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 14: Implementing Decentralized Local Government: A Treacherous Road with Potholes, Detours and Road Closures

Anwar Shah, Theresa Thompson and Anwar Shah


Anwar Shah and Theresa Thompson1 INTRODUCTION During the past two decades, a silent revolution in public sector governance has swept across the globe.2 This revolution aims to move decision-making for local public services closer to the people. The interest in this new paradigm of public governance has further been heightened by the information revolution and globalization of economic activity which tend to weaken central government at the expense of supranational regimes and local governments. The countries embracing and adapting to this silent revolution had diverse motives and followed even more diverse approaches. This chapter attempts to present a stylized view of the motivations, approaches and processes used to strengthen localization. In doing so, it attempts to draw lessons of some general interest on the process and substance of decentralization, in part how they apply to Indonesia. The chapter is organized as follows. The first section introduces the reader to basic concepts in decentralization. The second section is concerned with the motivations for decentralization. The third section presents a worldwide overview of decentralization efforts. The fourth section is concerned with the processes of decentralization and examines sequencing issues. The fifth section deals with sustainability and local capture issues, and the sixth section draws lessons for the future of decentralization in Indonesia. DECENTRALIZATION: SOME BASIC CONCEPTS A review of basic concepts commonly used in the decentralization literature is presented here so as to facilitate communications in subsequent sections. 301 302 ● International experience and the current state of decentralization ● ● ● ● ● ● ● ● ● ● Subsidiarity principle states that...

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