The ‘Big Bang’ Program and its Economic Consequences
Studies in Fiscal Federalism and State–local Finance series
Edited by James Alm, Jorge Martinez-Vazquez and Sri Mulyani Indrawati
Chapter 2: The Making of the ‘Big Bang’ and its Aftermath: A Political Economy Perspective
Bert Hofman and Kai Kaiser1 INTRODUCTION Indonesia’s 2001 decentralization is rapidly moving the country from one of the most centralized systems in the world to one of the most decentralized ones. Law No. 22/1999 gives broad autonomy to the regions in all but a few tasks that are explicitly assigned to the center. With the authority come the resources, lots of them. In the ﬁrst year, the regional share in government spending jumped from 17 percent to 30 percent, and over time, with the current assignments of functions, this share is likely to rise to over 40 percent, a sharp contrast with the average 15 percent of spending in the 1990s. This share is also much larger than can be expected on the basis of Indonesia’s size, whether measured by population or geographical size. In addition to spending, much of the apparatus of government was put under the control of the regions. Over two million civil servants, or almost two-thirds of the central government workforce, were transferred to the regions, and currently, out of a civil service of 3.9 million, some 2.8 million are classiﬁed as regional employees. In total, 239 provincial-level ofﬁces of central government, 3933 local-level ofﬁces,2 more than 16 0000 service facilities (e.g. schools, hospitals, health centers) were transferred lock stock and barrel to the regional governments throughout Indonesia. In this chapter we examine the ‘Big Bang’ decentralization from a political economy perspective. We ﬁrst discuss the history of decentralization efforts in Indonesia,...
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