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Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia

Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia

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

Indonesia is currently facing some severe challenges, both in political affairs and in economic management. One of these challenges is the recently enacted decentralization program, now well underway, which promises to have some wide-ranging consequences. This edited volume presents original papers, written by a select group of widely recognized and distinguished scholars, that take a hard, objective look at the many effects of decentralization on economic and political issues in Indonesia.

Chapter 11: Indonesian Decentralization: Opportunities Appear but Risks Abound

Marsillam Simandjuntak and Marsillam Simandjuntak

Subjects: asian studies, asian development, asian economics, development studies, asian development, economics and finance, asian economics, public finance


Marsillam Simandjuntak INTRODUCTION Let me say right from the beginning that the importance of the decentralization process would be assumed as an unavoidable necessity in Indonesia. It has become one among the few solutions to Indonesian national problems, if not the only one left. Hence the interrogative form of the question ‘Can decentralization help rebuild Indonesia?’ should be turned into a positive statement: the problems of rebuilding Indonesia can be solved through only decentralization. The emerging questions here are how will the decentralization itself be implemented, what is to be done, what are the requirements that must be fulfilled, and what are the obstacles that can impede the decentralization? It is these questions that I will examine in this chapter. NATIONAL PROBLEMS, REGIONAL SOLUTIONS I will try to formulate what seems to have become a kind of belief as follows: through decentralization various national problems can be solved at regional level by using local means to cope with local challenges. Of course, this belief immediately incites criticism, since factual observation in the regions that have recently enjoyed autonomy shows little evidence of low-level management’s ability to solve problems. What can be seen in many of the decentralized regions is a high level of administrative disarray, which in some cases has almost brought them to the brink of chaotic conditions, examples of which have been discussed elsewhere in this volume. If these accounts are correct, then they would seem to cast doubt on the necessity or, better, the effectiveness...

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