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Sebastian Eckardt and Anwar Shah
Inadequate implementation of the administrative decentralization framework has hindered the success of Indonesian reforms. It has saddled local governments with large bureaucracies that eat up precious resources. It has also opened doors for stealth control of local governments by the central government. The ability of local government to hire, fire, and set terms of employment for local employees is an integral element of local autonomy in resource allocation and local accountability for service delivery. Further clarification is needed of the roles of government levels, especially for shared responsibilities. Although to some extent the distribution of government functions is contested and blurry even in most mature federations, such as Germany and the United States, further clarification and delineation of functional assignments should be promoted in Indonesia. The move away from omnibus assignments—from a negative list of obligatory functions in Law 22/1999 to a positive list in Law 32/2004—is a step in the right direction. Given the complexity and sensitivity of reorganizing functions, the law sets out only general principles for the allocation of functions, broadly following subsidiarity. To ensure further clarification, policy makers must ensure sectoral laws (on health, education, and so forth) align with these principles. Central government departments in decentralized sectors continue to spend significant funds directly in the regions, at least part of them for functions officially assigned to local governments. This spending creates accountability problems because citizen-customers do not know which level to hold accountable for the quality of service delivery.
Lessons for Developing Countries Indonesia’s evolving local government system, including its organizational and financial structures, provides a number of lessons on how to design such reforms elsewhere.
Big Bang versus Gradual Reforms As in Poland, political consensus for the reform program in Indonesia developed over a long period of time, but reforms were implemented in a relatively short period at a politically opportune moment of a serious fiscal crisis faced by the central government, a moment when resistance to reform was weak and political commitment to reform was strong. Moreover, the reforms were relatively comprehensive and emphasized political, fiscal, and administrative decentralization simultaneously. Some teething problems arose because some provisions were either not implemented or were
