Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia
Show Less

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.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 8: An Analysis of Indonesia’s Transfer System: Recent Performance and Future Prospects

Bambang Brodjonegoro and Jorge Martinez-Vazquez


Bambang Brodjonegoro and Jorge MartinezVazquez INTRODUCTION Since the mid-1970s, fiscal decentralization in Indonesia had been a slowburning affair. However, with the ‘Big Bang’ of the 1999 reforms, in the space of one year Indonesia changed from one of the most centralized to one of the most decentralized countries in the world. It was with significant trepidation that observers saw the share of sub-national government spending in total government spending almost double from 2000 to 2001, to over 30 percent, and at the same time over two million civil servants and thousands of facilities were re-assigned to local level. However, the widespread concerns about chaos and disarray did not materialize. The transition to the new decentralized system had some bumps, but overall was fairly smooth. In hindsight, there are many reasons for this largely successful transition. There is little doubt that, despite some defects, the institutional framework for fiscal decentralization, laid out in Laws No. 22/1999 and No. 25/1999, deserves much credit for the success. The centerpiece for the new fiscal decentralization institutions in Indonesia is the new system of transfers comprising revenue sharing of natural resources, personal income tax, and property taxes, the DAU (Dana Alokasi Umum) a large unconditional grant intended to fund sub-national governments in an equalizing manner, and the DAK (Dana Alokasi Khusus), a set of yet to-be-developed conditional grants. In this chapter we examine the performance of this transfer system. We first discuss the history of transfers in Indonesia. We next review the structure and...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.