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 12: The Indonesian Experience with the Implementation of Regional Autonomy
Made Suwandi INTRODUCTION Since the economic crisis in mid-1997, Indonesia has experienced several other crises of a political and governmental nature. Since the start of this new period for Indonesia, there have been continued demands for the reform of local governments and for the deepening of decentralization. From this perspective, the demand for local government reform in Indonesia has been driven by political pressures from the bottom up. These pressures have been a manifestation of democratic values and the widespread spirit of reformation of Indonesian society. The government responded to these demands by issuing two important laws – Law No. 22/1999 concerning Local Government and Law No. 25/ 1999 concerning the Financial Balance between the Central and Local Governments. Those two laws marked a radical shift toward decentralization providing discretion to local government in managing their local affairs and away from decades of domination by central government of practically all local government arrangements. This swing of the pendulum from bureaucratic deconcentration in the past to political decentralization in the present is not a strange phenomenon in the Indonesian context if we see it from a historical perspective. Since Indonesia’s Independence in 1945, the issuance of various laws concerning local government, culminating most recently in Law No. 22/1999, has been marked by the political swing either favoring decentralization or centralization. These swings have tended to reﬂect the political situation in the national arena. The question is whether Indonesia can learn from its relatively long experience with decentralization. In particular, what should...
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