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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 15: The Current State of Decentralization Reform in Indonesia: A Postscript

Jorge Martinez-Vazquez and Jameson Boex

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


1 Jorge Martinez-Vazquez and Jameson Boex The chapters in this volume were papers written for a conference that was held in Atlanta in May 2002. In the fast changing environment of decentralization reform in Indonesia a period of even a year is a long time, given the speed at which policy changes have been introduced in that country in the recent past. This postscript provides an update of the state of decentralization reform in Indonesia, in particular emphasizing the main obstacles to progress and suggesting the main priority areas for continued reform. For convenience we organize the review around the main functional ‘building blocks’ of intergovernmental relations, covering political, administrative, and purely fiscal decentralization issues. THE POLITICAL STANCE OF THE COUNTRY’S LEADERSHIP A formidable obstacle to continued progress in the decentralization process in Indonesia would appear to be the lack of overall vision and weak commitment to the decentralization agenda by the country’s top leadership. The experience with decentralization reform around the world shows the critical role that needs to be played by high-level ‘champions’ for decentralization reform. Unfortunately in Indonesia, support and guidance from the President, the Minister of Finance, and the Minister of Home Affairs has been lagging over the last year. Without this vision and commitment, it is not surprising that progress on the reform agenda has slowed down considerably. The national elections coming up during the first half of 2004, and the potential resulting changes in the political line-up at national level, will provide an important...

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