work more effectively and efciently for the purposes of urban and regional development (see Firman, 2008), and to encourage inter local-government cooperation. In fact, Indonesias rapid decentralization urgently needs inter local-government partnership, which has been largely neglected (Firman, 2010, see appendix, no. 2). 6. Appendices 1. According to the Indonesias Fiscal Decentralization law, the annual local government revenues consists of an equalization block grant from the General Allocation Funds (Dana Alokasi Umum DAU) to substitute the central government grants, most notably Presidential Decree Grants in the past; natural resources utilization revenues, notably sheries, forest products and oil and gases; a revenue sharing income from land and building taxes and employee taxes; own income (Pendapatan Asli Daerah PAD); and a special allocation fund (Dana Alokasi Khusus DAK) to be granted by the central government to any districts and municipalities on the basis of a special need. The local government receives the total amount granted from the central government based on the scal gap, that is, the difference between estimated expenditure and revenue capacity. The essence of this new fund transfer is basically in the equalization grant (DAU) which is aimed to help reducing central-local nancial imbalances. The DAU is basically an unconditional block grant given to the local government which can be utilized according to local needs without intervention of the central government. The transfers of national budget allocated to the provincial and local regions amounted to Rp. 129.7 trillion in 2004 increased more than two fold, to 292.4 trillion in the 2008 state budget. The central government planned to increased it again to Rp. 303.9 trillion in the 2009 budget, including Rp. 184 trillion DAU, which increased by 123 percent from 2004 DAU (Government of Indonesia, 2008). 2. The author has conducted some studies on inter local-government cooperation and partnerships under Indonesias decentralization policy (Firman, 2008, 2010). The studies found that such cooperation and partnership become a very important element in the decentralization policy, in order to make the policy work effectively and efciently, especially for the purpose of infrastructure, and urban and regional development.

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

156

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

Acknowledgement I would like to thank three international anonymous referees for valuable comments and suggestions. I also would like to thank the Asia Research Institute (ARI), National University of Singapore for hosting me to complete this research in end 2009. A generous travel grant provided by the Directorate General of Higher Education, Ministry of National Education, the Indonesian Government, under the Program of Academic Recharging (PAR) is greatly appreciated. However, I alone am responsible for any drawbacks and mistakes. Final version received February 2010. Send correspondence to Tommy Firman: trman@melsa.net.id
References Alm, J., Aten, R.H. and Bahl, R. 2001. Can Indonesia Deecntralize Successfully? Plans, Problems and Prospects. Bulletin of Indonesian Economic Studies 37(1), 83102. Azis, I.J. 2003. Concepts and Practices of Decentralization: Some Notes on the Case of Indonesia. Paper Prepared for Policy Dialogue on Empowering Women in Autonomy and Decentralization Process organized by the Ofce of the Permanent Mission of Indonesia to the United Nations, May 29. Azis, I.J. 2008. Institutional Constraints and Multiple Equilibria in Decentralization. Review of Urban and Regional Development Studies 20(1), 2233. Bappenas (The Indonesias National Development Planning Agency). 2005. Policy Evaluation on the Establishment of New Autonomous Regions: A Study of Institutions, Human Resources, and Fiscal Performance in New Autonomous Regions (in Indonesian), Jakarta. Bappenas and the United Nations Development Programme. 2008. Evaluation of the Proliferation of Admnistrative Regions in Indonesia, 20012007, Jakarta. Brodjonegoro, B. 2006. Decentralization as a Fundamental Policy to Enhance the National Economic Growth and to Reduce the Interregional Disparity in Indonesia (in Indonesian). Acceptance Speech of Professorship in Economics. Faculty of Economics, University of Indonesia, 18 March, Jakarta. Bird, R.M. and Smart, M. 2002. Intergovernmental Fiscal Transfers: International Lessons for Developing Countries. World Development 26(12), 899912. Cheema, G.S. and Rondinelli, D.A. 1983. Decentralization and Development: Policy Implementation in Developing Countries. Beverly Hills, CA: Sage Publications. Eckardt, S. 2008. Political Accountability, Fiscal Conditions and Local Government Performance CrossSectional Evidence from Indonesia. Public Administration and Development 28(1), 117. Ferazzi, G. 2007. International Experiences in Territorial Reform Implications for Indonesia, main report, USAID Democratic Reform Support Program (DRSP) for the management Group on Territorial Reform, August, Jakarta. Firman, T. 2003. Potential Impacts of Indonesias Fiscal decentralization Reform on Urban and Regional Development: Towards a Pattern of Spatial Disparity. Space and Polity 7(3), 247271. Firman, T. 2008. In Search of a Governance Institution Model for Jakarta Metropolitan Area (JMA) under Indonesias Decentralization Policy. Public Admnistration and Development 28, 280290. Firman, T. 2010. Indonesias Rapid Decentralization Needs Inter Local-Government Partnership: Kartamantul (Greater Yogyakarta) and Jabodetabek (Greater Jakarta) Compared. Unpublished Manuscript. Fitriani, F., Hofman, B. and Kaiser, K. 2005. Unity in Diversity? The Creation of New Local Governmnets in a Decentralizing Indonesia. Bulletin of Indonesian Economic Studies 41(1), 5779. Freire, M. 2007. Sustainable Cities: The Role of Local Governance in Managing Change. Paper Presented to the Symposium a Global Look at urban and Regional Governance: The State-Market-Civic Nexus, Emory University, January 1819.

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

Firman, Decentralization Reform and Local-Government Proliferation in Indonesia

157

Freire, M. and Stern, R., (eds.) 2001. The Challenge of Urban Governance. Washington, DC: The World Bank. Government of Indonesia. 2008. The Government Statement on Regional Development Policy. Presidential Address to the Plenary Session of the Regional Representative of the Republic of Indonesia, 22 August, Jakarta. (www.indonesia.go.id). Grindle, M. 2007. The Promise of Good Governance. In: Grindle MS (ed.), Going Local: Decentralization, Democratization, and the Promise of Good Governance. Chapter eight, Princeton: Princeton University Press. 164186. Hadiz, V 2004. Decentralization and Democracy in Indonesia. Development and Change 35(4), 607718. . Hill, H. 2007. The Indonesian Economy: Growth, Crisis and Recovery. The Singapore Economic Review 52(2), 130. Institute for Research on Economics and Society (LPEM), University of Indonesia n.d. Regional Proliferation and National Budget Burden, Jakarta. Koswara, E. 2000. Welcoming the Implementation of Regional Autonomy based on Law 22/1999 (in Indonesian). Analisis CSIS 29(1), 3664. Lewis, B. 2003. Tax and Charge Creation by Regional Governments Under Fiscal Decentralization and Explanations. Bulletin of Indonesian Economic Studies 39(2), 177192. Mardiasmo, M. 2008. Adjustment of Local-Regional Fiscal Balance Systems in the Face of the Regional Proliferation in Indonesia. Powerpoint Presentation to the Seminar and Workshop of Grand Strategy for Regional Harnessing in Indonesia, Jakarta, 18 December, Ministry of Home Affairs. Matsui, K. 2005. Post-Decentralization Regional Economies and Actors: Putting the Capacity of Local Governments to the Test. The Developing Economies XLIII(1), 171189. Matsui, K. n.d. Regional Development Policy and Local-Head Elections. Unpublished Paper. Nwanko, G.O. 1984. Management Problems of the Proliferation of Local Government in Nigeria. Public Administration and Development 4(1), 6376. Pike, A., Rodriguez, A. and Tomaney, J. 2007. Local and Regional Development. New York: Routledge. Pratikno, P. 2008. Recommendations on Modications of Regional Development Policy: Proliferation and Amalgamation of Regions. Unpublished Policy Paper, Democratic Reform Support Program, United States Agency for International Development, February 29. Rondinelli, D.A. 1990. Decentralizing Urban Development Programs: A Framework for Analyzing Policy. Ofce of Housing and Urban Programs, US Agency for International Development, Washington, D.C. Seymour, R. and Turner, S. 2002. Otonomi Daerah: Indonesias Decentralization Experiment. New Zealand Journal of Asian Studies 4(2), 3351. Shah, A. and Hutter, J. 1998. Applying a Simple Measure of Good Governance to the Debate on Fiscal Decentralization. Washington, DC: The World Bank. Shah, A. and Thompson, T. 2004. Implementing Decentralized Local Governance: A Treacherous Road with Potholes, Detours and Road Closures. World Bank Policy Research Working Paper 3353, June, Washington, D.C. Ukiwo, U. 2006. Creation of Local Government Areas and Ethnic Conicts in Nigeria: The Case of Warri, Delta State. Paper Presented to West Africa Workshop, Accra, Ghana, March. USAID (United States Agency for International Development). 2006. Stock Taking on Indonesias Recent Decentralization Reforms, Democratic Reform Support Program. Prepared for the Donor Working Group on Decentralization with Funding from the Decentralization Support Facility, AusAid, and USAID. Von Luebke, C. 2009. The Political Economy of Local Governance: Findings From an Indonesian Field Study. Bulletin of Indonesian Economic Studies 45(2), 201230.

C The Applied Regional Science Conference (ARSC) / Blackwell Publishing Asia Pty Ltd. 2010

Copyright of Review of Urban & Regional Development Studies is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.