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Fiscal Fragmentation in Decentralized Countries

Subsidiarity, Solidarity and Asymmetry

Edited by Richard M. Bird and Robert D. Ebel

Most countries, developed and developing, are fiscally decentralized with regional and local governments of varying importance. In many of these countries, some of these sub-national governments differ substantially from others in terms of wealth, ethnic, religious, or linguistic composition. This book considers how fiscal arrangements may strengthen or weaken national solidarity and the effectiveness with which public services are provided. In particular, the nation’s ability to cope with changes created by decentralization is explored.
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Chapter 11: Intergovernmental Fiscal Relations and State Building: The Case of Indonesia

Bambang Brodjonegoro and J. Fitz G Ford


Bambang Brodjonegoro and J. Fitz G. Ford This chapter briefly reviews the origins of the unitary Indonesian state, the attitudes and policies towards decentralization, the developments with regard to intergovernmental relations during the first two decades of independence and the changes in intergovernmental fiscal relations under the New Order government. It also speculates about what may be required as Indonesia contemplates substantial reform to its governance structures and explores the tolerance for asymmetry in intergovernmental fiscal relations. ORIGINS OF THE INDONESIAN UNITARY STATE Casual observers might be tempted to speculate that the existence of Indonesia as a unitary state is a recent and desperate attempt to hold disparate elements together. As MacAndrews (1986, p. 7) notes, ‘In looking at Indonesia, one is struck more by the forces leading to fragmentation in the country than by the forces leading to unity’. As with many other aspects of Indonesia, reality is rather more complicated than surface appearances suggest. Two major factors influenced Indonesia becoming a unitary state. The first lies in its colonial history. The Dutch, in their desire to pre-empt their European colonial rivals, progressively incorporated most of the islands of the Indonesian archipelago under the government they administered from their base in Java. This was a more manageable solution than establishing separate governments among the several cultures that occupied 3000 of the archipelago’s 13 667 islands. In the process of executing this strategy, the Dutch built an administrative structure that consisted predominantly of Javanese bureaucrats. However, they also created an...

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