Indonesia's Rapid Transition

Decentralization has become a salient feature of governance reforms around the world. More than 80 per cent of all developing and transitional countries with populations of more than 5 million have started to reshape their governance structures by transferring power to lower government levels (Dillinger 1994, p. 302). Among these countries, Indonesia's case represents a remarkable example of substantial reform in terms of scope and speed. After decades of authoritarian rule, the Indonesian government implemented administrative, political and fiscal decentralization reforms in 2001 after a brief preparation period of eighteen months. Formerly concentrated in Jakarta, Indonesia has been devolving a wide range of authorities to more than 440 districts, making it — at least in administrative terms — one of the most decentralized countries of the world.

Indonesia's rapid transition was set in motion by the onset of crisis. The breakdown of Southeast Asia's financial markets and Soeharto's resignation in 1998 opened up a policy space, a historic window of opportunity, for radical reforms (Turner and Podger 2003). A small group of key policymakers — namely Ryaas Rasyid, Rapiuddin, and the “Group of Seven” — crafted the new Regional Government Law 22/99 behind closed doors in the Ministry of Home Affairs. As a consequence, many senior officials in Jakarta, including ministers of former cabinets, were taken aback by the rapid decision-making when Indonesia’ new decentralization laws were presented to the public in 1999.

Undoubtedly, the high momentum of Indonesia's decentralization reforms has its tradeoffs. Extensive administrative and democratic changes — tightly scheduled between May 1999 and January 2001 — represented an endeavour of “building [a] ship while sailing” (Buente 2004). District governments became responsible to autonomously manage local economies in terms of infrastructure, agriculture, education, industry and trade, investment, development planning, and manpower affairs. More than two million public servants were transferred from Jakarta to the regions to facilitate this ambitious administrative task (World Bank 2003). Today, five years after implementing decentralization, it appears that districts are still struggling to establish functional accountability checks and service capacities (Brodjonegoro 2004; Sumarto et al. 2004).

Indonesia's decentralization to date indicates that costs may — at least in the short term — outweigh benefits for district economies. This is prominently displayed in the declining tendency of district business conditions since the enactment of decentralization.