Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia
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Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia

The ‘Big Bang’ Program and its Economic Consequences

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.
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Chapter 3: Political Reforms, Decentralization and Democratic Consolidation in Indonesia

Dwight Y. King


1 Dwight Y. King INTRODUCTION Decentralization of power was one of the main demands of the reform movement that took shape in 1998. After Suharto resigned many regions began voicing their discontent. The interim Habibie administration responded to these developments with a policy of wide-ranging regional autonomy with special additional arrangements for the provinces of Aceh, Irian Jaya, the capital region of Jakarta and East Timor. Accompanying and reinforcing these decentralizing efforts were others intended to democratize the political system. In this chapter I begin by briefly summarizing the effects on decentralization of new political laws passed by the House of Representatives (Dewan Perwakilan Rakyat or DPR) and promulgated in 1999. I then examine aspects of the second wave of reform consisting of constitutional amendments passed by the People’s Consultative Assembly (Majelis Perwakilan Rakyat or MPR) in 2000–02 and of proposals for amendment of the Law on Regional Government (Undang-Undang Pemerintahan Daerah or UU 22/1999). Next I identify factors that help explain interdistrict variation, or why political reform, decentralization and good governance have progressed further in some districts than in others. I conclude with speculations on the likely future evolution of decentralization reforms in Indonesia. HABIBIE’S INITIATIVES Several aspects of the new political laws proposed by interim President Habibie had implications for decentralization.2 The Law on Political Parties (Undang-Undang Partai Politik or UU 2/1999) stipulated that, in order to contest the election, a party had to have an organization (executive committee) in at least nine provinces and in...

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