Decentralization and Regional Autonomy in Indonesia: Implementation and Challenges 9789812308214

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Decentralization and Regional Autonomy in Indonesia: Implementation and Challenges
 9789812308214

Table of contents :
CONTENTS
LIST OF TABLES
LIST OF FIGURES
LIST OF MAPS
ACKNOWLEDGEMENTS
LIST OF CONTRIBUTORS
PREFACE
INTRODUCTION The Regional Governance Reform in Indonesia, 1999–2004
PART ONE. Monitoring Reports & General Analyses
1. When the Burden is Shouldered Alone: Experiences in Autonomy at Regencies and Municipalities
2. Indonesia’s Transition to Decentralized Governance: Evolution at the Local Level
3. Corruption and Decentralization
4. The Role and Function of the Regional People’s Representative Council (DPRD): A Juridical Study
5. Regional Autonomy, Regulatory Reform, and the Business Climate
6. Decentralization, Regulatory Reform, and the Business Climate
7. Small Enterprises and Decentralization: Some Lessons from Java
8. Fiscal Decentralization and Its Impact on Regional Economic Development and Fiscal Sustainability
9. Origin and Development of the Urban Municipality in Indonesia
PART TWO. Anthropological Analyses of Regional Cases
10. Regional Autonomy and the Issue of Land Rights: The Case of the PT CPM Mine in Central Sulawesi
11. Reshaping Tana Toraja: A Century of Decentralization and Power Politics in the Highlands of South Sulawesi
12. Recentralization and Decentralization in West Sumatra
13. Regional Autonomy and Its Discontents: The Case of Post-New Order Bali
14. Reflections on the Development of Intellectual Property Rights Legislation: An Account from Riau
15. Global Spread and Local Fractioning: Indigenous Knowledge and the Commoditization of Livelihood Resources in the Growth Triangle
INDEX

Citation preview

Decentralization and Decentralization and! Regional Autonomy Regional Autonomy in on Indonesia Indonesia

The International Institute for Asian Studies (IIAS) is a postdoctoral research centre based in Leiden and Amsterdam, the Netherlands. Its main objective is to encourage the study of Asia and to promote national and international co-operation in this field. The geographical scope of the Institute covers South Asia, Southeast Asia, East Asia, and Central Asia. The institute focuses on the humanities and the social sciences and, where relevant, on their interaction with other sciences. The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic press, has issued almost 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world. ii

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IIAS/ISEAS Series on Asia

Decentralization and Regional Autonomy in Indonesia Implementation and Challenges

Edited by

Coen J.G. Holtzappel & Martin Ramstedt

International Institute for Asian Studies The Netherlands

Institute of Southeast Asian Studies Singapore

First published in Singapore in 2009 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: http://www.bookshop.iseas.edu.sg First published in Europe in 2009 by International Institute for Asian Studies P.O. Box 9515 2300 RA Leiden The Netherlands E-mail: [email protected] Website: http://www.iias.nl/ All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2009 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions in this publication rests exclusively with the authors and their interpretations do not necessarily reflect the views or the policy of the publisher or its supporters. ISEAS Library Cataloguing-in-Publication Data Decentralization and regional autonomy in Indonesia : implementation and challenges / edited by Coen J.G. Holtzappel and Martin Ramstedt. 1. Decentralization in government—Indonesia. 2. Local government—Indonesia. 3. Autonomy—Economic aspects—Indonesia. I. Holtzappel, Coen. II. Ramstedt, Martin. JS7193 A3D29 2009 ISBN 978-981-230-820-7 (hard cover) ISBN 978-981-230-821-4 (PDF) PHOTO CREDIT: The photograph used on the front cover is reproduced with the kind permission of the volume editor, Martin Ramstedt. Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Chung Printing iv

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CONTENTS

List of Tables

viii

List of Figures

x

List of Maps

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Acknowledgements

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List of Contributors

xv

Preface

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INTRODUCTION: The Regional Governance Reform in Indonesia, 1999–2004 Coen J.G. Holtzappel

1

PART ONE: MONITORING REPORTS & GENERAL ANALYSES 1. When the Burden is Shouldered Alone: Experiences in Autonomy at Regencies and Municipalities Adi Abidin

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2. Indonesia’s Transition to Decentralized Governance: Evolution at the Local Level Widjajanti I. Suharyo

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3. Corruption and Decentralization Bert Hofman, Kai Kaiser, and Günther G. Schulze

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4. The Role and Function of the Regional People’s Representative Council (DPRD): A Juridical Study J. Endi Rukmo et al.

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5. Regional Autonomy, Regulatory Reform, and the Business Climate Mohammad Sadli

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6. Decentralization, Regulatory Reform, and the Business Climate 150 David Ray 7. Small Enterprises and Decentralization: Some Lessons from Java 183 Henry Sandee 8. Fiscal Decentralization and Its Impact on Regional Economic Development and Fiscal Sustainability Bambang Brodjonegoro

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9. Origin and Development of the Urban Municipality in Indonesia Peter J.M. Nas

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PART TWO: ANTHROPOLOGICAL ANALYSES OF REGIONAL CASES 10. Regional Autonomy and the Issue of Land Rights: The Case of the PT CPM Mine in Central Sulawesi Dibyo Prabowo

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11. Reshaping Tana Toraja: A Century of Decentralization and Power Politics in the Highlands of South Sulawesi Edwin de Jong

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12. Recentralization and Decentralization in West Sumatra Franz and Keebet von Benda-Beckmann 13. Regional Autonomy and Its Discontents: The Case of Post-New Order Bali Martin Ramstedt

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14. Reflections on the Development of Intellectual Property Rights Legislation: An Account from Riau Syafrinaldi 15. Global Spread and Local Fractioning: Indigenous Knowledge and the Commoditization of Livelihood Resources in the Growth Triangle Cynthia Chou Index

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LIST OF TABLES

Table 2.1: Table 2.2: Table 2.3:

Table 2.4:

Table 2.5:

Table 2.6: Table 2.7:

Number of District Government Units before and after Decentralization Increase in Salary of DPRD Members Basic Statistics of West Lombok and the City of Bandar Lampung; Local Budget and the Financing of Service Centres Revenues of West Lombok, Bandar Lampung, Lampung Province and NTB before and after Decentralization Government Expenditure of West Lombok, Bandar Lampung, Lampung Province and NTB before and after Decentralization Location of SMERU’s Studies on Regional Autonomy; 2000–03 Changes in the Transfer from Central Government, Province’s and District’s Own Revenues and Salary Payments, before and after Decentralization (FY 1999/2000 and FY 2001)

83 83

85

86

87 90

92

Table 3.1:

The Time Needed for Several Services

109

Table 4.1:

Regional Profile of the Respondents

121

Table 6.1:

Selected PEG Studies on Regulatory Problems in Local Government Factors that Impact Negatively on the Business Climate

Table 6.2:

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151 164

List of Tables

Table 7.1:

Table 7.2:

Table 7.3:

Table 8.1:

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Indonesian Manufacturing by Establishment Size (employment-based definition), Census Data, 1975–96 Indonesian Employment by Main Employment Status of Population Aged 15 Years and above; 1997, 1999 and 2001 Employments in the Manufacturing Sector, 1996–2000

185

186 187

Percentage of Prefectures/Municipalities Distribution Based on Elements of Budget Shares to Total Local Budget (APBD), 2002 DAU per Capita, 2002–03 Local Revenue per Capita, 2002 Average Annual GRDP Growth by Province Average Annual Investment Growth by Province Average Annual Export Growth by Province Average Annual Manufacturing Growth by Province Inter-governmental Transfer, Debt Payment, and National Budget

204 205 210 211 212 213 214

Table 10.1: Table 10.2:

Mining in the Forests Mining in Protected and Conservation Forest

247 249

Table 11.1:

Historical Overview of the Changes of Administrative Divisions in Tana Toraja

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Table 8.2: Table 8.3: Table 8.4: Table 8.5: Table 8.6: Table 8.7: Table 8.8:

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LIST OF FIGURES

Figure 1.1: Organization of Central and Regional Authorities

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Figure 2.1: The Transfer from Central Government and Districts’ Own Revenues before (FY 1999/2000) and after (FY 2001) Decentralization 80 Figure 2.2: The Transfer from Central Government and Provinces’ Own Revenues before (FY 1999/2000) and after (FY 2001) Decentralization 80 Figure 2.3: Increase in Transfer from Central Government, Provinces’ Own Revenue and Salary Payments after Decentralization (FY 2001–FY 1999/2000) 82 Figure 2.4: Increase in Transfer from Central Government, Districts’ Own Revenue and Salary Payments after Decentralization (FY 2001–FY 1999/2000) 82 Figure 3.1: Forms of KKN before and after Decentralization 2000–01 Figure 3.2: KKN in Government Administration (Perception by NGO and Media) Figure 3.3: Level of Community Satisfaction with Public Services Figure 3.4: Comparison of the Average Actual Payment with the Payment According to Local Regulations Figure 3.5: Perceptions on Transparency of APBD

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105 106 108 108 109

LIST OF MAPS

Map 11.1: Kruyt’s Threefold Division of the Highlands and the Modern District of Tana Toraja

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Map 12.1: Nagari Candung Kota Lawas

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Map 15.1: Resources of Riau as Perceived by the Regional Investment Coordinating Board of Riau Province Map 15.2: Master Plan for Batam Map 15.3: Master Map for Bintan Map 15.4: Master Map of the Barelang Bridges Map 15.5: The Network of Orang Laut Inter-related Territorialities and Their Identification of Resources

395 396 397 399 402

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ACKNOWLEDGEMENTS

The compilation of the anthology greatly benefited from the intense and continual oral and written exchange between the contributors and the two editors. The result is a coherent line of reasoning which runs through the whole book and turns each chapter into a necessary, well-integrated part of the whole. We are deeply grateful to Mohammad Sadli who actually planted the seeds for the whole project. His continued inspiration and insightful comments, which by far transcended the framework of his own contribution, have guided our discussion until the end. Martin Sander’s astute critical reading of the chapters of Part I of the present volume accelerated the conclusion of this project. We are equally indebted to Milan Titus, whose expansive knowledge of the subject served as a never-ending source of inspiration. The editing of the individual chapters profited from Stewart Robson’s erudite translation of two very technical Indonesian contributions. Marleen Dieleman gave valuable comments as to the organization of the chapters, and Lika Meissner graciously assisted us in the final stage of the editing process. Last but not least, we would like to thank Wim Stokhof, former Director of the International Institute for Asian Studies, who encouraged us to publish the anthology in the IIAS series at ISEAS in Singapore.

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LIST OF CONTRIBUTORS

Adi Abidin holds a B.A. in comparative politics from Northern Illinois University and has been deeply involved in the implementation of the 1999 legislation on decentralization and regional autonomy in various capacities. He was programme officer for the unit “Decentralization and Local Government” at The Asia Foundation in Jakarta where he was engaged in the implementation of the Indonesia Rapid Decentralization Appraisal (IRDA), a three-year programme dedicated to monitoring the pace and direction of the decentralization process in Indonesia. He was a member of the initial implementation team of the decentralization policy at the State Ministry for Regional Autonomy in 2000, where he was involved in the drafting of the initial implementing regulations and was responsible for the whole research unit of the ministry, assisting the senior political adviser and setting up the decentralization facilitators’ network in the regions. After the State Ministry of Regional Autonomy had merged with the Ministry of Home Affairs, due to the restructuring of the government in late 2000, Abidin joined the office of the National Democratic Institute in Jakarta as a programme officer dealing with issues concerning constitutional and electoral reform as well as decentralization. In this context, he served as a close observer of Indonesia’s constitutional amendment process, particularly the crisis leading to Abdurrahman Wahid’s removal from office in 2001. He also assisted the central government as well as local governments in preparing innovative institutions, practices and procedures to strengthen the initiatives for regional autonomy. Abidin has recently started a new job at the Jakarta office of the International Labour Organization (ILO). Bambang Brodjonegoro holds a Ph.D. in Regional Science and a Master of Urban Planning from the University of Illinois at Urbana-Champaign. He is Dean of the Faculty of Economics at the University of Indonesia in xv

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Jakarta. He is also President of the Indonesian Regional Science Association (IRSA), Deputy Chairman of the Indonesian Economist Association (ISEI) for Decentralization, Regional Autonomy, Cooperatives and Agriculture, and Chairman of the Regional Autonomy Watch (KPPOD). His latest publications include Regional Development in the Era of Decentralisation: Growth, Poverty and the Environment (2004), co-edited with A.S. Alisjahbana. Cynthia Gek-Hua Chou holds a B.A. and MSoc.Sc. from the National University of Singapore and a Ph.D. in Social Anthropology from Cambridge University, UK. She is Associate Professor at the Department of Crosscultural and Regional Studies, University of Copenhagen. Previously, she had worked as Curator at the Singapore History/National Museum and as postdoctoral research fellow at the International Institute for Asian Studies in Leiden, The Netherlands. Her publications include Indonesian Sea Nomads: Money, Magic, and Fear of the Orang Laut of Riau (2003), the anthology, Tribal Communities in the Malay World: Historical, Cultural and Social Perspectives (2002), co-edited with Geoffrey Benjamin, and the theme-issue Riau in Transition (Bijdragen tot de Taal-, Land- en Volkenkunde, 1997), coedited with Will Derks. Edwin de Jong holds a M.A. in Development Studies from Nijmegen University. Having carried out extensive fieldwork in South Sulawesi, he has recently finished his doctoral thesis, titled Living with the Dead: The Dynamics of Translocality and Livelihoods in the Torajan World, Indonesia. In his thesis, he analyses the impact of the multiple crises in Indonesia on the livelihood of the Sa’dan Toraja in the highlands of South Sulawesi. His focus lies on the way in which the Sa’dan Toraja respond to the effects of the crises and the consequences of these responses for essential social relations and (trans-local) networks. De Jong’s doctoral research project was part of the Royal Netherlands Academy of Sciences’ “Indonesia in Transition” Research Programme within the Netherlands-Indonesia Scientific Cooperation Programme. He is currently appointed as post-doctoral researcher at the project “Adapting to Water Change: Social-Ecological Resilience and Livelihood Innovation as a Consequence of Aquatic-Ecological Change and Changing Water Regimes of the Mahakam River, East Kalimantan, Indonesia”, financed by the Netherlands Organisation for Scientific Research (NWO). He is also working as an educational coordinator and lecturer at the Department of Development Studies at Nijmegen University. xvi

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Dibyo Prabowo is President of Atma Jaya University in Yogyakarta. Previously, he was Professor of Economics at Gadjah Mada University in Yogyakarta and Director of the university’s Center for Asia and Pacific Studies. He furthermore served as Dean of the Faculty of Economics at Gadjah Mada University, as an expert staff at the Indonesian Ministry of Agriculture, member of the IFAD Mission to Indonesia assessing the income generating project for small farmers, member of the ESCAP Mission to South Asia assessing the local food demand and supply, and Director of the Economic Research Center of the Faculty of Economics at Gadjah Mada University. He has published extensively on issues concerning agricultural policy and industry in Asia. Bert Hofman holds a degree in Economics from Erasmus University, Rotterdam. He served as lead economist for several years at the World Bank office in Jakarta, where he focused on fiscal policy, decentralization and governance, before being transferred to the World Bank office in Beijing. He had previously worked for the World Bank in China, South Africa, Mongolia, Zambia, and Namibia, concentrating on macro-economic, financial and fiscal issues. Before joining the World Bank, he was a researcher at the Kiel Institute for World Economics, at the OECD, the ING Bank, and Erasmus University in Rotterdam. He has published on a variety of issues, including decentralization in Indonesia, the international debt crisis, exchange rate movements, transition economics, and Chinese economic reforms. He was also the main author of the 2001 World Bank report on Indonesia’s decentralization reforms (Decentralizing Indonesia). Coen J.G. Holtzappel has recently retired from academic teaching, after having been lecturer for the cultural and political anthropology of Indonesia, social theory and non-Western sociology at the Department of Cultural Anthropology and Non-Western Sociology, Leiden University, the Netherlands, for twenty-seven years. He has however retained his position as president of the Dutch Wertheim Foundation. From 1971 to 1975, he had been member of the project team of the LHW/KHT I Nuffic Research and Teaching Programme which had been established in connection with the cooperation between the University of Agriculture in Wageningen, the Netherlands, and the Institute for Social Development in Malang, Indonesia. From 1976 to 1989, Holtzappel was a member of the Committee for Social Sciences of the Dutch-Indonesian Cultural Agreement, which he presided as chairman from 1989 to 1992. In 1988, he was a visiting fellow at the Department of Anthropology and History at the Australian National University (ANU) in xvii

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Canberra. From 1991 to 1993, he also worked as Erasmus Programme lecturer for the anthropology of Indonesia at the Department of Anthropology, the University College of London (UCL). From 1986 to 1998, he participated in the training and briefing programme for business personnel to be sent to Indonesia at the Royal Institute for the Tropics (KIT) in Amsterdam. His research and writings focused on socio-political processes in modern, colonial and pre-colonial Indonesia. His recent publications include the anthology Eenheid in Verscheidenheid. Droom of Werkelijkheid? (2003) and the anthology Riding a Tiger: Dilemmas of Integration and Decentralisation in Indonesia (2002), which he co-edited with Martin Sanders and Milan Titus. J. Endi Rukmo holds a M.A. from the Research School of Pacific Studies at the Australian National University and is Head of the Department of Political Sciences at the College of Governmental and Civil Service Studies (Sekolah Tinggi Ilmu Pemerintahan Abdi Negara) in Jakarta. Previously, he was Vice-Director of the Postgraduate Programme on Governance, Head of the Laboratory for Governance Studies at Satyagama University in Jakarta, as well as Secretary of the Board of the Foundation for Regional Governance Innovation (Yayasan Inovasi Pemerintah Daerah). He has also worked as Policy Analyst at the Center for Local Government Innovation (CLGI) in Jakarta, head of a team involved in the building of institutions for good governance at the International City/County Management Association (ICMA) in Jakarta, Deputy Secretary-General of the Asia Pacific Section of the International Union for Local Authority, and member of the Department of International Affairs at the Centre for Strategic and International Studies (CSIS) in Jakarta. He has taught at various Indonesian universities and has published extensively on political issues in different Asian countries. Kai Kaiser is Senior Economist for Public Policy at the World Bank office at Washington D.C. From 2002 to 2003, he was task manager of the project “Sub-National Good Governance Indicators for Effective Decentralization” of the World Bank Netherlands Partnership Program together with Bert Hofman. He has co-authored a large number of World Bank reports on local conflict, decentralization and development in Indonesia. Mohammad Sadli was Professor Emeritus at the Faculty of Economics, University of Indonesia in Jakarta, and Chairman of the Institute for Research and Development (LP3E) of the Indonesian Chamber of Commerce and Industry (Kadin). He was one of the leading economists of the Suharto era who helped to fashion the Indonesian economic policy of that period. From xviii

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1967 to 1973, he was Chairman of the Technical Committee for Capital Investment. From 1971 to 1973, he served as Minister of Manpower and from 1973 to 1978 as Minister of Mining, then as Secretary-General of the Kadin, and later as the LP3-Kadin’s first Director. After he had retired from active teaching at his university in 1987, Sadli continued to write and give seminars both in Indonesia and abroad until he passed away shortly before the publication of this volume. Peter J.M. Nas is Professor of “Socio-cultural aspects of the built environment in Indonesia”. He is employed at the Department of Cultural Anthropology and Development Sociology, as well as the Department of Languages and Cultures of Southeast Asia and Oceania, Leiden University. He also serves as Secretary-General of the International Union of Anthropological and Ethnological Sciences (IUAES). His recent publications include an edited volume, The Past in the Present: Architecture in Indonesia (2007), and an anthology of all his publications on Indonesian cities, Kota-kota Indonesia: Bunga Rampai (2007). Martin Ramstedt holds a Ph.D. and a M.A. in anthropology from Munich University, Germany. He is Senior Research Fellow at the Max Planck Institute for Social Anthropology in Halle, Germany, working on Indonesian/Indian business relations and the role of Hindu values and Hindu law therein. Previously, he was post-doctoral researcher at the Meertens Institute (Royal Dutch Academy of Sciences) in Amsterdam, focusing on the function of alternative spirituality in the corporate world as well as on the relationship between modern paganism and the experience economy. From late 1997 to the beginning of 2001, he had been European Science Foundation research fellow and senior research fellow at the International Institute for Asian Studies in Leiden, the Netherlands, working on the political dimension of Hinduism in modern Indonesia. He has also worked as guest lecturer at the International Graduate School of Theology and the Department of Cultural Anthropology of the Radbouw University in Nijmegen as well as at the Culture, Organization and Management Department of the Vrije Universiteit Amsterdam. His publications include the monograph Weltbild, Heilspragmatik und Herrschaftslegitimation im vorkolonialen Bali (1998) and the anthology Hinduism in Modern Indonesia — A Minority Religion between Local, National, and Global Interests (2004). David Ray holds a Ph.D. in Economics from Victoria University, Australia and an honours degree in economics from Murdoch University, also in xix

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Australia. Since 2000 he has worked on a number of donor projects promoting regulatory and microeconomic reform in Indonesia and Vietnam. Over the 2000–03 period, he was a USAID funded economic advisor at the Indonesian Ministry of Industry and Trade, working on range of issues impacting the business enabling environment, including decentralization, competition policy, trade policy, local government regulations and port sector reform, amongst others. From late 2003 until the end of 2006, he led the The Asia Foundation component of the Vietnam Competitiveness Initiative, based in Hanoi. Currently, he is the Deputy Director of the SENADA Competitiveness project in Jakarta, a project to enhance the competitiveness of key labour intensive manufacturing sectors. Henry Sandee studied Development Economics at the Vrije Universiteit in Amsterdam, the Netherlands. His Ph.D. study was on technological change in rural industries in Central Java, Indonesia. From 1986 to 1992, he worked as Research Manager of the Faculty and Staff Development Programme at Satya Wacana Christian University in Salatiga, Indonesia. Subsequently, he was a Senior Lecturer and Research Fellow at the Vrije Universiteit with frequent missions to Indonesia, Vietnam, and Sri Lanka. In 2005, Henry joined Radio Netherlands Worldwide as Head of Department of the Indonesian Section which broadcast daily, a four-hour programme for Indonesians throughout the world. Since 2007, he moved to World Bank Jakarta office where he is currently employed as a domestic trade advisor to the Ministry of Trade. Günther G. Schulze is Professor of International Economics, International Public Finance, International Environmental Economics and Cultural Economics at the Institute for Economic Research, Department of International Economic Policy, Freiburg University, Germany. His recent books comprise of The Political Economy of Capital Controls (2000) and International Environmental Economics: A Survey of the Issues (2001), coedited with Heinrich Ursprung. Syafrinaldi holds a Ph.D. in Law from the Military University in Neubiberg, Germany, and an MCL from Dehli University. He is Professor of Law at the Islamic University in Riau, where he holds the positions of Director of the Postgraduate Programme and Head of the Study Centre for Intellectual Property Rights. He has been member of the Provincial Research Council in Riau and has worked as a consultant for various international oil firms in Riau. He is also Visiting Professor for the Ph.D. Programme at the Islamic State University in Pekanbaru as well as for the Master of Law Course at the xx

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Muhammadiyah University of North Sumatra. His recent publications include the books, Hukum Tentang Perlindungan Hak Milik Intelektual dalam Menghadapi Era Globalisasi (2001), Hukum Hak Milik Intelektual dan Pembangunan (2002), The Role of Equity in Delimitation of Maritime Boundaries (2002), Hukum Perlindungan Paten (2005), and Hukum Laut Internasional (2005). Franz von Benda-Beckmann is head of the project group “Legal Pluralism” (together with Keebet von Benda-Beckmann) at the Max Planck Institute for Social Anthropology in Halle, Germany, and Honorary Professor for Social Anthropology at the University of Leipzig as well as Honorary Professor for Legal Pluralism at the University of Halle-Wittenberg, Germany. From 1978 to 1981, he was Senior Lecturer at the Law Faculty of Leiden University, the Netherlands, and Director of the Netherlands’ Research Centre for Law in Southeast Asia and the Carribbean. At the same time, he also taught courses in Legal Anthropology as “Privatdozent” for Anthropology at the University of Zürich. Subsequently, he was Professor for Law in Developing Countries at Wageningen Agricultural University, the Netherlands, until 2000. His recent publications include Sumber Daya Alam dan Jaminan Sosial (2001), co-edited with Keebet von Benda-Beckmann and Juliette Koning; Mobile People, Mobile Law: Expanding Legal Relations in a Contracting World (2005), co-edited with Keebet von Benda-Beckmann and Anne Grifiths; Changing Properties of Property (2006), co-edited with Keebet von Benda-Beckmann and Melanie Wiber; and “Dynamics of Plural Legal Orders” (Special double issue of the Journal of Legal Pluralism and Unofficial Law 53/54, 2006), coedited with Keebet von Benda-Beckmann. Keebet von Benda-Beckmann is currently head of the project group “Legal Pluralism” (together with Franz von Benda-Beckmann) at the Max Planck Institute for Social Anthropology in Halle, Germany, and Honorary Professor for Social Anthropology at the University of Leipzig as well as Honorary Professor for Legal Pluralism at the University of Halle-Wittenberg. She is a member of the editorial board of the Journal for Legal Pluralism, the Australian Journal of Asian Law, and Focaal, Tijdschrift voor Antropologie. Her recent publications include Sumber Daya Alam dan Jaminan Social (2001), co-edited with Franz von Benda-Beckmann and Juliette Koning; Mobile People, Mobile Law: Expanding Legal Relations in a Contracting World (2005), co-edited with Franz von Benda-Beckmann and Anne Griffiths; and “Dynamics of Plural Legal Orders” (Special double issue of the Journal of Legal Pluralism and Unofficial Law 53/54, 2006), co-edited with Franz von Benda-Beckmann. xxi

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Widjajanti Isdijoso Suharyo holds a Master of Economics from the University of Queensland in Brisbane, Australia, and is currently Senior Researcher at the SMERU Research Institute in Jakarta. From 1999 to the beginning of 2003, she served as Regional Policy Analyst at the United Nations Support Facility for the Indonesian Recovery (UNSFIR) of the United Nations Development Programme (UNDP) in Jakarta to stimulate the examination of policy options for Indonesia. Previously, she had worked as Food Aid Monitor for the Urban Poor Programme within the World Food Programme (WFP) of the United Nations in Jakarta. She had also been a Senior Research Associate at the Center for Policy and Implementation Studies (CPIS) in Jakarta.

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PREFACE

After the fall of Suharto in May 1998, an instantaneous wave of publications endeavoured to come to grips with what was going on under the label of “reformasi”, by taking stock with the achievements and failures of the rapidly waning New Order institutions. The first book in the English language to exclusively address the intricacies of the various processes of decentralization in independent Indonesia up to the present day was the anthology, Riding a Tiger: Dilemmas of Integration and Decentralization in Indonesia (2002), coedited by Coen J.G. Holtzappel, Martin Sanders and Milan Titus. It comprised the proceedings of an international workshop at the University of Leiden, The Netherlands, convened by Holtzappel in 2000. In an effort to define the points of departure for the reform and to fathom out what might happen if Basic Law No. 22/1999 on regional governance and Basic Law No. 25/1999 on regional fiscal balance were to be implemented, the workshop had focused on the political and social dilemmas of the relation between government and regions and vice versa during the New Order regime. At the time, there was a debate going on about the feasibility of the 1999 legislation, and it was not certain at all that the implementation would start as planned in 2001. People were also commonly afraid that reformasi might fail, and that Suharto’s military-backed system of top-down regional governance might be able to re-institute itself. Another issue of concern for many was the fact that the local village communities were excluded from the equity intention inherent in the 1999 legislation. Yet, according to Article 18 of the 1945 Indonesian Constitution, it was precisely these village communities which were to enjoy special autonomy status. The majority of Indonesians have after all been living in closely-knit local communities in the rural districts and municipalities. To many, the emphasis on the autonomy of regional municipalities and districts in the 1999 legislation seemed questionable. xxiii

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Riding a Tiger is a collection of studies which naturally was influenced by these points of debate. Accordingly, it provides some valuable insights into the real-time state of affairs of the regions and local communities in 1999, simultaneously reviewing the post-independence history of regional governance. The studies incidentally focus on the rural districts and their economic and administrative arrears accumulated during the centralist New Order period, showing that the inhabitants of the rural districts depended on income from non-agricultural resources in rural as well as urban areas. The detailed findings of the book concerned the following issues: (1) The regional disparities between rich and poor regions, (2) The rift between urban and rural areas resulting from a steady decay of inter-Asian trade networks since the nineteenth century due to first colonial and later national trade interests hampering a free and legal access of all Indonesians to inter-regional and international trade (Mohammad Sadli), (3) The fact that whatever the legislation, regional autonomy would only be attractive to local government and local people if all the externalities necessary for autonomy were included, in particular, the servicing and co-administration apparatus of the administrative regions (Martin Sanders), (4) The flow of migrants and commuters between rural districts and cities attesting to the inter-regional nature of local life and its trading networks as well as to the dependence of the urban-rural relations on inter-island networks and networking (Milan Titus), (5) The importance of rural-urban networks, at least in Java, for the survival of both the inhabitants of rural areas and their kin in the towns and cities (Juliette Koning, Pande Made Kutanegara, and Gerben Nooteboom), (6) The violent ethnic dimensions of regional governance under reform in localities outside Java and Madura, and the clash between modernity and local tradition that decentralization would force upon local society (Jan Avé, Boedhihartono, and Dik Roth), and (7) Last but not least, the amazing sustainability, flexibility and productivity of small-scale industries in crisis-ridden Indonesia (Henry Sandee). Most of these issues unsurprisingly return in this volume which, for the most part, builds on the proceedings of the 2003 follow-up conference on regional reform in Yogyakarta, Indonesia. Additional expert contributions were furthermore solicited by the editors. The 2003 follow-up conference had been co-convened by Holtzappel and Dibyo Prabowo with the generous support of the Department of Cultural Anthropology and Non-Western Sociology at Leiden University and the Center for Asia and Pacific Studies at Gadjah Mada University in Yogyakarta. The conference focused on an analysis of the 1999 legislation and its implementation. At the time, the outcomes of the deficiency debate and the debate on the constitutional amendments had xxiv

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not yet been finished. In the course of the writing-up of this anthology, however, these debates came to an end, and their results were subsequently integrated into the scope of this volume. By the time this volume reaches printing stage, it is by no means the only book dedicated to the decentralization that is currently taking place in Indonesia. Three major works warrant special attention here due to their comprehensive approach to the topic. They all appeared already in 2003 and hence offer valuable first analyses of the initial phase of the decentralization process. They are, however, dated in the sense that they do not discuss the debate amendments on the constitution and its consequences, and the 2004 update legislation on the relation between government and regions. Hence they miss the practical point that meanwhile the reform does not mean any more democratic empowerment of local government. Rather, it has resulted in the installment of a solid local apparatus, paid by the government, to service the local communities and to co-administrate environmental government interests in the regions in cooperation with the executive regional parliament (see “Introduction” by Holtzappel). Let us mention here first the collection of essays on Autonomy and Disintegration in Indonesia (2003), co-edited by Damien Kingsbury and Harry Aveling on the basis of the proceedings of a conference of the same name which had taken place in Melbourne in 2001. In its thematic range, it is similar to the afore-mentioned volume, Riding a Tiger, but it has different points of departure. Arguing that “Balkanization”, that is, complete disintegration, or at least fragmentation would by far be the most critical issue facing the Indonesian state at the time, the book discusses in global comparison the history and complexity of the Indonesian nation-building process (Ruth McVey, Paul James, and Ann Kumar), and the chances for democracy as well as the recurrent issue of local identity therein. It offers four case studies of post-New Order Aceh (Edward Aspinall, Rizal Sukma), TimorLeste (Damien Kingsbury), Papua (Richard Chauvel), and South Sumatra (Elizabeth Collins), which highlight the long-standing friction between these regions and the centre. The resolution of this friction seemed to the authors not to be within reach anytime soon. The tenor of this collection of essays is quite pessimistic as it points out some dangers or deficiencies apparent in the initial stages of the decentralization process: the potential for regions to institute between themselves barriers to travel and free trade that would have an adverse effect of the already struggling economy (David Ray and Gary Goodpaster); the risk that the centre might react violently against the weakening of its integrative power through regional challenges (Damien Kingsbury); the chance that local communal identity xxv

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and a mythologized past, as in the case of West Sumatra, will obstruct possibilities to benefit from greater local control (Ismet Fanany); and the danger that low level of expertise at the local level may negatively affect local government service delivery (Ismet Fanany). One of the contributors (Minako Sakai) argued convincingly that the creation of new provinces based on cultural or geographic cohesion would promise to be an antidote to a further fracturing of the state. The second work presented here is another collection of studies which appeared under the title, Local Power and Politics in Indonesia: Decentralisation and Democratisation (2003). It was co-edited by Edward Aspinall and Greg Fealy on the basis of the proceedings from the 2002 Indonesia Update conference, comprising contributions from academics as well as international policy-makers. The conference was organized by Jill Wolf, Liz Drysdale, and Trish van der Hoek from the Indonesia Project at the Research School of Pacific and Asian Studies, The Australian National University, in Canberra. Designed to scrutinize the impact of the decentralization process on local politics and power relations, the conference had been co-sponsored by the Australian Agency for International Development (AusAID), the Asia Foundation, and the Ford Foundation in Jakarta. The book departed from what the editors had identified as the two rationales of the architects of the 1999 legislation for district-focused decentralization: (1) that it would promote democratization by bringing decision-making to a level where communities were more inclined to participate and where they could hold politicians accountable for their actions (p. 4); and (2) that it would be the “best way to ensure that decentralisation did not encourage separatism and the break-up of the country” (p. 4), which was meanwhile clearly displaying some of the characteristics of a weak state (Harold Crouch) that was furthermore not able to maintain sustainable economic growth (Mohamad Ikhsan). Assessing these two rationales against the backdrop of developments during the first two years of implementation (Harold Crouch, Mohamad Ikhsan), the authors pursued altogether three goals: (1) to provide an outline of the new decentralized system of governance on the basis of a general report on the results of the German Gesellschaft für Technische Zusammenarbeit Support for Decentralization Measures (GTZ-SfDM) so far by Rainer Rohdewohld, the Asia Foundation’s survey of thirty local governments presented by Arellano A. Colongon, Jr., examinations of the impact of decentralization on civil society (Hans Antlöv), women (Hana A. Satriyo), the environment (Ida Aju Pradnja Resosudarmo) and the military (Marcus Mietzner), and contributions highlighting the rise in local identity politics in xxvi

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North Sumatra (Vedi R. Hadiz), Riau (Michele Ford), West Sumatra (Minako Sakai), Papua (Rodd McGibbon), Java and Madura (Amrih Widodo, George Quinn); (2) to represent some aspects of the debate about the meaning of decentralization for political and economic power in Indonesia, concluding that in spite of the emergence of a new breed of populist political brokers (Amrih Widodo), the main winners of the governance reform have so far come from the lower echelons of the New Order bureaucracy capable of reestablishing themselves as local chief executives (Vedi R. Hadiz, Michael S. Malley); that the corrupt alliances of economic and political power were reconstituting themselves in form of unqualified individuals buying themselves into key positions of local administration (M. Ryaas Rasyid, Amrih Widodo); and that despite the reduction of the military’s role in national and regional legislatures, it has been able to adapt and preserve its territorial command structure in such a way that it remains flexible to forge useful alliances with commercial, political and social actors (Marcus Mietzner); and (3) to instigate observers of Indonesia to revise their centralist perspective on the country and to henceforth appreciate the importance of the regions for the political dynamics of the nation as a whole. These findings are confirmed by the chapters of Part I of this book but lack the deeper understanding that the KKN (an acronym for Korupsi or corruption, Kolusi or collusion, and Nepotisme or nepotism) complex is indicative of the continuity of the obsolete local concept of sharing called “patronage”. The third and last publication to mention here is the book, Decentralisation in Indonesia: Redesigning the State (2003) which was co-authored by Mark Turner and Owen Podger with the assistance of Maria Sumardjono and Wayan K. Tirthayasa. The research for this detailed bird’s-eye study was funded by the Community and Local Government Support Sector Development (CLGS-SDP) Programme of the Asian Development Bank. It identifies some lessons to learn, and offers them especially to policy-makers and administrators in Indonesia and elsewhere. These lessons mainly concern the following lacunae which have come apparent in the preparation for the 1999 legislation, in the formulation of the legislation itself, and in the first phase of its implementation: poor planning and hasty preparation of the legislation; absence of managerial and economic arguments in the legislation that extol the efficiency advantages of decentralized governance; non-existence of brief laws providing clear guidelines as to the implementation of the legislation; uncoordinated, non-participatory preparation of implementation regulations at central as well as regional government level; continual tension between central and regional government over control of personnel matters; unfamiliarity of regional governments with xxvii

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tools of democratic accountability; mismatching of function and finance; avoidance of downsizing of staff after transfer from central to regional government; insufficient knowledge of strategic human resource management; impaired training systems; and non-action as to some incongruity of electoral system with principles of democratic local governance. Compared to the three afore-mentioned publications, the present book offers two new angles on the current governance reform: (1) an analysis of the debate on the revision of the 1999 legislation and the amendment of the 1945 Constitution as well as its impact on the analysis of the reform as a whole; and (2) a focus on the implications of continuity in the sense that Suharto’s administrative regions have indeed been removed; but as their services have been integrated into regional government, they retain the status of de-concentrated government affairs by naming them “decentralized”. The book furthermore highlights more recent aspects of the governance reform, such as the role of the constitutional amendments in the reform and the procedure of changing local territory and management, the role of the province in that procedure, intellectual copyright, or livelihood destruction of sea nomads, that have been hitherto somewhat neglected. Most importantly perhaps, this volume includes the specially solicited reports of the leaders of the official reform-monitoring teams from The Asia Foundation, SMERU, the Jakarta Office of the World Bank, the Growth through Investment and Trade Project (USAID-Nathan Associates), and the Indonesian Centre of Local Government Innovation. These reports are supplemented by anthropological case studies which bring into focus certain implications of the decentralization process in different regions outside Java (that is, Riau and the Growth Triangle, West Sumatra, Central Sulawesi, Tana Toraja, and Bali). The volume as a whole thus covers the nitty-gritty of the first phase of implementation (2001–03), corroborating and complementing the findings of the afore-mentioned three publications, as well as more recent developments in connection with the 2004 update legislation. In short, it contributes new important insights for the decentralization debate which might interest social scientists, politicians and policy-makers alike. The Editors

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INTRODUCTION The Regional Governance Reform in Indonesia, 1999–2004 Coen J.G. Holtzappel

INTRODUCTION In 1999, interim President B.J. Habibie initiated an ambitious reform of Indonesia’s regional autonomy based on of the decision of the 1998 People’s Congress No. XV on the reorganization of regional autonomy. It provides rural districts (kabupaten) and municipalities (kota) with the freedom to regulate their internal as well as their external affairs with the consent of the provincial governor and president. Before 1999 these regions had autonomy only on their internal affairs, that is, the regulating and managing of their socio-economic household and raising of traditional taxes. This autonomy was called “real autonomy”. The 1999 reform endows local communities with autonomy also on external affairs like the implementing of national laws and policies and provision of services. These tasks are called “accountable autonomy” and are paid for by the government and thus are accountable to the government. Before 1999 these external tasks were handled by government offices in the regions, the so-called kantor wilayah or kanwil. The sum total of the two types of regional autonomy is called “broad regional autonomy”. The heads of region, that is, the bupati for the rural district and the mayor (wali kota) for the municipality, lead the reorganization and the implementation of the new tasks. The representative parliament of districts and municipalities has to be prepared for its new role in the regulating process. Village communities have been made part of the regional governments. Nomadic communities are not mentioned by the reform laws, nor by the constitution. Legally, they simply do not exist. The reorganization had become financially necessary because of the financial crisis of 1997 which had depleted the dollar reserves of the 1

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government and Indonesian banks considerably, forcing the government to rationalize its expenses. The reform was made politically possible by President Suharto’s enforced abdication in 1998 and became financially feasible by the sponsorship of the World Bank and other domestic as well as foreign donors. The main aim of the reform is to rebuild local government from a poor and backward stronghold of tradition, which had hitherto been excluded from doing government tasks, to a regional government which has the money and the capacity to regulate and manage its external affairs. To that extent it replaces Law No. 5/1974 of the Suharto era, which stated in Article 7 that “The region has the right, is authorized and is obligated to organize and manage its own services in accordance with the prevailing regulations.” In practice, this article was implemented in a dualist way, by separating the services as a government affair from the traditional domain of regional government which excluded district and municipality from servicing the communities. The reform is economically needed to boost rural economic development in order to stop the migration from the countryside to the cities, which had developed since the 1980s, and to end the poverty of the rural population and local government caused by Suharto’s focus since the mid-1980s on cities and export regions instead of on rural development. Law No. 22/1999 regulates the creation of the new autonomy system which is called “broad regional autonomy”. Law No. 25/1999 regulates the fiscal balance of the autonomy system. In principle, regional governance and modernization are no longer a matter of presidential command, as was the case before 1999, but of cooperation between government regions and the people, and of self regulating. In practice and due to the scope of the rural arrear, the government has a strong role in pushing for the reform. The devices of reform are decentralizing and deconcentrating the authorities and duties of the government to district and municipality government, as well as the regional expertise and means that the regions and people need to implement the reform. Decentralization means transferring from government to regions the freedom to carry out government tasks. Deconcentration means helping the regions with out-placed government functionaries, means and tasks to realize that goal. As a general critic on the reform operation, it might be stated that though the ultimate goal of the reform is regional empowerment in the form of autonomy and self government, the daily reality in the regions involves complying with a crash programme of administrative change that puts regional autonomy practically under fiscal custody, as local tax income stands at a disproportionate ratio to the imported budget for self government of as much as 1:3. Hence, although it is the first time that the Indonesian government has admitted that it needs the autonomous administrative 2

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support of the autonomous regions, for the time being the government is fiscally and thus also politically governor in the regions. The first part of this book is about the first turbulent and less than successful years of implanting self government in the district and municipality governments, and abandoning the administrative regions through which Suharto used to bring modernity to the local communities. It presents specifically solicited authorized summaries of monitoring reports which were prepared for the Indonesian government up to the end of 2002, plus reports on separate but related subjects which were mostly prepared for this book after 2003. The chapters document the problems, which decentralization and its implementation encountered in the field, and point to some serious weaknesses in the design of the final product. The most important among these weaknesses is that the final product does not fit the still very fragmented and backward rural structure and rural tax system in and outside Java and Madura. It is remarkable how little attention is given to this fact in recent Indonesian and foreign publications. Moreover, what is also missing is an action programme of reform which puts the legislation to proper use. The legacy of the Kabupaten Programme and Inpres Village Projects of the Suharto era, which in the past proved to be totally insufficient to prepare local people for modern times, is still continued in the new set-up. As a consequence, the 1999 legislation has been implemented as an end in itself, for which it was not intended, as legislation is a tool for policy-making. In itself it does nothing. The chapters of the first part of this book also reveal the monitor’s part in the research and debates that led to the constitutional amendments and the revised 2004 legislation. In all these aspects, the summaries add a dimension to the analysis of the first cycle of implementing the reform which other books on the topic lack. The second part of this volume focuses on the annulling of the compact desa geography enforced by the Suharto legislation of 1979 in the islands outside Java and Madura, for the original local geography differed fundamentally from that on Java and Madura. An important explanatory factor for this local focus is the fact that besides being saddled in 1979 with a local geography that did not fit local conditions at all, the people in the communities outside Java and Madura tend to view modern local government not as their own, but as belonging to the central government. Only their local community structure seems to embody the inner soul of their local culture and society. This is the legacy of areas which only after Indonesia’s independence, that is, after 1950, were brought under Indonesian governance. Diversity in these areas is a fundamental psychological and ethnical phenomenon that jars with governance by the rule of law and a military-backed weak state which does not reach out to all citizens but only 3

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to a privileged class of clients. Clinging to the own local traditions has been the standard response to this awkward external situation. On the other hand, the modernization of Java and Madura and the standardization of local government in these islands had started since the nineteenth century, whereas in Bali the process started only in the early years of the twentieth century and in the other islands, only after 1950. Local societies in these areas have thus lagged behind. Suharto’s standard administrative offices of government in the regions outside Java and Madura hid this stubborn diversity aspect from the ministers and urban society. They however let it continue because of a stable status quo that emerged based on the patronage system. The latter linked the central government offices and local government together. The head of region that formed the centre of the local patronage system, headed both local government and the central government office in the region. This link has been eradicated by the abolishment of the government offices in the rural districts and municipalities. This introductory chapter analyses the 1999 legislation, as well as the amendment of the 1945 Constitution and the revised legislation of 2004, which is based on the new constitution. This analysis will be followed by a discussion of the survey reports and field studies in this book in the light of the fundamental legal changes that took place since 1999.

ECONOMIC PROSPECTS Reformasi in general and the 1999 regional reform in particular started at the worst time conceivable, that is, in the middle of the worst economic crisis since the mid-1960s. Critics of the Suharto and post-Suharto policies on regional governance believed that crisis and poverty would strike hardest at the weakest chain in Indonesia’s economy: small-scale enterprises in the traditionalist rural districts and small towns (Jellinek and Rustanto 1999). As these areas formed the main target of the reform legislation, failure was not a real option. However, Ann Booth pointed out that the 1997 and 1998 trend of increasing rural and urban poverty was not a sudden poverty fall but a poverty decline that had started during the 1980s and was only accelerated by the crisis. Her thesis that in terms of rural economy, the macro-economic crisis was only part of the story and not even the most important one was supported by Chris Manning, and it discouraged government from making the mistake of thinking that the monetary crisis caused the problems. There were long-term structural deficiencies of the polity at stake. Much more vital to both authors was the gap between the macroeconomy and rural micro-economy that developed during the 1980s and the 4

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dominance of unschooled micro-economics in the migration and commuter economy which had developed since then. Suharto fostered industry and an urban middle class to the detriment of rural development, making the rural areas an unschooled labour buffer for the cities. The triad of the Kabupaten Public Works Programme, the Primary School Programme and the Primary Healthcare Village Programme which operated in the rural areas from the 1970s onwards could not keep the people home, as its complicated bureaucratic project set-up, based on proposals and evaluation procedures, prevented people and villages from getting fast and steady access to development money. As a consequence, a further modernization of rice and other agricultural product cultivation did not take place, and the labour force remained unschooled, working in agriculture and other unskilled jobs. In 1996 the first signs of an all-encompassing saturation of labour markets became clear, followed by the crisis. However, the buffer survived relatively unharmed and some people in the more modernized regions in and outside Java even improved their income position (Booth 2000, p. 87; Manning 2000, pp. 111–16). The final state of affairs displayed three differences with comparable economies in Asia, that is, Taiwan, Korea and Malaysia. The share of employment in agriculture in Indonesia was two to three times higher than in these more industrialized countries. The manufacturing sector which accounted for around 13 per cent of all jobs in 1997 (one-third of GDP) still had quite a small share of total employment. Wage employment accounted for only around 30 per cent of all jobs. Hence, a miracle modernization of labour markets as happened in the three countries mentioned, did not take place in Indonesia (Booth 2000, p. 87; Manning 2000, pp. 111–16). In view of this analysis and similar ones, the government thought it necessary for the local governments to have the money and capacity to support the modernization of agriculture, in order to convince the most entrepreneurial peasants to remain put and pick up the challenge and invest labour and capital in that effort. Without this perspective and effort, the reform remains a void gesture, despite the advertisement of a democratizing local government.

ABANDONING THE SUHARTO LEGACY AND INNOVATION For the first time since Indonesia’s independence, the districts and municipalities have the freedom to implement national laws and policies and provide basic services to the local communities within their territory. This implies that all Suharto’s regional red tape had to be eliminated. The 5

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government offices in districts and municipalities (kanwil) were abandoned and thus also the connected administrative hierarchy of regions. It put the province at the top and the villages at the tail position and districts and municipalities between the two. Since then, all autonomous regions rank equally, except the villages and nomadic groups as they are not autonomous regions. The system replaces the dualist regional governance structure of kanwil and local government. Also the province that was once the apex and bastion of Suharto’s regional bureaucracy has been reformed. Nowadays, it is an autonomous device unit for the inter-regional affairs of the districts and municipalities in its jurisdiction, and perhaps in future also for the international affairs of these regions. Its main areas of operation and responsibility lie in supporting the autonomous regions in its jurisdiction but no longer in transferring taxes and commands. Each cluster of province and districts and municipalities will be represented in the Representative Region Assembly (Dewan Perwakilan Daerah, DPD) that was created by Law No. 22/2003 on the main constitutional organs of governance but will only be put to work after the elections of 2009. The village communities are reformed into parts of the district government, whereas the nomadic peoples remain invisible in the legislation but are practically also part of the rural districts. The reactions to the reform were mixed. Outside Java and Madura, the laws of 1999 were received enthusiastically and used to annul the impact of Suharto’s Law No. 5/1979 that intended to adapt the extensive geography of village communities to the completely different standard compact geography of Java’s desa. Many local communities changed their borders, split up or fused with other communities. However, there was also criticism of the system of self governance as it was viewed as a ploy to continue Suharto’s regional offices inside local government. Moreover, the reform laws and their implementing manuals appeared to be deficient products, which made people suspicious about the government’s intentions. As a consequence, in November 2004 the 1999 laws were replaced by revised legislation that is still being implemented and not yet full-fledged in function.

FREEDOM AND DUTY As stated above, Basic Law No. 22/1999 stipulates that districts and municipalities are in two ways autonomous. First of all, districts and municipalities have the freedom since 1957 to regulate their internal affairs. It is called “real autonomy” as it refers to the carrying capacity of a region needed for real autonomy. There is also the freedom to implement national legislation and policies, in particular basic services like public works, primary 6

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health care and primary education. This second freedom of self government — in colonial jargon called “zelfbestuur or medebewind” — did not hitherto exist in Indonesia as an institutional form of regional government. It is called “accountable autonomy” as it refers to the responsibility of the central and regional governments for implementing laws and policies vis-à-vis each other and toward their parliaments. Because the autonomous regions had no experience in the field of accountable autonomy, the 1999 laws promised to repair that deficiency by facilitating the districts and municipalities with the personnel and apparatus of the offices that hitherto provided the services, plus the money to pay the salaries, pensions and insurances. The legal difference between the two freedoms is that “real autonomy” implies freedom of choice within the regional jurisdiction of rural district and municipality, whereas “accountable autonomy” lacks that element of choice as it is compulsory in nature. The order or request from the government to a region to implement the government’s laws and policies cannot be refused, unless provable as being unjustified. In principle the state stands above the regions and thus can choose to either decentralize autonomy and self government or not, or only in parts. In theory, the decision for reform depends on the state system and in Indonesia, on the constitution. Practically, it depends on the administrative and democratic capacity of the regions to assist the government, and the risk of regionalism and foreign intrusion. The term “accountable autonomy” is a fanciful translation of the technical term “self government” but lacks its confusing and wrong connotation, because it prevents regions from thinking that self government implies freedom of choice to carry out the government’s job in their territory. The combination of the two terms caused confusion in the regions, because what does autonomy mean if there are two types of autonomy? Had the government second thoughts or a hidden agenda? However, the two terms do not contradict each other as they are of a different legal order and refer to separate subjects and task domains. Basic Law No. 22/1999 calls the sum of the two autonomies “broad regional autonomy”. This sum covers all the freedoms and titles that regional government has by statute vis-à-vis government and people. To that extent, Law No. 22 promised democratic empowerment for the rural districts in order to entitle and mobilize local parliament for operating in this new task domain. Indeed, providing a region with accountable autonomy without a role for an inquisitive and regulating regional parliament is nothing but topdown governance by the head of region and his superiors in the capital. The combination of regional autonomy and self government is characteristic for countries with a past of distinct political and cultural local entities and shows 7

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the government’s concern and understanding for that past (Diepenhorst 1933, p. 203ff.). The past entities are contained in modern legislation and policies, but retain their former internal jurisdiction as far as the regulating of the local economic and fiscal household and local taxes is concerned as defined by law.

SUHARTO’S LEGACY OF FAILED STANDARDIZATION Interestingly, the 1999 reform has paved the way to finalize the standardization and modernization of regional governance started by President Suharto with his Law No. 5/1974 on standard regional governance and Law No. 5/1979 on standard village administration. Suharto had the guts to tackle for the first time in Indonesia’s colonial and republican history the main problem of former governments, that is, the tremendous diversity of regional government systems outside Java and Madura. He thus ordered a legislation that would bring all forms of regional and village government under one uniform administrative roof. Actually, the two reforms of the 1970s never reached autonomous district and municipality governments, as administrative regions did what autonomous regional governments should have done, that is, implementing the law and policies and providing earmarked standard services to local communities and projects and entitling capable regional governments with co-administration. These administrative regions were the kanwil. The offices kept local government in the state of economic and administrative arrears and cultural and local diversity it had been in since 1950. The 1999 reform apparently corrected that deficiency. However, to publish that objective in the laws of 1999 would have triggered irreconcilable anger and suspicion among the critics of the Suharto regime and thus would have harmed the reform structurally. Finally, because of the sincere intentions of the Indonesian government to break with the Suharto era, it is also for the first time that the process of implementing legislation has been carefully monitored and evaluated by domestic and foreign research institutes in order to enable the government to detect and correct mistakes and legislative deficiencies along the way. Also the regional government has a monitoring and evaluating task, but has generally failed to do the job.

KEYSTONE OF REFORM AND ITS MISUNDERSTANDING A core element of the 1999 reform is the importing of the system of self government into regional governance and the empowerment of the head of region and local parliament to participate in its regulation. In 1999 it 8

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practically pertained to the integration of the services of the former kanwil offices into the administration of the still poor and culturally diverse and oldfashioned districts and municipalities in the countryside. The preparing and providing of a whole new generation of regional administrators had taken too much time and moreover, would have ignored the experience and expertise already present in the offices. Millions of central government officials have been shifted to regional government and regional parliament had to be prepared for cooperation with them. Basic Law No. 22/1999 did regulate the transferred tasks and authorities but did not regulate the administrative integration and the commencement of work of regional parliament in the new task field. That was the job of the heads of region. Law No. 25/1999 regulated the financing and fiscal balance of the broad regional autonomy. Despite the laws’ silence about the descent of the new administrative capacity, the whole effort at reform was viewed with suspicion by local and foreign observers. In the first place, the influx of former kanwil administrators that was organized by the Ministry of Home Affairs was viewed as a return to Suharto conditions of regional governance. Moreover, the two laws — No. 22/1999 and No. 25/1999 — were contradicting each other as to who should pay for the self government, in particular the co-administration of joint environmental interests. Law No. 22/1999 stipulated that the services and co-administration should be paid from the regional budget, whereas Law No. 25/1999 — which was produced by the Ministry of Finance — stipulated that co-administration should be paid from the national budget for the regions. Hence, the decentralization and implementation of self government, that is, accountable autonomy, was legally and practically unfeasible. The defect was serious as the stance represented by Law No. 25/1999 represented the stance of the Ministry of Finance which grounded its argument on People’s Congress Stipulation No. 4/1999 on the constitutional order of governance institutions. Law No. 22/1999 did indeed ignore that document and presented a scheme for constitutional amendment. This fundamental defect should never have happened and was due to a national parliament that knew of the defects but nevertheless passed the laws as a matter of further debate, fed by experiences from the field. This decision introduced a new form of legislation, that is, experimenting with problem-solving legislation that is fed from practice. It resulted in cynicism among regional officials and parliamentarians. Did the contradiction really matter? Did national and regional budget in the end originate from the same coffer, that is, the government coffer under the command of the Minister of Finance? Moreover, it was clear to all people living in villages and small rural townships that without the budgets for services and co-administration provided 9

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by the central government, neither local nor supportive provincial government would ever be able to fulfil the requirements for self-governance prescribed by law. Hence, although Law No. 22/1999 called the result of the reform “broad regional autonomy”, the question was raised as to whether the government did not in fact pursue a double agenda. Was the government not cheating the electorate by promising gold, and delivering fiscal custody, as had existed during the Suharto era, albeit in a fancied form? Did it not promise empowerment only to cover the fact that it actually continued Suharto’s too expensive system of top-down regional governance by making regional government an executive branch of national legislation? And to whom or to what had the added capacity to be decentralized? To the poor regional governments with real autonomy on local management and taxation, who were too ignorant and too poor to do the decentralized jobs and had no expertise at all in delivering services and other modern organizational skills? In the light of these deficiencies of regional government, the status of broad regional autonomy as stipulated by Law No. 22/1999 and update Law No. 32/2004 looked hollow. It suggested something that seemed to be unattainable from below. Here, the government and parliament encountered a response to their practice-oriented decision of implementing a deficient legislation they had not calculated. Hence to many, outsiders as well as insiders, the democratization of regional government as promised by Law No. 22/1999 looked to be the only way to balance the reform efforts of the central government and to propose amendments to the People’s Congress. And the Constitution of 1945 seemed to provide the answer with its hitherto neglected emphasis on people’s sovereignty and democratic rule. However, the hate and suspicion that existed against Suharto translated into mistrust against the Habibie cabinet that was headed by Suharto’s closest crony and was bad in communicating its intentions to the public. Government had, for reasons already explained, failed to previously publicize or rather “socialize” (Ind. sosialisasikan) its reasons for doing so. A collateral effect of this transfer discussed in Part I of this book was that in general, the imported kanwil civil servants had a much greater expertise and competence and better connections to the people in the local communities than the sitting local administrators and the newly elected inexperienced regional parliamentarians. They thus frequently took the decision-making initiative away from the latter. Another major consequence of the transfer was that the relocated civil servants brought their old patron-client relations, which had long existed in local government, with them. However, despite the resulting internal struggles for power and position, the imported expertise of 10

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the former New Order bureaucrats at least guaranteed that the transfer of the budgets from national to local government would run smoothly, even though corruption and the initiative issue hampered the democratic empowerment with regard to budgeting and accountancy. Time will tell if the reform process can overcome the heritage of patronage, the deeply ingrained obstacle to true democratization which entered local administration with the kanwil officials. As two chapters of Part I of this book indicate, patronage was the system that conditioned the functioning of the kanwil offices before 1999, as Suharto had let that relict of the early years of the republic survive and had gambled on the development of a rational selfregulated balance between corruption, public regional finances and interests.

THE FUNCTIONS OF REGIONAL PARLIAMENT IN THE 1999 AND 2004 LEGISLATION Contrary to the claims in the media about the weak position of regional parliament vis-à-vis the head of regional government in the 1999 reform legislation, Law No. 22/1999 empowered regional parliament to the following tasks with regard to self-government, that is, accountable autonomy, and is confirmed by Update Law No. 32/2004: – –

– – – – – – – – –

election of the head of region; election of the members of regional parliament who will represent the region in the People’s Representative Assembly for Region Representatives (Dewan Perwakilan Daerah, DPD); to propose the appointment and dismissal of the head of region; to stipulate and draft regional regulations together with the head of region and his vice-head of region; to stipulate the regional revenues and expenditures budget together with the head of region and his vice-head of region; to conduct supervision of the implementation of the above mentioned subjects; the right to conduct investigation; the right to ask for the accountability of the head of region; the right to amend regional regulation drafts; the right to submit regional regulation drafts; the right to manage debts, loans and charges of the region, and to stipulate taxes and retributions and their amendment and elimination (Basic Law No. 22/1999, Article 18, 19 and 26). 11

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In exercising its rights, local parliament (Dewan Perwakilan Rakyat Daerah, DPRD) is entitled to ask state officers, government officers, or members of the community for information on matters that regard the interests of the state, nation, government and development. Refusing the request is chargeable with imprisonment for the maximum of period of one year for contempt of DPRD (Article 20). Indeed, Law No. 22/1999 empowered regional parliament with regulative and control powers which balance the implementing, budgeting and regulative powers of the head of region. The balance that in 1999 existed at the national level between the decision-making People’s Congress and its mandatary, the president, on the one hand, and the legislative, national parliament on the other, has been mirrored in the local balance. The freedom to raise traditional taxes and to regulate land use, housing rights and simple public works belongs to the real autonomy of the district and municipality. It is jointly executed by the head of region and local parliament as partners. The pecuniary output comes together in the regional box for original regional revenues, but is not sufficient at all to balance the imported regional budget for self government. In fact, self government causes a skewed and unfavourable proportionality between government and local sources. The main functions of the DPRD as prescribed by Update Law No. 32/ 2004 (Article 41 and 43) match the tasks and authorities of regional parliament as listed in Law No. 22/1999. Hence, if parliamentarians appear in practice to be no match to the reformed local administration, and the chapters in Part I of this book show this to be the case, then it is not due to design faults but to either deficiencies in the quality of the parliamentarians or to deficient implementation. As for the position of the autonomous province, Law No. 32/2004 provides much more detail about its tasks than Law No. 22/1999. Whereas Law No. 22/1999 only speaks of supporting inter-regional affairs of districts and municipalities and picking up tasks not yet done by district or municipality, Law No. 32 (Article 13 and 14) provides a list of sixteen provincial and regional services which are synchronized among the province, district and municipality, and can be provided in case of demand for inter-regional affairs. The articles list the following items: a. b. c. d. e. f. g.

Development planning and control; Planning, utilization, and supervision of zoning; Administering public order and peace; Providing public means and facilities; Handling of health sector; Administering education and allocation of potential human resource; Handling of social issues of inter districts/cities;

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h. Serving manpower sector of inter districts/cities; i. Facilitating the development of cooperatives, small and medium businesses including inter districts/cities; j. Environmental control; k. Agrarian services including inter districts/cities; l. Demography and civil registry; m. Serving government administration affairs; n. Serving capital investment administration including inter districts/cities; o. Running other basic services that have not been carried out by the districts/cities; and p. Other mandatory affairs instructed by the laws and regulations. This list means that every region knows what support it can get from the provincial helpdesk. The province has a regional budget that covers the inter-regional support activities. In Part II of the book, there are five provincial case studies from outside Java and Madura which show that the provincial support function works well in three cases while in two others, is disturbed by ethnical tensions.

FINANCING REGIONAL GOVERNANCE REFORM As for the vertical financial support of the regions (see Figure 1.1), Law No. 22/1999 referred to the National Income and Expenses Budget (Anggaran Pendapatan dan Belanja Nasional, APBN) from which the provincial governor as head of the government office of personnel and job administration in the regions, would have to be paid. As stated before, Law No. 25/1999 expanded the APBN budget also to co-administration. Update Law No. 32/2004, on the other hand, did not endorse this and followed the lines of Law No. 22/1999 instead i.e., co-administration should be financed from the regional budget. To financially support the upgrading of the service capacity of regional governments, Law No. 22/ 1999 stipulated that central government also provide a flanking Regional Income and Expenses Budget (Anggaran Pendapatan dan Belanja Daerah, APBD). This regional budget falls under accountable autonomy and is to be allocated each year in so-called block grants. Its use has to be accounted annually to the Ministry of Home Affairs and the Ministry of Finance, with a report to the regional parliament at the end of a regional head’s service (Law No. 22/1999, Part V: Obligations of the Head of Region). The regional budget includes: (1) the local tax income and retributions and income from regional government-owned enterprises; (2) the balancing funds; (3) regional loans; and (4) other revenues (Article 79). 13

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The amount of the allocated budgets varies between twice and three times the local tax income. This skewed proportionality profile puts the poor local regions practically in a kind of guardianship position. This position was regulated by Article 5 and 6 of Law No. 22/1999 which bound the regions to solvability rules that had to be further specified in subsequent ministerial and regional regulations. Moreover, the German-Indonesian publication, “Decentralisation in Indonesia since 1999 — An Overview”, sponsored by the Indonesian government, made it quite clear that local taxing in other countries is not a region’s own affair: There are no significant region-own source revenues of the regions since all major taxes are still kept by the central government. The tax which in most countries is the main tax revenue for regional governments, viz. the tax on property, is stipulated as a shared tax, weakening the link between regional government revenue and regional government performance. (SfDM/P4D not dated, p. 3)

Hence, even if a district or municipality collects taxes from local sources, these taxes eventually fall under the central authority and enter the regional budget (APBD) provided by the government. If there is anything fundamental that the debate on the 1999 reform has brought about, it is the recognition that relics of the past such as constitutional protection of the primordial status of special regions should be definitely passé; and also that deficiencies in service and management capacity of the regions should be repaired, even when these regions are not prepared or willing to cooperate.

THE DUTIES OF SELF GOVERNMENT The services mentioned in Law No. 22/1999 and Law No. 32/2004 which are part of regional self government and are compulsory (wajib) and hence non-negotiable, comprise: public works, health, education and culture, agriculture, communication, industry and trade, capital investment, environment, land, co-operative and manpower affairs (Law No. 22/1999, Article 11, Paragraph 2, and Article 78, Paragraph 1). They fall under the purview of “regional accountable autonomy”. Legally, it means that these services which before 1999 were outsourced government duties performed by the kanwil and paid from the national budget for regional affairs, are by Law No. 25/1999 and Law No. 22/1999 as well as Law No. 32/2004, decentralized to the regional government and financed from the regional budget APBD. According to Law No. 22/1999, Article 7, duties which remain the sole 14

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authority of the central government are: religion, judicature, defence and security, international policies, monetary and fiscal, and conservation and national resource management, strategic high technology and national standardization. This stipulation was corroborated by Law No. 32/2004. A second category of decentralized compulsory central duties of self government, which according to Law No. 22/1999 and Update Law No. 32/ 2004, is decentralized to the regional government and financed by the APBD, pertains to co-administration (the equivalent colonial term was medebewind). The title is negotiable and falls under regional accountable autonomy, that is, accountability vis-à-vis the central government and regional parliament. However, Law No. 25/1999 subsumes co-administration under the APBN which makes it a deconcentrated central government affair. The contradiction between Law No. 22/1999 and Law No. 25/1999 made co-administration unfeasible until the publication of Law No. 32/2004. In management terms, co-administration consists of outsourced duties which are meant to enable the regions to assist the government in performing its regional duties in the field of managing national conservation and resource interests, especially in forest and marine areas like seashores and fishing grounds (Law No. 22/1999, Article 10 and 78). The revenues are shared with the government, while the sharing rate is negotiable. Although the assisting contracts pump a lot of money into the regions which have resources in common with the central government, in the end co-administration concerns only the small group of districts with marine, logging, mining or gas and oil resources. The great majority of districts do not have such resources and thus will lack economic diversification, unless they are able to negotiate the inclusion of local conservation projects in co-administration contracts. The co-administration budget is provided as a block grant to the autonomous region account, and its management and expenses are authorized by the head of region. It can be expected that a flood of conservative project proposals from the regions will lay claim to this scarce funding source. Co-administration is the third component of the triadic relation between the central and regional governments which is called broad/regional autonomy.

INDIRECT GOVERNANCE Figure 1.1 calls the self-governance part of regional governance “indirect governance”. This is a confusing term. In the nineteenth century, the term “indirect governance” was used to refer to the relation between the governorgeneral and the heads of the local self-governing communities. This situation does not exist anymore, and thus the term should no longer be used. Indirect 15

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FIGURE 1.1 Organization of Central and Regional Authorities

National Parliament (DPR)

Regulations on National Governance

Basic Laws on Regional Governance and Sectorial Basic Laws

Sectorial Basic Laws

Indirect National Governance

Direct National Governance

Central Government

Regional Government Vertical authorities Regional Governance Affairs Affairs of deconcentration Optional Affairs (not absolute)

Absolute Matters Performed by Region Obligatory Duties of Matters Assistance

Source: GTZ-SFDM dan USAID-PERFORM 2003, p. 18.1

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governance as used in Figure 1.1 refers to (1) the fact that in the new constitutional constellation, the autonomous regions are involved in accountable self government; (2) the head of region is directly elected by the electorate and paid by the regional government; and (3) the fact that the regional budget (APBD) is implied in the broad regional autonomy. Moreover, as with local taxes, the regional budget remains under the authority of the central government. And in view of the fiscal arrears of the regions, the partnership between the central and regional governments is in fact one of guardianship. Hence, the most significant break with the New Order regime is that whereas the Suharto government treated the regional government as an entity in its own right, the reformasi governments approach regional governments in their capacity as owner of all assets within the national territory, who is willing to share its property with its citizens and regions. Equal sharing is hence the new national motto and no longer what Suharto’s Law No. 5/1974 called “a divided unitary state” (see page XX, paragraph e). To what extent this sharing concept will converge with the traditional patronage system and its modern KKN (korupsi, kolusi, and nepotisme) variant of sharing remains to be seen.

CONSTITUTIONAL AMENDMENTS Law No. 22/1999 left the exact nature of the relationship between the central and regional governments in the dark. The original 1945 Constitution on its part only provided general guidelines for future statute. It still followed the text of the colonial reform law of 1922 which stipulated that the country had to be divided by general decree into provinces and other regions (Kleintjes 1927, vol. 1, p. 67). Hence, the functions and status of the regions had to be defined by statute. But reformasi required a thorough constitutional grounding of the legal status of the autonomous regions and village communities. From 1945 up to 1999, there had never been an amendment of the 1945 Constitution. Only in 1959, with the publication of the Presidential Decree of 5 July 1959, a small but significant change was inserted in the Elucidation of Article 18 of the 1945 Constitution. The reference in Paragraph 1 of that article to the colonial origin of the autonomy titles promised to the listed “special local regional territories”, which were called “village communities” by Law No. 5/1974, was scrapped. Henceforth, only the titles still existing in 1957 were incorporated into Article 18 and its Elucidation (The I 1993, pp. 35–36).

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The debate on the revision of the 1999 legislation did raise the need for some constitutional amendments which could fill in the lacunae left by the 1945 Constitution. The latter, for instance, did not mention district and municipality. Just after the declaration of independence of 1945 had been published, there was a discussion on what to do with these colonial constructions. They were viewed as administrative regions that, in terms of culture and democracy, were not rooted in local society and thus did not deserve to be acknowledged as autonomous regions representing the local people. In 1946, however, these regions were restored for military reasons in the struggle against the Dutch. Basic Law No. 22/1948 had provided a stratified territorial framework which had generally been derived from colonial sources. Thus from the beginning, it was viewed with suspicion by the leftwing parties in the appointed parliament KNIP. A series of constitutional changes characterized the constitutional interregnum between 1950 and 1959. First, there was a federal constitution that President Sukarno almost immediately annulled in 1950 and replaced by a unitary provisional constitution. After a failed process to replace the provisional constitution by a new one, Sukarno replaced it in 1959 by the original Constitution of 1945, including the already mentioned changes on primordial village status. However, after 1959 the 1945 Constitution was never applied properly, because of the condition of martial law imposed by Sukarno in 1957 and reinstalled in 1964, and subsequently continued by President Suharto during his presidency for his purge of communism. It kept the constitution frozen, except for a few articles that enabled centralist governance. The risk of regional separatism, the effort to establish safe national borders, and Suharto’s war on communism were the arguments that held the country until 1988 in a state of martial law. In that year a committee of the People’s Congress that studied the matter, advised that a new one should replace the existing martial law legislation. However, in the absence of a proper replacement and new legislation, the martial law regime continued until Suharto’s retreat in 1998. This history saw government and army keep the regions until that year in their iron grip of centralism and military control. The civil and military administrative regions installed by the government and army command to reach out to the local communities were not properly utilized as a preparation for the formation of broad autonomous regions. They scarcely allowed the local communities access to government money for modernization. Therefore, the autonomous regions continued doing their legal task of maintaining local traditions. The constitutional history of independent Indonesia had been on hold until 1999, and desperately needed a new and respected constitution. 18

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In 2003, the last amendments were finalized. A summary of the general content of the amended articles of the constitution that touch upon key matters of national and regional governance can be found in Appendix II at the end of this introduction. The amended Article 18 does not refer to “local administration” as did the original article but to “competence relations between government and regions”. The amended Article 18A refers to the province and regional government, and Article 18B to units of adat law and traditional rights. For both types of units dealt with in Article 18B, the government acknowledges and honours their specialties and special rights which will be regulated by law. Hence, in a way, the distinction between villages and regions made by the original 1945 Constitution has been retained, albeit with the simultaneous replacing of the automatic constitutional protection of the village communities with special protection by statute, based on a legal application procedure. The amendments also present a wholly new approach to national democracy. This approach abolishes the original primacy of the people over the government as constituted by the constitution of 1945 and installs instead a stream model of democratic dualism at the national level. No external sources of political legitimacy are allowed anymore, which implies that “the people” are no longer accepted as an independent force that, in principle, is the primary source of state authority and sovereignty. Before 1999, the People’s Congress (MPR) was the highest decision-making institution in the Indonesian Republic. It represented “the people” and mandated the president as the head of government. The head of government executed and implemented the plans and decisions made by the People’s Congress and installed a cabinet, the ministers of which headed the executive apparatus of the ministries and were only responsible to the president. The post-1999 amendments transferred the planning and decision-making authority from the MPR to the president and removed from its membership the appointed seats of regional representatives, other economic groups prescribed by the original 1945 Constitution, and the military which, since martial law, had had seats in the MPR. Only the members of the directly elected national parliament have a seat in the new People’s Congress. The newly configured MPR is now a kind of permanent constitutional assembly which installs and changes the constitution and mandates the directly elected president. It still has the authority and right to dismiss the president and vice-president based on a well grounded argumentation by the national parliament (Dewan Perwakilan Rakyat, DPR). Moreover, the president does not have the right and authority to stop the DPR from operating or to abandon it; as for matters 19

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of international war and agreement, the president requires the consent of parliament. Because ministerial responsibility to the DPR is not regulated but left to be a cabinet affair, voices are heard to provide for a prime minister as existed during the late 1950s and the early 1960s, and to make ministerial responsibility vis-à-vis parliament a constitutional duty of ministers. Figure 1.1 shows the national parliament as the apex of regional governance that legislates on the regulating powers of regional government. The new constitutional system is actually a dualist system in which the directly elected president, with his legislative and executive authorities, cooperates as well as competes with parliament. With regard to regional self-governance, regional governments confer with the central government. With regard to matters of regional interest, they confer via the regional parliament, and in the future via the Regional Representative Council (Dewan Perwakilan Daerah, DPD) with the national parliament. These nuances are not apparent in Figure 1.1. Of course, this arrangement is an odd and time-consuming construction which impedes a quick finalization of important decisions. In daily local practice, for instance, the executive and regulative affairs largely overlap each other. A permanent single institution for advice to the regions on regional decisionmaking and regulation within the central government as was the temporary Regional Autonomy Advisory Board, installed by Law No. 22/1999, Chapter XIII, and continued by Law No. 32/2004, would be preferable. The new region chamber (DPD) might do the job in future. But then its existence has to be affirmed before the elections of 2009 by ratifying Law No. 23/2003 that regulates the main constitutional institutions. As for regional governance, the amended constitution distinguishes between (1) the regional democratic authority of the regional parliament (DPRD), which cooperates with the head of region in the performing of services and co-administration duties, and regulates the management and levying of the local household; and (2) the Regional Representative Council (DPD). The latter operates at the national level and is on par with the national parliament and other state institutions. It consists of 128 members, four from each province, who are elected in the context of the general elections. They meet at least once a year, have the authority to propose laws and law amendments to the DPR, and discuss all kinds of matters of regional interest. However, the precise constitution of the DPD was left to future statute to determine. This statute is Law No. 22/2003 which still needs to be ratified before the general elections of 2009. In principle, the DPD serves and creates a general regional interest lobby vis-à-vis the central government and the DPR. It replaces the appointed chairs for regional delegates in the People’s Congress stipulated by the original 1945 Constitution. 20

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In a recent column of Media Indonesia On-line of 5 January 2007, Kartasasmita, chairman of the DPD, called for a judicial review of Law No. 22/2003 which constitutes the major organs of the state. As the sanctioning of Law No. 22/2003 has to be finished before the start of the general elections of 2009, the discussion on the gap has to be finished sufficiently long before 2009 to include its outcome into the ballot legislation. Kartasasmita assigned the gap between constitution and Law No. 22/2003 to the machinations of the DPR and political parties which suspect improper competition of DPR’s legislating authorities. Hence, DPD is either on the move to establish itself as a political force to be reckoned with or is on the brink of being outplayed by the national parliament and presidency.

ORGANIZATION AND CONTENT OF THE BOOK The book consists of two parts. Half of the chapters of Part I contain summaries of the reports of the official monitoring teams which were specifically written by the leaders of these teams as contributions to this volume. They present a highly critical view of former leaders of monitoring teams on the problems of implementing a deficient legislation that just could not be properly implemented. The summaries also contain an introduction to the organization of the monitoring projects and provide contextual information of the findings that led to the constitutional amendments and the revised 2004 legislation. They hence add a dimension to the analysis of the first cycle of implementing the regional governance reform which other books on the topic lack. An interesting aspect of the reform is the attention to local culture and tradition as a regional potential for development. It is the subject of the chapters in Part II of this book that tell the story of the annulling of the local geographic impact of Suharto’s desa law, and of the chapter on regional copyright. Religion is excluded as it remains under the central government’s authority (Law No. 22/1999, Article 7). Although not covered by the chapters, the abandonment of the military backing of national and regional policies has been slowly but steadily pushed forward. The military was finally ousted from the People’s Congress and thus no longer has any official national political authority. The double structure of civil regional and military territorial authority is not relevant anymore for regional governance at large. Only Papua and East Indonesia show risks of inter-ethnic tensions in which national and local military interests in mining and other lucrative targets intervene. Aceh, another area with gas and oil resources that had attracted the interest of military entrepreneurs, was liberated from military occupation in the aftermath of the tsunami in 2005. However, Article 30 of the amended constitution, 21

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which focuses on the position of the military and the Ministry of Defence, shows vagueness that raises suspicion. Whereas Article 30 calls the police a state instrument (Paragraph 4), it does not call the military so (Paragraph 2). The Ministry of Defence is not mentioned at all. This lacuna points to an independent position of the military which is worrisome. The summaries of the official monitoring reports in Part I of this book are complemented by a number of individual survey analyses. The chapters of Part I focus on the following subjects: –















Chapters 1 and 2: The IRDA monitoring and evaluation programme and its findings, in particular the issue of the continuing fiscal and administrative dependency of the regions on central government, discussed by Adi Abidin of The Asia Foundation and Widjajanti I. Suharyo of the SMERU Institute; Chapter 3: The mechanisms and scope of regional grafting, discussed by Bert Hofman, Kai Kaiser, and Günther G. Schulze of the Jakarta office of the World Bank; Chapter 4: Regional autonomy and the workings (and deficiencies) of the regional parliament, discussed by J. Endi Rukmo et al. of the Centre for Regional Government Innovation; Chapter 5: The structural economic and fiscal arrears of the districts in modernization and the impact on their appeal to investors, discussed by Mohammad Sadli, retired Professor of Economics of the University of Indonesia; Chapter 6: The problems of the remains of the pre-1999 local political economy for attracting investment, discussed by David Ray, who in 2003 worked as economist at the Growth through Investment and Trade Project, USAID-Nathan Associates; Chapter 7: The problems of SMEs in districts that are in arrear of basic services and local economic modernization, covered by Henry Sandee, in 2003 Senior Research Fellow at the Faculty of Economics at the Free University of Amsterdam; Chapter 8: An overview of the economics of three years of implementation, discussed by Bambang Brodjonegoro, since 2005 Dean of the Faculty of Economics, University of Indonesia; Chapter 9: Nineteenth and early twentieth century colonial genesis of the call for local autonomy, and its fate during the Sukarno and Suharto governments, discussed by Peter J.M. Nas, Professor at the Royal Institute of Anthropology and Linguistics in Leiden.

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The Asia Foundation The first three chapters of Part I present the summaries of three monitoring reports dealing with the implementation process in general. The first chapter, “When the Burden is Shouldered Alone: Experiences in Autonomy at Regencies and Municipalities”, contains Adi Abidin’s critical summary of a series of monitoring reports contracted by The Asia Foundation. In the year 2000, Abidin was a member of the initial implementation team of the decentralization policy at the State Ministry for Regional Autonomy. In that capacity, Abidin was involved in the drafting of the initial implementing regulations. He was also responsible for the whole research unit within the Ministry of Home Affairs, assisting the senior political adviser and setting up the decentralization facilitators’ network in the regions. Abidin’s chapter introduces us to the organization of the IRDA surveys and the problems encountered by the surveying teams. The term IRDA refers to the Indonesia Rapid Decentralization Appraisal. In his conclusion, Abidin states that the central government is still “reluctant to provide regional autonomy”, as regional governments possess only limited fiscal power. This is a serious complaint, as it shows that by 2003, nothing much had changed since the time of Suharto in terms of fiscal dependency of the regions on the centre. The belief in the promise of fiscal autonomy and the delay in providing it gave fuel to the common suspicion that efforts of the government in Jakarta are only window dressing covering its real purpose, namely returning to centralist control of the regions and village-level communities. The extent of the dependency of the regions on the centre at the time of the survey, follows from Abidin’s analysis of the regional expenses. In 2002, 57 per cent of the local budgets were generally spent on the payment of salaries; the rest went towards regional development. However, many districts and cities allocated a large part of their development budget to routine subjects like public works; some invested a huge portion in the area of public health, and others spent much in the field of education, culture or infrastructure. These expenses, however, covered for the most part arrears of management and service expenses relating to the newly incorporated externalities of the regions — except perhaps in the case of religion, which remained under government authority. Apparently, there were large arrears in this field dating back to the Suharto governments when administrative regions did the job. It was in response to this situation that the revised legislation of 2004 called for the regional administrations to speed up their promotion of regional development through the improvement of their services in that field, and further empowerment of the local constituency as well as increasing competitiveness. 23

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Another problem was that during the survey, only some regional administrations evaluated the performance of their new structures, while many did not. In order to amend this situation, Abidin advised that Government Regulation No. 25/2000 on the province, and Government Regulation No. 20/2001 on guidelines for the supervision of regional governments should be revised. The province did not function, and the introduction of norms, standards, criteria and procedures to support the implementation process had to be speeded up. It was Adi Abidin’s idea that the province should have a more substantial role in supporting the regions in its territory in the actual execution of those norms, standards and procedures. Though Law No. 32/2004 does provide more clarification on the functions of the province and exhorts the regional government to commit itself to providing at least a minimum standard of service, there is still no new regulation pertaining to the evaluation, and hence the quality, of the implementation process. In fact, with the introduction of the minimum standard, no one knew what was meant by it other than performing minimally. Even the officials in the export regions did not show better understanding. It is striking, as mentioned above, that the 2006 USAID report on the progress of decentralization in Indonesia lists the same problems. Apparently, the progress of decentralization is slow, in particular, the implementation of the fiscal part of the 2004 legislation in national and regional regulations and its evaluation (USAID Democratic Support Programme (DRSP) 2006, pp. 3–5).

The SMERU Institute Following and supplementing Abidin’s evaluation of the first phase of the reform process, is Widjajanti I. Suharyo’s chapter on “Indonesia’s Transition to Decentralized Governance: Evolution at the Local Level”. It presents the summarized assessment by the SMERU Institute of the subsidy transfer and implementation in statistical detail. Suharyo is currently senior researcher at the SMERU Research Institute in Jakarta. From 1999 to the beginning of 2003, she served as regional political analyst at the United Nation’s Support Facility for the Indonesian Recovery (UNDP) to stimulate the examination of policy options for Indonesia. The survey of the SMERU Institute particularly centred on the preparation of the autonomous regions for broad autonomy. This chapter focuses on the general aspects of the implementation in a set of districts, municipalities, and provinces, and provides details on the implementation in the resource poor regions of West Lombok and the city of Bandar Lampung. 24

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Like Adi Abidin, Suharyo points to the continuing centralism of the central government and the insecurity as to the functions and position of the province. Yet, she concludes that in many provinces, the decentralization process has actually met with much public support, not least because of the low revenue rate that provinces had received during the Suharto period. In general, Suharyo concludes that the higher the revenues and levies of district or municipality, the higher the degree of budget support it received with regard to fiscal and other financial autonomy interests. In some cases the transfer of General Allocation Fund (DAU) doubled or more, compared to the fiscal year 1999/2000 to 2000/2001 (see also Appendix 1). However, the local expenses also increased and surpassed the DAU input. As the support is received in lump sums, the rise in development expenses consequently decreased. Apparently, at the cost of development effort, a pursuit for the arrears of fixed expenses was going on. Moreover, while the regions have been allotted altogether more budget support by the government, the distribution ratio seems to have remained the same as before 1999. Suharyo also draws attention to the negative impact of the demolishing of the old Suharto administration, as useful top-down and bottom-up channels of communication have been closed, resulting in the absence of inter-regional coordination of planning and documentation. Another result is that regional officials approached the government on their own accord, ignoring procedures and the province. As for the enhancement of local community participation in West Lombok and the city of Bandar Lampung, a different but also depressing truth emerged. Urbanized areas appear to be better equipped to boost community participation and interregional coordination than rural areas. This observation confirms the continuity of the pre-1999 legacy of the urban/rural gap mentioned by Mohammad Sadli and Henri Sandee in their respective chapters. Suharyo’s data on Lombok and Kota Bandar Lampung show a complete lack of uniformity and system, which confirms Adi Abidin’s statement on the general lack of system and uniformity. As for the priorities in providing services by districts and municipalities in these areas, diversity dominates. Where one district puts health first, another district or municipality prefers infrastructure or education. Interestingly, the remaining part of basic services mentioned by Article 11, Paragraph 2 of Law No. 22/1999, like agriculture, industry and trade, is not mentioned at all. Apparently, the arrear and lack of economic diversification was so large that the government had to start from scratch. These findings reflect the administrative chaos and arrear the Suharto governance left behind in the poor areas. This state of affairs has again 25

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negatively influenced the local people and organizations which looked for participation in the programmes of their region.

The World Bank Office in Jakarta In their chapter on “Corruption and Decentralization”, Bert Hofman, Kai Kaiser, and Günther G. Schulze discuss a report prepared by the East Asia Poverty Reduction and Economic Management Unit of the World Bank at Washington, D.C., as well as the results of their Indonesia Decentralization Empirical Analysis (IDEA) at the World Bank office in Jakarta. This chapter is one of the keystones of Part I as it draws attention to the signals of the patronage system dominating the local servicing. At the time of writing up his chapter, Bert Hofman was the lead economist at the World Bank office in Jakarta, where he had worked for several years focusing on fiscal policy, decentralization and governance. Hofman and his team focus on what they have called the decentralization of grafting. This process affects the quality of governance and servicing in the regions. However, they conclude that corruption has not become a more crucial governance problem than during the New Order period. It still has grips on the use of the budgets. In their research on the post-1999 mechanisms of corruption, collusion and nepotism (KKN), Hofman and his research team found the following factors to be responsible for the practice of KKN: – –



the absence of transparency and accountability values in traditional local governance; the naivety of outsiders who assume local politicians and administrators are generally more open to local needs and complaints than central politicians, and are subsequently surprised by the contradicting reality; the fragmentation of the service apparatus and the apparently uncontrolled authority of the gatekeepers of the services, that is, the head of regional government and his apparatus, due to the system of patronage.

One factor which integrates all the above-mentioned, rather circumstantial points is the practical outcome of the decentralization of the government’s regional service administration to the regional governments, that is, the integration of the personnel, services and budgets of the former government service administration (kanwil) with the administration of the district and municipality. Because of the decentralization of Suharto’s service administration to the regional governments, its KKN culture migrated with its bearers to the regional governments. It flourished also in the new context because the 26

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migrated administrators have retained their authoritative position and have constituted a rivalling force vis-à-vis the newly elected regional parliament. This continuity of pre- and post-1999 status and authority is proven by the fact that the service level of the regional governments appears to be as fragmented as it was before in the administrative regions, and that each service has its own tariffs which double and even triple the service tariffs ratified by the regional parliament. Nobody corrects these administrators and the regional heads still lead the service administration as before. Also the regional government code commission remains silent. To what extent this indicates communal crime or just fragmentation and lack of authority of regional parliament vis-à-vis the regional head, the story does not tell. However, Hofman provides an argument that makes a communal set-up plausible. He argues that in the given situation a grafter has only two choices, that is, to optimize his cost-benefit balance by seeking a patron, or compete with others and spoil his balance. The data all point towards a patron-client system with the regional head as implied patron. With this assumption, we get to the anthropological heart of the matter. Patronage and its Indonesian KKN variant rest on the unequal sharing (exchange) principle, which allows the patron to share his resources on his own terms with his clients, that is, befriended colleagues and family members who participate in the patron’s job. A bad sharer is a bad leader and will be robbed of his resources and ousted from his position. It is an age-old principle integral to a patrimonial bureaucracy (leasing/buying offices) allowing the selection of a patronage team. That the principle is still working at the local level, and for that matter also at the national level, indicates the degree to which patrimonialism still dominates Indonesia’s state bureaucracy. It also attests to the long isolation in which state bureaucracy has operated for decades. Hofman’s recommendations for solutions call for more openness, transparency and accountability through intensified participation initiatives of the electorate and lobbies, plus more prescribed and controllable public forums. However, a thoroughly reflected amendment of this integration operation in future revisions of the 1999 legislation is also necessary. The innovation of the directly elected head of region, introduced by update Law No. 32/2004, is a first step towards a new direction. Making the administrative positions subject of direct elections would be the next step. However, in most districts local democracy still operates in a context of charismatic, populist leadership and social hierarchy, with the regional head being the patron who guides his clients. Western-type solutions will hence probably not work. In the given context, the introduction of the directly 27

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elected regional head is likely to further weaken the control function of regional parliament: it can no longer dismiss the regional head on its own authority. For such an action, it has to furnish reports as well as a request for dismissal to the president, who himself is directly elected by the electorate and no longer under the mandate of the People’s Congress, originally the highest decision-making organ in the country.

Independent General Analyses Presenting the findings of “The Role and Function of the Regional People’s Representative Council (DPRD): A Juridical Study”, J. Endi Rukmo discusses the case of the regional parliaments (DPRD) of five districts (Bandung, Bangli, Maros, TIS, and Jayapura) located in five provinces (West Java, Bali, South Sulawesi, Nusa Tenggara Timur, and Papua). He produced this analysis in his former capacity as secretary of the board of the Foundation for Regional Governance Innovation (Yayasan Inovasi Pemerintah Daerah). Today, he is head of the Department of Politics and its science programme at the Civil Service and Governance Academy (Sekolah Tinggi Ilmu Pemerintahan Abdi Negara) in Jakarta. His chapter is the second keystone of Part I of this volume, as it uncovers the details of the power struggle between the regional heads and regional parliaments that developed after the publication of the 1999 legislation. It centres on the constitutional, legal and political weakness of the position of the regional parliament vis-à-vis the regional head: the position of ruling regional authority had at the time neither a constitutional foundation nor a legal one. Moreover, regional parliament was no match for the much more experienced members of the newly transferred former kanwilstaff and corresponding service offices. Not mentioned by Rukmo are the constitutional amendments, which scrapped the element of democratic rule, and update Law 32/2004, which stipulated that the head of region is to be directly elected. A consequence of the amendments and the 2004 update legislation for the local power struggle was that the head of region has no more structural lobby in the People’s Congress. Instead, he has to appeal to the Representative Region Assembly (DPD), the status of which is not yet ratified. Moreover, he is sealed off from the regional parliament, which can no longer directly dismiss him. As the DPD is still in statu nascendi, its members still have to find their way and it hence cannot yet function as an effective body of checks and balances. Rukmo demonstrates the failures in the synchronization of line and regional authorities with regard to the sharing of natural resources as well as the tackling of pre-1999 regulations and decrees on regional governance and 28

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regional administration that had either not been abolished, or been replaced by new ones without following the legal procedures. The complicated nature of the procedures and the vagueness of formulations and lacunas in the 1999 legislation often made regional parliamentarians and regional civil servants alike despair. As for community participation, it frequently happened that members of the executive had more contact with local society and stakeholders than the members of the DPRD. It was also the executive rather than the regional parliament that took the initiative in drafting regulations, although it was the prerogative of the DPRD to do so in discussion with the regional head (Law No. 32/2004, Article 42, Paragraph a). However, the initiative of the local executive was always informal and not publicly controlled. Rukmo advocates converting this right of the DPRD to draft regulations into a duty. His finding confirms the difficulties which emerged in the wake of the integration of the kanwil staff into the regional governments. Finally, of all the regional parliament’s functions, it was the supervision of the regional administration and the APBD budget for the regions that was favoured during the first implementation cycle. Other matters such as the production of regional regulations and other statutes or participation in the directives of the regional head and regional policies were simply ignored. Also inter-regional and national cooperation of the regions remained undervalued. Accountability reports were not made and the right of initiative was often not used. In short, the picture is one of confusion, sticking to the pre-1999 job descriptions, and political scheming. Such findings reveal an interesting potential source of corruption, fraud and nepotism, which explains the stress of the upgrade legislation of 2004 on the importance of the improvement of the regional self-monitoring procedures. Rukmo recommends training and upgrade courses and to enlist the help of the Association of Regional Parliaments (Asosiasi Dewan Perwakilan Rakyat Daerah Kabupaten Seluruh Indonesia, ADKASI). Law No. 22/1999 and Law No. 32/2004 indeed contain some provisions in this respect, such as the creation of an honorary council which handles disciplinary cases. Law No. 32/2004 furthermore stipulates the conversion of the regional secretary from a regional civil servant appointed by the DPRD into a line official appointed by the president on recommendation of the provincial governor. The government has also started a national network of administrative managers which covers all aspects of administrative personnel management. But in view of the sticky nature of patronage and KKN, it will take decades before modernization will have fully penetrated the local level. In his chapter on “Regional Autonomy, Regulatory Reform, and the Business Climate”, Mohammad Sadli, former mines and energy minister and 29

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retired professor of economics of the University of Indonesia in Jakarta, points to the fact that there was, in 2003, still a large structural gap between urban and rural governance, especially pertaining to the sources and traditional way of taxation in the plethora of rural districts. This gap boosted the clash between modern taxation and traditional ways of taxation in those areas resulting in the emergence of so-called irregular taxes, charges and levies which were in fact traditional ones. Both the 1999 and the 2004 legislation clearly attest to a structural urban bias in taxation, favouring urban regions with a formal urban economy including registered jobs, property and income structure over regions with a largely rural and informal economy that lack these features. Innovative investment would be a help. However, given the urban legacy of regional development of the Suharto regime, reversing the flow of rural commuters from large urban to the local urban and rural regions needs accelerated modernization of the rural economy. David Ray prepared his chapter on “Decentralization, Regulatory Reform, and the Business Climate” as an economist at the Growth through Investment and Trade Project, USAID-Nathan Associates. Focusing on the regulatory problems of districts and municipalities with regard to regionspecific income sources, he discusses the relation between legislation and the economics of supply and demand against the backdrop of the question whether the supply provisioned by legislation would create demand. Nonregulatory alternatives were not the strongest aspect of Indonesian policymaking. The state ran a fossilized structural bureaucracy which tried to reform districts that were still levying and managing the local household in the traditional way, while waiting for government money and orders to come in. From that perspective, he identifies the following negative factors which hampered the creation of conditions by regional government for the development of investment appealing to local and inter-regional supply and demand: poor problem identification, lack of consideration for alternatives to regulation, lack of effective review of local regulations, poor participation of stakeholders and lack of neutrality which would support competition. These factors were furthermore accompanied by too much regulations, interventions and trade distortions by regional government, as well as multiple taxation, and discrimination of stakeholders. He however stresses the point that most of these distortions had already been operative in the 1990s, that is, the late New Order period. Hence, it was not the post-1999 reform and government latitude which was to blame, but the fact that the administrative arrear of the districts still existed. Even more serious is the conclusion which can be drawn from Ray’s chapter, namely that the transfer of the functions and competencies needed for establishing regional autonomy was useless without taking the servicing 30

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nature of regional governance seriously. Ray’s point of departure is the idea of a functional, demand-oriented form of regional governance which checks the need for legislative proposals in a few samples before implementing them generally, and which monitors and evaluates these proposals during implementation. The Suharto style of blindly forcing legislation on society is characteristic of fossilized structural government organizations. A structural government organization differs from a functional one in that it is characterized by fixed and permanent positions and procedures, whereas a functional government organization works with a small core staff and a number of project- and client-oriented temporary positions. Ray argues in favour of the functional government which would have to prepare its regulations and policy-making carefully via try-outs. It would thereby conform to the 1999 and 2004 revision legislation calling to improve the regional servicing of the people and accountability to the people. Moreover, a serviceoriented regional government might get rid of the old-fashioned structural preoccupation of executive versus legislative governance. Henry Sandee’s chapter on “Small Enterprises and Decentralization: Some Lessons from Java” is based on his research which he carried out as senior research fellow at the Faculty of Economics at the Free University of Amsterdam. Sandee suggests an alternative to the outdated patrimonial bureaucracy of the Suharto period binding social groups to the government by patronage. His alternative fits the requirement of Law No. 22/1999 as to the transparent and accountable participation of economic groups in the decision-making of regional government. According to Sandee, it would be a better bet for regional governments to abandon the policy of focusing solely on taxation and levying as income source, which is incidentally the core of the KKN syndrome. Instead, regional government should partner with those local small and medium enterprises which are commercially interesting to local and other markets. On the one hand, this would adapt the regional government’s servicing to the needs of the local SMEs and their markets, stimulating public-private partnerships. On the other hand, it would strengthen the SME’s capacity to lobby where parliament, government, banks and clients are concerned. Regional government support would boost banking support and SME growth. Also clustering, that is, the formation of SME groups sharing division of labour and hence a common urge for efficiency among themselves, would boost productivity and the quality of their products. This again would make the SME groups more attractive for credit providing institutions, such as banks and other donor agencies like The Asia Foundation. Sandee in fact refers to a 2001 pilot study of the organization of publicprivate forums, carried out in West Java, which shows that these forums did not function well at the kabupaten level but were more successful at the 31

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sub-district or kecamatan level. As a local SME is scale-dependent, it needs — and needs to lobby for — local communal and governmental support. Evidence shows that the civil servants likely to advance the course of the SME would be more approachable and accountable at the kecamatan and village level than at the kabupaten level. This bias is a factor to be reckoned with by the kabupaten governments. It should be an incentive for them to deregulate the local economy and decentralize some parts of the regional governance to the kecamatan and village level. Update Law No. 32/2004 enables this option, as it prescribes the deconcentration of kecamatan and village administration as part of the district administration. It is interesting that regional government now has the authority to decentralize components of intra-district and municipality governance to the communities. Bambang Brodjonegoro, who since 2005 is Dean of the Faculty of Economics, University of Indonesia, focuses in his chapter on “Fiscal Decentralization and Its Impact on Regional Economic Development and Fiscal Sustainability”. His chapter characterizes the first stage of the implementation process as a mild success, despite its many problems. The response to the reform within the regions was massive and quick. Still, pressing matters of concern were, according to Brodjonegoro, the power conflicts between the regional parliaments on the one hand, and the regional executives consisting largely of decentralized, that is, transferred — central executive officials on the other. These conflicts deteriorated the public servicing of the regional government. However, update Law No. 32/2004 should provide a solution to this problem stipulating that the regional heads of government have to be elected by the regional electorate. This provision enhances the control of the electorate on the functioning of their government and hopefully also boosts the sense of responsibility of the members of regional government vis-à-vis their electorate. The power conflicts between the Ministry of Home Affairs and the Ministry of Finance on the authority over the providence of the regional budget support was a nuisance. Yet a deal was made in 2003 which granted the Ministry of Home Affairs authority over the APBD budget. The big question however, is how long that deal will last. There are also conflicts between the Ministry of Home Affairs and the line ministries which provide the basic services implemented by the autonomous regions. President Yudhoyono’s recent effort to extend the monitoring and evaluation operation — which worked so well in the political domain of the decentralization operation — to the regional budgeting and investment issues, met with opposition from the Golkar-backed coordinator of investment policies in his cabinet — who operates under the final authority of the Ministry 32

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of Finance. It is implemented by Government Regulation No. 6/2008 on the evaluation of the implementation and execution of decentralization. Just like Adi Abidin, Brodjonegoro points to the lacuna of Law No. 22/ 1999 to provide any quality standard on public government services. A provision of Law No. 32/2004 which intends to correct this failure is the introduction of a quality standard, the so-called “Minimum Service Standard”. However, this very provision causes new trouble as even the meaning of the term “minimum” is not clear, and the regions — even the most modernized ones — generally lack the capacity to implement the standard. Brodjonegoro finally discusses the phenomena of regional bondage and illegal regional taxing and levying which seem to try to correct the deficiencies in the provision that pertains to the retaining of the pre-1999 inter-regional distribution of the budget ratio. Consequentially, regions used to paying off their loans via their share in the central decentralization support the budget (Dana Alokasi Umum or DAU). The last chapter of Part I is an account by Peter J.M. Nas, Professor of Anthropology at Leiden University, on “The Origin and Development of the Urban Municipality in Indonesia”. It is a reprint of his article in the journal SOJOURN, vol. 5, no. 1 (1990). Its re-publication in the context of this volume is justified by the fact that it demonstrates important parallels between the governance reforms in colonial and post-colonial times. Nas for instance introduces, in anecdotal form, a salient part of a discussion that had started in the 1860s. This discussion in turn contributed to the parliamentary debates which in the end produced the 1903 bill on decentralization and regional autonomy. Nas shows how these debates as well as the negotiation strategies and procedures in the municipality boards during the 1930s influenced the ideas of the Constituting Assembly of 1945 and postindependence reforms. His chapter is actually a plea for classifying the whole decentralization effort in Indonesia since 1903 as an urban-originated process which produced the legacy of top-down executive government represented by the post-war Sukarno and Suharto legislations. The chapters of Part II of this volume show the importance of combining the study of the implementation of the legislation on decentralization and reform with the study of local politics. They clarify the social psychology that grounds the preoccupation in the regions outside Java and Madura with annulling the desa geography which Suharto’s legislation of 1979 forced upon local communities in these areas. This psychology views local government as not rooted in the local communities and thus as not local. This same psychology guides the formulation of Article 18 of the original 1945 constitution. To the local people, only local culture and tradition 33

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constitute the heart and soul of local society, not law and policies. This psychology indicates the degree of isolation these communities have been forced into during the Sukarno and Suharto periods. The chapters cover the following subjects: – –









the effort of the province of Central Sulawesi, discussed by Dibyo Prabowo, to get its Suharto-legacy of mining licences cancelled; the practical problems met by local grass-roots movements and regional government in the provinces of West Sumatra (dealt with by Franz and Keebet von Benda-Beckmann) and South Sulawesi (described by Edwin de Jong) to annul the Suharto legacy of Law No. 5/1979 on standard village administration, the so-called desa dinas, as part of their claim on special regional status; the (concomitant) “revitalization” of the pre-Law No. 5/1979 village organization in West Sumatra (von Benda-Beckmann), South Sulawesi (Edwin de Jong), and Bali (Martin Ramstedt); the effort of the Bali province, a religious frontier area striving for special autonomy status, to portray its local adat-traditions as Hindu (discussed by Martin Ramstedt); the problems of Riau province to develop regional copyright as a strategically important device for the development of regional potential, highlighted by Syafrinaldi; the failure of Riau province to protect the interests of the seashore nomad communities, analysed by Cynthia Chou.

When the first decentralization law was published in 1903, the modernization of local governance took place only in Java and Madura. Modernization of local governance extended to the regions outside these islands only after independence (1950). There, it included the abolishment of the pre-war linkage between the governor-general and local potentates as well as the federated structures implanted by the Dutch colonial government during the period of the Indonesian War of Independence (1945–49). From the beginning, the Indonesian republican government rejected local tradition and traditional leadership which had been endorsed by the colonial government, because traditions in general and traditional leaders in particular were deemed to be averse towards modernity and to be deeply rooted in parochialism. The local separation movements which developed in the regions beyond Java and Madura, such as the PRRI (Pemerintah Revolusionir Republik Indonesia) and Permesta movements of 1957 and 1958, were the cause of the proclamation of martial law in 1957. Rebellions in Aceh and Irian Jaya, the occupation of 34

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former Portuguese Timor-Leste in 1976, and Suharto’s post-1965 crackdown on communism were arguments to continue that state of affairs until 1988. The Suharto government gave first priority to the unification and standardization of local governance through a system of administrative regions, since autonomous regions were deemed to be not trustworthy and too vulnerable to ideological movements. In view of the apparent promises of the primacy of local and people’s interest in regional governance (Law No. 22/1999, Article 1, Line h) suggested by the opening lines of Law No. 22/1999 and the constitutionally still undecided status of the law at the time, the provinces, districts and local communities outside Java and Madura took the opportunities which Law No. 22/1999 offered to start procedures for revising their local administrative geography and to profess a return to these regions to their pre-1979 shape (see Law No. 22/1999, Articles 5 and 6). An instrumental factor in this call for a return to the pre-Law No. 5/1979 state of affairs were the grass-roots movements, led by local adat leaders, that took the opportunity to redress the local desa dinas geography enforced by Suharto’s Law No. 5/1979 and his administrative and military apparatus. The chapters of Part II describe these local movements and the way their claim was encapsulated in legal procedures of negotiation between regions as well as between regions and central government. The descriptions show how local communities were, and still are, primarily busy with reinvigorating their own diverse traditions which had been long repressed. Modern aspects of governance like representative democracy and service administration are low on the local agenda, if they are not altogether rejected. A second, and partly separate, process has been the reformatting of regional geography outside Java and Madura, including the redistribution of local physical and social resources over the regions. While there were only twenty-seven provinces in 1999, this number had grown to thirty-three by September 2004 due to changes outside Java and Madura. A similar process took place in the same areas within and between districts, in particular in ethnic, religious and economic frontier areas. The process of fission and fusion in these frontier areas has followed the fault-lines of the crumbling regional social hierarchy, aiming at reconstituting the authority of the echelon that had dominated the administrative hierarchy before 1999. This gamble has usually been contested by echelons that before 1999 had been low in the social hierarchy, and that has profited from the cancelling of the administrative hierarchy as prescribed by Law No. 22/1999 (Jones 2004). The impact of the cancelling of the administrative hierarchy on the stability of social organization in the tribal regions outside Java and Madura has sometimes added to the 35

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common dismay caused by the administrative integration operation mentioned earlier. In Tana Toraja (South Sulawesi), for instance, social hierarchy just collapsed because of the abandoning of the administrative hierarchy. The reports from the other four provinces, however, do not contain any such information. The collapse in Tana Toraja must have been due to the religious contradictions between Christian and Muslim elite groups. These contradictions most probably contributed to the failure of the revitalization of the local pre-1979 administrative geography.

The Formation of Regions and of Inter-regional Platforms The race for the formation of new regions outside Java and Madura has been a constitutional sport since Proclamation (i.e., the proclamation of independence in 1945), based on Article 18 on local administration of the original 1945 Constitution. Article 18 couples the term “special regions” to the list of local territories outside and inside Java and Madura, which is mentioned in the Elucidation in the sense that it should get recognition from future Indonesian governments. On the basis of Article 18, the “special region” (daerah istimewa) of Aceh province has not only obtained “special” autonomy, including the privilege to introduce Islamic judicature (Shari’a), but has since the recent armistice, also acquired the right to organize regional parties. This has made possible the conversion of the former Aceh Independence Movement (Gerakan Aceh Merdeka, GAM) into a political party. While the Shari’a privilege belongs to the domain of religious civil law, in particular family law, which from a legal standpoint, is subordinated to national civil law, the innovation of allowing regional parties is much more promising for the emancipation of the Acehnese regional government. The province of Papua has likewise been granted special autonomy. Megawati’s cabinet had divided Papua into three provinces, a step which has incited local protest, and will possibly quell further local unrest. There are furthermore signs that the military is interested in the local mining industry. It has pursued its interest under the cloak of national security, a strategy familiar since Suharto’s time. The fear of Indonesian non-governmental organizations (NGOs) championing human rights is that this prolonged interest of the military in Papua opens the door to a continuation, or rather return, of a New Order-like regime in the region. The Balinese petition for special autonomy in Bali province, issued in November 2004 and linked to informal calls for Hindu judicature in its territory and beyond, has not yet been decided upon in Jakarta. It seems to have little chance though, of ever being accepted by the national government 36

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and ratified by national parliament. The constitutional amendments is likely to have severely hampered the continuation of new region formation by (1) eliminating the call for protection of special regions and transferring such issues to future legislation, and (2) by constituting the Representative Region Chamber (Dewan Perwakilan Daerah, DPD), which furthers and defends the general regional interests vis-à-vis the particular regions and central government. Also, the presence of a growing Muslim minority on the island might in the long run obstruct the Balinese claim to special autonomy status and create a security issue. As with Shari’a law, Hindu judicature too, would be legally subordinated to national civil law. An interesting case in the field of inter-regional economic affairs is the block deal which has recently has been sealed by the provinces of Central and East Java and the regencies of Cepu and Blora to set up a consortium to develop the Cepu oil and gas reservoir located in the territory of both provinces and regencies (see Herdjoko in Jakarta Post, 3 February 2006). This deal appears to balance Java’s loss of Aceh’s provincial share of 87 per cent in its own oil and gas reserves, which are however, old and no longer very promising. Aceh’s special autonomy status thus has no strong economic basis. Java’s Cepu reserves are economically much more interesting. The deal shows that sharing is a complex matter, as the oil companies are also party to the sharing deal. With regard to the Macassar Straits’ reserves, the government is ready to allow the companies involved in the exploitation, like Exxon and PT Pertamina, to keep 35 per cent to 40 per cent of the oil production for export and to render the remaining part for domestic use. Regional platforms come in only after the government and oil firms have reached a deal. Hence, inter-regional affairs are still dependent on government and external, entrepreneurial action.

Summary of the Chapters of Part II In his chapter “Regional Autonomy and the Issue of Land Rights: The Case of the PT CPM Mine in Central Sulawesi”, Dibyo Prabowo, Professor of Economics and Director of the Center for Asia and Pacific Studies at Gadjah Mada University in Yogyakarta, and recently appointed to the position of rector of the University, analyses the role of the province of Central Sulawesi in the encounter between central and regional government. On the one hand, we see central government defending the licences of foreign firms on mining commissioned by the previous Suharto government, and on the other hand we find the autonomous district governments in the area defending their land rights with regard to forest areas as prescribed by the 1999 legislation. At 37

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stake was the destruction of forest caused by the continuation of these licences. Dibyo shows that the post-1999 autonomous provincial government of Central Sulawesi represented the environmental interests of the districts and local communities in its territory and took a strong position against the central government. The importance of this case is that it shows (a) the impact of the 1999 legislation on the functioning of autonomous export regions, involving the revival of the weakened and distrusted provincial government; (b) the determination of some of these export regions to annul their export status against the will of the central government; and (c) the autonomous export regions defending their newly acquired authorities as a group of autonomous districts led by the provincial government. Taking stock with “Reshaping Tana Toraja: A Century of Decentralization and Power Politics in the Highlands of South Sulawesi”, Edwin de Jong, lecturer and post-doctoral fellow at the Department of Anthropology and Development Studies of the Radbouw University in Nijmegen, the Netherlands, places the current processes of reshaping district boundaries and the concomitant reshuffling of political key positions in the highlands of South Sulawesi firmly in the context of a long-term sequence of decentralization and deconcentration cycles started by the Dutch. In his account, Edwin de Jong confronts his etic analysis with the emic perspective of the local citizens: whereas for the outsider, every new reform implies a new start, for the locals every reform seems to indicate a repetition of old news. The historical data presented by Edwin de Jong constitute the basis for the answer to the question of what actually happened after the publication of the 1999 legislation. De Jong furthermore pays attention to the impact of the abandoning of the Suharto legacy concerning village organization and to the abolishment of the fifty-year-old administrative hierarchy in the regions. Both events created ample confusion. First of all, there was the issue of the re-institutionalization of the lembang. Two regulations of the district government dealing with the lembang re-institutionalization had been prepared by the province of South Sulawesi. They however failed to settle the debate. Instead, they triggered a process which also put up for debate the scale of district and province. Moreover, the lembang community operates as the executive of the lembang leadership. The traditionalist institution hence neglects the legal requirement of the election of executive members and communal leadership, and of making regulations. The survey reports of Part I of this volume have shown that this is a problem that has occurred throughout Indonesia. The general tendency in Tana Toraja, which de Jong observed since 2001, appears to be to decrease the scale of the lembang to a size far below the 38

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standards agreed upon in the inter-regional negotiations guided by the province in 2001 and 2004. Some influential Torajans even advanced the option to return to the much smaller desa geography. As a consequence of this irresolvable debate, the local effort to annul the administrative arrangements, caused by Law No. 5/1979, failed. Interesting is the fact that the supra-regional linkages, which developed after 1979, connecting desa, province and national capital, were in turmoil as the administrative hierarchy of the regions was abandoned. The province therefore could not function accordingly, and rural adat elites confronted urban elites. The geography and economics of scale of this confrontation determined the final outcome of the failed restoration effort. The collapse of the coalition between the administrative and the social hierarchy contributed to a unification of groups and interests at the local village level and to fragmentation at the district level and above. Both processes were linked to the efforts of elite groups to create new provinces. This development took place within the context of the rise of Tana Toraja as a religious frontier area since the beginning of the last century, that is, within the context of the encounter between rural Christian missions and Muslim high and lowland neighbours. It demonstrates that even colonial decisions on regional reform still have impact on contemporary reform processes. This again stresses the importance of the long-term perspective for the study of contemporary reform. A focus on just the post-1999 train of events ignores the necessity of a zero-point for comparison and ignores the fact that even the 1999 reform was a follow-up of reforms and experiments of preceding governments. In their co-written chapter on “Recentralization and Decentralization in West Sumatra”, Franz and Keebet von Benda-Beckmann — at the time joint directors of the project group Legal Pluralism at the Max Planck Institute for Social Anthropology in Halle, Germany — focus on the local movement for the restoration of pre-1979 local territory and tribal management in the form of the traditional nagari in West Sumatra. This movement became particularly famous because immediately after the publication of the 1999 legislation, its local leaders were the first to use the opportunity provided by Law No. 22/ 1999 to reorganize village government. It involved the rescaling of the administrative village territory from the rather small and purely administrative village (desa), created by Suharto’s Law No. 5/1979, to the much larger nagari. The nagari had been the most important pre-colonial unit of regional government which had survived even up to post-independence times. The authors describe how as soon as the Ministerial Decrees No. 63/ 1999 and No. 64/1999, followed by Government Regulation No. 76/2001 on village government, had been issued, the local district governments in 39

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West Sumatra contacted the central government in Jakarta requesting guidance as to how to implement this legislation in order to transform the desa back into the nagari. The two authors describe this transformation as a process of recentralization at the village level, which frequently led to a greater distance between the local population and the regional government. According to the authors, this development is quite contrary to the intention of the 1999 and the 2004 legislation on decentralization and regional autonomy. Indeed, Law No. 22/1999 does not change the district structure of governance, but centralizes it with regard to the subordinate village level. Still, the authors’ view might reflect more the local view on the reform than the direction and intention of the reform as stipulated by Law No. 22/1999. In any case, West Sumatra Province played an important role as coordinator of the administrative reform in the districts entailing the “return” to the nagari. After broad consultation and negotiation with village representatives, district governments and the central government, it issued the Provincial Regulation No. 9/2000, stating that West Sumatra is a very heterogeneous region, and that the people living there aspire to return to the nagari-style of government. The regulation also stipulates that implementation of this return is to be decentralized to the autonomous districts. In the end, developments led to results which were very different from the case of Tana Toraja. In West Sumatra, processes of upscaling the desa territory had already been in motion long before 1999. The authors conclude that in the end, the nagari movement succeeded. Apparently, in this case the fission between administrative and social hierarchy did not obstruct the function of the province. Discussing “Regional Autonomy and Its Discontents: The Case of PostNew Order Bali”, Martin Ramstedt, senior researcher at the Max Planck Institute for Social Anthropology in Halle, focuses on two inter-related processes, which were both mediated by the province in the wake of the 1999 reform legislation: (1) The implementation of Bali Provincial Regulation (BPR) No. 3/2001 on the so-called desa pakraman, and (2) The “Strengthen Bali!” (Ajeg Bali! ) movement leading up to the drafting of a petition by the provincial parliament which requested special autonomy status for Bali. BPR No. 3/1999 re-institutionalized the pre-1979 adat village as an autonomous realm at the village level, without, however, abolishing or even mentioning the continuous existence of the de-concentrated desa dinas. While this has caused additional impediments to the successful implementation of the 1999 and 2004 reform legislation, it has also alienated modern urban Balinese Hindus rejecting the obligations and constraints implied by the revitalization of the adat village. The call for special autonomy status again was linked to informal and controversial calls for the introduction of Hindu judicature in 40

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Bali and other regions with Hindu population, in analogy to the introduction of Shari’a courts in Aceh. The democratization of Balinese society as a consequence of the removal of the New Order administrative hierarchy has uncovered the tremendous diversity of local society in Bali, throwing the island into mild turmoil. The latter has been engraved by the impact of the two Islamist terrorist attacks from 2002 and 2005. They destroyed the local tourist industry and boosted anti-Muslim feelings in the face of an ever-growing Muslim population on the island as well as a general xenophobia. It is this xenophobia which has turned Hindu identity into a tool of resistance against standard decentralization. In his “Reflections on the Development of Intellectual Property Rights Legislation: An Account from Riau”, Syafrinaldi (Director of the Master Programme in Law in Riau and head of the Study Centre for Intellectual Property Rights at the Islamic, as well as a member of the Provincial Research Council in Riau Province) touches upon an important issue for the economic development of the regions: the development of intellectual property rights for the protection and stimulation of the regional potential of local entrepreneurs and SMEs. The importance of the development of intellectual property rights for the development of local economies was acknowledged in both the 1999 and the 2004 legislations when both Law No. 22/1999 and Law No. 32/2004 stipulated that central government is to devolve its authority to draft intellectual property rights legislation to the regions. Syafrinaldi, however, points to the fact that — just like in the case of the decentralization projects in general — the research and development projects which are needed must be adequately funded and staffed with well-trained personnel. Moreover, law enforcement needs to be enhanced on all levels in order to foster a business culture which is attractive to both local and foreign investors. In her chapter on “Global Spread and Local Fractioning: Indigenous Knowledge and the Commoditization of Livelihood Resources in the Growth Triangle”, Cynthia Chou, currently Associate Professor at the Department of Asian Studies, University of Copenhagen, draws attention to the precarious situation of the indigenous sea-nomad groups living in the province of the Riau Archipelago. Their situation is predicated upon an as yet unresolved conceptual clash: the clash between the reform legislation’s promise of local empowerment on the one hand, and the absence of traditional rights of nonterritorial groups in the very same legislation on the other hand. The 1999 and 2004 legislations on decentralization and regional autonomy apparently implicitly endorse the long-standing classification of non-territorial groups as “backward”, implying their need to be modernized. In contrast to the demand for respect of the tradition of sedentary local societies contained in Article 18 41

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of the 1945 Constitution, no mention was made with regard to the rights of nomadic groups. The opportunity to apply for protection by statute, which the amended constitution offers, has not yet been used. In the case of Riau’s sea nomads, the province which is legally the jurisdiction that covers the nomads’ interests as a whole, has played a negative role in its forbidding preference for large-scale modernization and industrialization. As the districts and villages have local economics of scale and are much closer to the nomadlevel of subsistence but keep distant from the nomads, their territorial interests will continue to conflict with those of the nomads. The role of the province prescribed by the 1999 and 2004 legislation is different from the Suharto legacy of provincial power, described by Chou, as it its inter-regional functions regard also environmental interests, which include the habitat of the nomadic groups. It is to hoped that the new province might find an opening to integrating these groups within its inter-regional support without destroying their environmental interests.

CONCLUSION In our previous publication on the 1999 reform, Riding a Tiger of 2002, stress was laid on the importance of the combatting of the rural arrears and the decentralization of externalities like services and co-administration to local government. This accent was confirmed by the 1999 and 2004 legislations. Decentralization of externalities indeed is the key to the decentralization of self-government, that is, the freedom of regulating and managing the implementation of national laws and policies and services, together called accountable autonomy. It is also the key to the misunderstanding and suspicion that arose among rural voters and local administrators and in particular, parliamentarians, as to the intentions behind the reform operation and the mistakes that were made. And indeed, it is also the focus of the chapters of Part I of this book. These chapters show clearly that broad regional autonomy as promised by legislation and government, and consisting of real and accountable autonomy, will not be trusted by the rural people as long as they have the impression that the parsimonious and corrupt pre-1999 government service offices overtly or secretly survive within regional government. Also the confusion about the newly created role for local parliament in accountable autonomy contributed to the delay of the implementation process. Was there any room for regulating for the local parliaments and if the laws say so, how should that be put into practice? Also the contradiction between Law No. 22/1999 and Law No. 25/1999 concerning the deconcentrated or decentralized status of servicing 42

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and co-administration caused mistrust and delay. In fact it made the implementation of these laws unfeasible. The real agenda of the 1999 reformasi programme appears to have heeded the principle of first things first, covering the following points: 1. To restore, after forty years of unconstitutional rule, constitutional order (implementing the stipulations of Article 18 of the original 1945 Constitution) in the rural areas and to adapt that order to the fight against rural economic and administrative arrears; 2. To enable the regions to take over from the former kanwil the tasks of servicing local communities and co-administrating central government’s national resources in the region; 3. To liberate the regions from obsolete administrative hierarchy without causing damaging loss of line connections; this is only feasible by the complete transfer of the kanwil organization and personnel including their line connections to local government; 4. To integrate rural and urban areas in a more constructive and productive strategy which makes rural districts viable and communal units for local and inter-regional development and investment; 5. To implement regional parliamentary democracy in order to root the newly modernized construction of local governance in local society and in inter-regional cooperation and competition. The chapters in this book show only the beginning of the realization of this agenda and do not yet allow for enthusiasm or outright satisfaction. Thanks to the kanwil transfer of money, the regional budget arrived where it should, but preparation of the rural districts for reform took more time than expected, delaying the decentralization process. Also the distribution and the accounting of the regional budget in the local government and by whom was not always clear. Hence, the first implementation stage was stuck in debate, conflicts and rows which were attributed to a seemingly unreliable government whereas the government put the blame on the lack of regional discipline, competencies and local authorities. As the Decentralization Report of USAID of 2006 shows, the implementation of the 2004 update legislation still shows the same traces of procedural delay and uncertainty about positioning and titles as occurred during the 2001 implementation. Indeed, introducing selfgovernment, that is, accountable autonomy in a context that always had to ask for money and authorization is not that simple a matter. In this respect the chapters of Part I of this book and those publications mentioned in the Preface, including the two collections of essays, Autonomy 43

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and Disintegration in Indonesia, co-edited by Damien Kingsbury and Harry Aveling; Local Power and Politics in Indonesia: Decentralisation and Democratisation, co-edited by Edward Aspinall and Greg Fealy; as well as the book, Decentralisation in Indonesia: Redesigning the State, co-authored by Mark Turner and Owen Podger (see Preface), do not differ much in the data presented on the flaws mentioned. After all, they all drew from the same sources, that is, the monitoring reports and their survey data. However, the summaries written for this book by the monitoring team leaders and independent researchers go a step further. In the first place, they include also the debate that took place during the preparation of the monitoring, and in the regions and national parliament and People’s Congress on the revision of the 1999 legislation and the amendment of the constitution. In the second place, they not only point to flaws in the set-up of the decentralization process, but also forward their ideas about structural flaws in the design of the reformed system of regional governance and in the receiving social structure. This addition is significant as the flaws of the legislation and the subsequent decentralization process on which previous publications on the reform focus, are not necessarily good predictors of structural design flaws of regional governance after take-off. Such flaws only become visible after stabilizing the new system and streamlining and boosting the production. Despite the technical incompatibility of the statistical survey data used in Part I of this book and the qualitative data of the case studies in Part II, all the stances discussed in this book point in the same direction. Due to the still existing structural gap between rural and urban economy and economics, and the ongoing fiscal and administrative dependence on government, the design presented by the legislation cannot yet work properly. Also the obsolete communalizing format of guided regional development which causes the psychology of top-down governance in officials and voters to persist, and the neglect of the stubborn continuity of the patronage system in local government inherited from the Suharto era, are major factors that threaten a fast and stable introduction of self government. Thus the flow of rural commuters and migrants from countryside to towns and cities that in the Suharto era conditioned the prioritizing of the self and family interests of people and thus did not contribute to regional development, will go on to rifle the countryside from private enterprise and income and from the labour force. All these factors counteract the attracting of investment. The only positive development mentioned by the chapters of Part II is the position of the province in the areas outside Java and Madura. In areas without inter-religious encounter like West Sumatra and Central Sulawesi, the province does its coordinating and intermediating role unexpectedly well, 44

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whereas in regions with religious dissent, its functioning suffers from the collapse of social hierarchy caused by the abandoning of administrative hierarchy (F. and K. Beckman, Edwin de Jong, and Dibyo Prabowo). This indicates that the province is an important device in regional governance and should be more involved in the search for investments. On the other hand, ethnic and religious dissent and the connected collapse of social hierarchy, are major factors of provincial and inter-regional dysfunctioning. This fact is a relict of Suharto’s insistence on regional security and his arrogance vis-à-vis local tradition. It can only be phased out by countering actively the decades of an entrenched image of the government being anti-tradition minded. To that extent, special projects for modernizing local traditions and integrating them in regional development policies should be started and good performance rewarded. Cultural tourism could be a start but it should be coupled to adjacent local interests in intellectual and economic development. It has to be concluded that the existing situation of autonomy and self government or “broad regional autonomy”, still has important features in common with the former Suharto regime. Among other things, the imported kanwil structure and its relations with the local parliament is a pièce de resistance due to its legacy of being part of the former Suharto bureaucracy. Secondly, the continued fiscal dependence on central government due to the extent of the administrative and democratic arrears of the rural districts and government bureaucracy, keep the officials, regional heads and local parliament of the regions rooted in an unchanging attitude of sticking to habits and customs of displaced obedience and consumerism. Undoubtedly these psychological features are related to the uncertainty of officials and rural citizens about the effectiveness of the new system of self governance and what is in it for them. Two citations from the past show the seriousness of the passivism and indolence problem in relation to the past. As for the strategy of the reformasi governments of striking the regions with a crash programme of guided modernization and development, it is interesting to note that in Nikolaus Joseph Feldmann’s book, De Overheidsmiddelen van Indonesië in Verband met de Dualistische Economie, which focuses on Indonesia’s public funds just before independence (1950), it is stated that whenever citizens threaten the goal of the national economy to generate material welfare for the people with their particularistic economic activity, the state has the right and authority to institute a policy of “guided economy” in order to correct the state of affairs (Feldmann 1949, p. 22). Feldmann’s statement in fact echoed what then was a brand-new political wisdom which had become widely adhered to in the West, including the Netherlands, in reaction to the economic crisis of the 1930s and World War 45

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II. Given the context in which this political wisdom arose, and which was similar to the more recent Indonesian situation after the Asian financial crisis and the downfall of Suharto, top-down guided economy — as was implied in the 1999 reform legislation — must have been appealing to the Habibie cabinet to tackle the rural arrears. The liberal economic policies of Suharto, favouring the urban middle class, had encouraged the people to seek urban labour opportunities and thereby drained the regions of its labour force. With his rigid reform programme, the Habibie government returned to a form of guided regional economy and guided regional democracy which calls to mind Sukarno’s policies, contained in his ManipolUSDEK, which too, might have drawn on the said political wisdom of the late 1940s. Although the recent Indonesian decentralization programme has essentially been geared towards the enhancement of the capacity of the regions as separate public corporate and autonomous units with a broad range of self-governance, in the end it has succeeded in bringing local order in line with national directives. There is indeed no place for a federated state concept or for administrative fragmentation. In regard to civil and administrative indolence, it is interesting to read what Gerald Maryanov in 1958 wrote about the impact of Law No. 1/1957 on local regions: With the redefinition of regional affairs given in Law No. 1/1957, whereby the region can handle any matter not taken up by a higher authority, the possibility is opened for much more extensive legislation coming from the councils. But (…) until there is an awakening on the part of regional people as to what they want to do, this possibility cannot be realized. There is little hint in our sources of this potentiality being recognized, and the regions have been satisfied, in terms of specific action, to do either what is traditional, or what the central ministries advise. (Maryanov 1958, pp. 74–75)

This quote attests to a local attitude which was quite similar to the one observed by Christiaan Snouck Hurgronje as discussed by Philip Kleintjes. In his Politiek Beleid en Bestuurszorg, Deel I (p. 181), Snouck Hurgronje referred to the negotiations at the end of the nineteenth century about the reform of the outdated political contract system between the governor-general and the local self-governing regions outside Java and Madura. This system regulated the contracts on subordination to the Dutch Crown and on cooperation with the governor-general and his secretariat. Snouck Hurgronje reported that, with regard to their loyalty to the governor-general, the local leaders were not interested in detailed regulations on what to do and what not to do. Their 46

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interest was to obtain a general insight into how the governor-general would enforce his will (Kleintjes I 1927, p. 60). Such an attitude still prevails today. The chapters of Part II highlight the bottom-up side of the decentralization story. They hint at the fact that the local population outside Java and Madura share the feeling that the x-th reform might just be business as usual and thus need no other attention than picking the currants from the pie and use them for their own sake of safeguarding prerogatives and interests of reviving invented local traditions. They also demonstrate that contemporary local ethnic and religious opposition against modernization and standardization of the regions has emerged because these very policies have in the past been enforced by a government apparently distrustful towards local tradition and society. All prior decentralization efforts since 1903 were in fact hampered by the government’s distrust towards local traditions. As a consequence, the reaction from local communities, in particular outside Java and Madura, does not recognize the local government as local and as their own, and sanctifies local tradition as the heart and soul of local society. The collapse of social hierarchy in religious frontier areas like South Sulawesi and Bali which was caused by the abandoning of administrative hierarchy, has isolated local community life even further. Given the history of conflict between central government and the Outer Islands, it is advisable that the central government properly presents and explains, that is, “socialises” (Ind. sosialisasikan) its contemporary decentralization policies and programmes to a suspicious local electorate. It has to elicit the understanding that modernization is not automatically the enemy of local tradition. This approach is only going to be successful if local culture and tradition are taken seriously, by giving them a parliamentary voice and accentuating regional diversity as a manifestation of the multicultural nature of the country. This requires the central government and legislators to get rid of the creed of mono-dimensional nationalism, which in the past was the main political instrument to suppress regional diversity. Instead, regional reform and decentralization have to become instruments of combining diversity with administrative standardization. Only in such a context will local democracy fulfil its function as supporter of standardization and the guardian as well as regulator of the region’s potentials, ranging from cultural to economic activities. Without the removal of KKN and its underlying root, the patronage system, however, local democracy will remain incomplete, as it will continue to impede any efforts at monitoring and self-evaluation with which regional governance will become accountable and transparent. Hence, the structural amendment of regional governance will only work out in the long term, provided the new constitutional conception of self 47

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government is adequately and effectively explained and made palatable to the people. This is a back-breaking, yet necessary, task for both legislators and policy-makers, as the reading of the law texts makes it quite clear that the incorporation of Indonesia’s regions into a globalizing world is the short-term primary concern of national government. The confusion resulting from this tension might again either enhance local resistance or trigger indifference, or sneaky self action. Given the aforementioned intricacies of the 1999 decentralization process, the recent conclusion of Moira Moeliono that the position of national government has been weakened vis-à-vis regional government (Moeliono 2002), has to be challenged. First of all, the fact that the almighty status of the central government rooted in martial law has been converted into a function which is bound to the constitution, cannot be termed “weakening”. We deal here with a simple return to normal constitutional conditions. More importantly, while the pre-1999 administrative enclosure and marginalization of rural districts has indeed been broken, the arrear of service and assistance capacity of the regions still exists; and the scale of the arrear is so big that compulsory support programmes provided by the government cannot be avoided. Hence, part of local governance implies a long-term guardianship by the central government over the regions.

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APPENDIX I Law No. 32/2004 on the Fiscal Balance of Regional Administration The administration of government affairs that are under the central government authorities shall be funded from the state budget (Anggaran Pendapatan Belanja Nasional, APBN). The administration of government affairs that are under the regional authorities shall be funded from the regional budget (Anggaran Pendapatan dan Belanja Daerah, APBD). The administration of the government affairs funding originating from the ABPN shall be carried out separately from the administration of government affairs funding originating from the APBD regional income. APBD consists of resources for implementing de-concentrated and co-administrated duties, regional revenue and financing provided by regional funding (Law No. 32/2004, Article 155). Regional revenue as specified by Chapter VIII on Regional Finance, Section Two, derives from: – – –

PAD, that is, purely regional revenues, Balancing Fund provided by the government to close the fiscal gap between the government and regional government and between regional governments, Other regional incomes provided by the government.

PAD comprise (1) regional tax; (2) regional retribution; (3) proceeds from the management of regional assets set aside for the purpose; (4) and other legal PAD. Other legal PAD encompass [a] proceeds from sales of regional assets not set aside; [b] current account service; [c] interest income; [d] profits from the difference in the exchange rate of the Rupiah against foreign currencies; and [e] commission, discounts and other forms of income arising from the sales and/or procurement of goods and/or services by the regional government. In case a regional government wants to increase its PAD, the head of region is not allowed to make regulations on local revenue that work out cost intensive and hamper the interregional mobility and trade of goods, services and people. This measure refers to the host of irregular levies and taxes created by regional governments during the period 2001–04 to cover their fiscal gap. The amount of Balancing Fund shall be established annually by the APBN. Balancing Funds are: (i) the Revenue Sharing Fund (DBH), (ii) the General Allocation Fund (DAU), and (iii) the Special Allocation Fund (DAK). The DBH sharing fund is derived from taxes and consists of (a) Land and Building Tax (PBB), (b) Land Rent (PBHTP), and (c) Personal Income Tax (PPH ). The DBH 49

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sharing fund is derived from natural resources such as forestry, general mining, fisheries, oil mining, natural gas mining, and geothermal mining. The local share in these incomes differs per source of income (Articles 10–13). The total amount of money in the DAU shall be at least 26 per cent of the Net Domestic Revenue as established in the APBN. The DAU per region shall be allocated based on the existing fiscal gap and the basic allocation. Fiscal gap means fiscal need less fiscal capacity of the region. The basic allocation shall be calculated on the total amount of salaries of the civil service in the region. To deter regions from causing fiscal gaps the DAU will be lowered in case of a gap, by the amount of the gap. In case of a gap equal to or larger than the basic allocation, the region will receive no DAU (Article 32). The DAK fund refers to the financing of special activities that are the affair of the region, like cultural activities and special sponsored potentials. The government shall establish the criteria for the DAK fund (Articles 38–40). Important is Article 174 of Revision Law No. 32/2004 which allows local savings and surpluses on the regional budget to be used for local interest and accounted to Home Affairs and Finance at the end of the fiscal year. Deficits can be solved locally and have to be accounted to the government. Section Three: Surplus and Deficit of Regional Budget Article 174 (1) In case the Regional Budget will likely experience a surplus, the regional administration will determine its use in a Regional Regulation on Regional Budget. (2) The surplus as referred to in paragraph (1) may be: (a) Used to pay installments of the borrowing principal that is due; (b) Used as capital participation (regional investment); (c) Transferred to the reserve fund account. (3) In case the Regional Budget will likely experience a deficit, the shortage may be funded from the regional expenditure sources as stipulated in the Regional Regulation on the Regional Budget. (4) The regional expenditures as referred to paragraph (3) may be taken from: (a) Remaining funds from the previous budget; (b) Transfer from the reserve funds; (c) Proceeds from the sales of the regional assets that have been set aside; and (d) Regional borrowings. Article 175 (1) The Minister of Home Affairs shall control the budget deficit of each region. (2) The regional administration must report the surplus/deficit position of the Regional Budgets to the Minister of Home Affairs and the Minister of Finance every semester within the current budget year. 50

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(3) In the event that the regional administration fails to meet its obligation as referred to in paragraph (2), the Central Government may postpone the distribution of the balance funds. Section Four: Granting Incentives and Investment Facilities Article 176 The regional administration in its efforts to improve the regional economy may grant incentives and/or facilities to the public and/or investors as provided in a Regional Regulation in compliance to the prevailing laws and regulations.

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APPENDIX II Summary of the Amendments of the 1945 Constitution on State, Presidency and Region Since the reformation era, that is, in the annual People’s Consultative Assembly (Majelis Permusyawaratan Rakyat, MPR) sessions of 1999, 2000, 2001 and 2002, the 1945 Constitution has undergone several amendments and additions. The amendments cover the following issues: Sovereignty The 1945 Constitution originally adhered to the ideology that the sovereignty is vested in the people and executed fully by the People’s Consultative Assembly (MPR). Hence, the original constitution stipulated the MPR supremacy, making it a state institution that embodied the sovereignty of the Indonesian people. Its huge and unlimited power made the MPR impossible to be controlled by any other state institution. To keep abreast of the changing era, the original 1945 Constitution no longer conforms to the ideology of democracy which requires the implementation of a system of checks and balances among intra-state institutions. As a consequence, section 1 of Article 2 was changed into: The sovereignty is vested in the people and executed according to the constitution. The Structure of the Membership Authority of the People’s Consultative Assembly (Majelis Permusyawaratan Rakyat, MPR) Before the amendments, the structure of the membership of the MPR consisted of members of the House of Representatives (Dewan Perwakilan Rakyat, DPR) plus appointed members of the Indonesian Military/Police, the appointed Regional Delegates (Utusan Daerah, UD), and Group/Delegates (Utusan Golongan, UG). The members of the DPR were elected by general election, while the UD and the UG were appointed. The appointment of specific members of the MPR was considered contrary to the principles and spirit of democracy, therefore the formulation was changed by stipulating that all members of the MPR have to be chosen by the people through general election. With this amendment, the structure of the membership of the MPR consists of DPR members plus members of the Regional Representatives’ Council, a new representative institution in the government system of the Republic of Indonesia. The Authority of the President The 1945 Constitution favours a presidential system. In theory as well as in practice in countries that follow the presidential government system, the president has much power and an important role in politics. This is also the case in Indonesia. Stipulations regarding presidential authority in the amended 1945 Constitution are spread over various articles and sections. There is special attention on the president’s power to declare war and to grant abolitions. 52

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Direct Election of the President and the Vice-President by the People Since the establishment of the Republic of Indonesia in 1945, the election of the president and vice-president has been executed by the MPR through indirect representation. However, in the spirit of democracy which requires that the people are entitled to elect the president and vice-president directly, the system of electing the president and vice-president by the MPR has been dropped. It has been replaced by the system of direct election by the people. If the conditions of the first round of general election are not fulfilled, a second round will be needed to appoint a pair of candidates that has the majority vote from the first and second ranks. The couple that has the majority vote will be inaugurated as the president and vice-president. The Term of Office of the President and Vice-President Prior to the amendments, the formulation of the term of office of the president and vice-president in the 1945 Constitution was not decisive as it did not put a limit to their terms. As a consequence, there was the risk of more than one interpretation. The amended 1945 Constitution sets the term of presidency and vice-presidency to a fixed term of five years which, by re-election, can be prolonged maximally for one more term. This means that an Indonesia citizen can only be elected as president or vice-president for ten years consecutively. The Dismissal of the President and Vice-President Still in Office There was no article in the original 1945 Constitution which arranged the charge and dismissal of the president and/or vice-president from their offices. The constitution only stipulated the accountability of the president to the extraordinary session of the MPR called in by invitation of the DPR. Such an invitation happened only when the DPR considered the president to be really violating the basic state guidelines of the state policy. The amended 1945 Constitution includes causal factors as well as procedures for dismissing the president and/or vice-president from their offices. The Replacement of the President amid the Term by the Vice-President According to the amended 1945 Constitution, the position of the vice-president is to assist the president in doing his/her duties. This position automatically causes the vice-president to replace the president until the end of his/her term when the president dies, resigns, is dismissed, or is unable to do his/her duties during his/her term of office. The Executor of the Presidential Duties Although unlikely, there remains another possibility of an emergency situation when, for example, the president and vice-president both die, resign, are dismissed, or are unable to do their duties at the same time. In this situation, prompt decision based on a strong law is needed. 53

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In anticipation of such a case, the amended 1945 Constitution stipulates that in case of such a situation, the executors of the presidential duties will consist of three cabinet members, namely: the foreign affairs minister, the home affairs minister and the defence minister. The Formation of the President Advisory Council and the Elimination of the Supreme Advisory Council (Dewan Pertimbangan Agung, DPA) The existence of the DPA as a state institution, which is equal with the president and has the task to give advice and judgement to the president, has been viewed as less effective and efficient. Hence, it was suggested that it should be abolished. Based on this consideration, the amended 1945 Constitution has eliminated the DPA. Instead the constitution authorizes the president to form an advisory council that has the task to give advice and judgement to the president. The State Ministry As a constitution that adheres to the ideology of presidential governance, the amended 1945 Constitution asserts that the state ministers who are appointed and installed by the president are to assist him/her. The Regional Government Regional government has broad autonomy, with the understanding that the regional share in the exploitation of national resources as stipulated by the respective law and regulation shall be used to raise the region’s progress and prosperity. Regional autonomy including the servicing of the local communities has to be executed and remains within the authority of the unitary state of the Republic of Indonesia. The newly amended constitution also refers the state’s recognition of, and respect for, regional administration units which are special or extraordinary in character to statute. The Regional Representative’s Council The amended 1945 Constitution introduces a new representative institution into the structure of the government of Indonesia. This institution is the Regional Representative Council (Dewan Perwakilan Daerah, DPD), as stated in the provisions of Chapter VIIA concerning the DPD. The DPD replaces the institution of the appointed members of the MPR, as stipulated by the original 1945 constitution. It has the freedom to further the general interest of the regions vis-à-vis the government and to submit to the national parliament proposals for new statutes and amendments of statutes that concern the subject of regional autonomy in its broadest sense. Its membership consists of delegates from the regions, which in this case means the provinces.

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Note 1

Translation of the Indonesian original by Martin Ramstedt.

References Booth, A. “Poverty and Inequality in the Soeharto Era: An Assessment”. In BIES, Indonesia Project 36, no. 1 (2000): 73–104. Davidson, Jamie Seth and David Henley. The Revival of Tradition in Indonesian Politics: The Development of Adat from Colonialism to Indigenism. New York: Routledge, 2007. Diepenhorst, P.A. Onze Staatsinrichting. Zutphen: N.V. G.J.A. Ruy’s Uitg.-Mij., 1933. Feldmann, Nikolaus Joseph. De Overheidsmiddelen van Indonesië in Verband met de Dualistische Economie. Leiden: Stenfert Kroese, 1949. Fitrani, Fitria, Bert Hofman and Kai Kaiser. “Unity in Diversity? The Creation of New Regional Governments in a Decentralising Indonesia”. Bulletin of Indonesian Economic Studies 41, no. 1 (2005): 57–79. GTZ-SfDM and USAID-PERFORM. Pokok-pokok Pikiran tentang Penyempurnaan Pengaturan Kewenangan/urusan Pemerintahan dalam Revisi UU 22/1999. Jakarta: GTZ-SfDM and, 2003. Henley, David and Jamie S. Davidson. “Introduction: Radical Conservatism — The Protean Politics of Adat”. In The Revival of Tradition in Indonesian Politics: The Deployment of Adat from Colonialism to Indigenism, edited by Jamie S. Davidson and David Henley. London and New York: Routledge, 2007. Jellinek, L. and B. Rustanto. Survival Strategies of the Javanese during the Economic Crisis. Jakarta: World Bank, 1999. Jones, Sidney. “Comprehending Contemporary Causes of Conflict in Indonesia”. Centre for Strategic Studies, New Zealand, 29 March 2004. Kleintjes, Ph. Staatsinstellingen van Nederlandsch-Indië, Deel 1. Amsterdam: J.H. de Bussy, 1927. ———. Staatsinstellingen van Nederlandsch-Indië, Deel 2. Amsterdam: J.H. de Bussy, 1933. Manning, Christian. “Labour Market Adjustment to Indonesia’s Economic Crisis: Context, Trends and Implications”. In BIES, Indonesia Project 36, no. 1 (2000): 105–36. Maryanov, Gerald S. Decentralization in Indonesia as a Political Problem. Canberra: Australian Natioinal University (ANU), 1958. Media Indonesia Online. “DPD akan Judicial Review UU 22/2003”. Media Indonesia Online, 5 Januari 2007. Moeliono, Moira M.M. “Adat and Globalization: Living Apart Together”. Paper submitted for the International Association for the Study of Common Property 9th Biennial Conference, Victoria Falls, Zimbabwe, 2002.

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Sandee, H. “Industri Kecil (Small Industry) in Indonesia: Issues in the Pre- and Postcrisis Environments Illustrated by Some Case Studies from Clusters in Central Java”. In Riding a Tiger: Dilemmas of Integration and Decentralisation in Indonesia, edited by Coen Holtzappel, Martin Sanders and Milan Titus. Amsterdam: Rozenberg Publishers, 2002. SfDM/P4D. “Decentralization in Indonesia since 1999”. Ministry of Home Affairs & Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), n.d. Snouck Hurgronje, Christiaan. Politiek Beleid en Bestuurszorg, Deel I, n.d. Supomo, R. Negara Indonesia-Serikat dan Uni Belanda-Indonesia. Djakarta: Jajasan Dharma, 1948. The, Liang Gie. Pertumbuhan Pemerintahan Daerah di Negara Republik Indonesia I, II & III. Yogyakarta: Penerbit Liberty, 1993. USAID Democratic Support Programme (DRSP). “Desentralisasi 2006, Membedah Reformasi Desentralisasi di Indonesia. Ringkasan Laporan”. Laporan USAID Democratic Support Program (DRSP) untuk Donor Working Group on Decentralization, Agustus 2006. Legal Sources “Law No. 5/1974”. D:/Datafile/Undang-2/1974/uu51974_engl.doc (Sri PC per 10/1/01 7:23 AM). “Law No. 22/1999”. , accessed in January 2003. “Law No. 25/1999”. , accessed in January 2003. “Law No. 32/2004”. Jakarta: ADB Jakarta Office. “Law No. 33/2004”. Jakarta: World Bank Jakarta Office. “Penjelasan atas Undang-Undang Republik Indonesia Nomor 4 Tahun 1999 Tentang Susunan dan Kedudukan Majelis Permusyawaratan Rakyat, Dewan Perwakilan Rakyat, dan Dewan Perwakilan Rakyat Daerah”. In Tambahan Lembaran Negara Republik Indonesia, no. 3811, 1999. “Undang-Undang Republik Indonesia Nomor 4 Tahun 1999, tentang Susunan dan Kedudukan Majelis Permusyawaratan Rakyat, Dewan Perwakilan Rakyat dan Dewan Perwakilan Rakyat Daerah”. In Lembaran Negara Republik Indonesia, no. 24, 1999. “Undang-Undang Republik Indonesia, Nomor 25 Tahun 1999 tentang Perimbangan Keuangan antara Pemerintah Pusat dan Daerah”. In Lembaran Negara Republik Indonesia, no. 72, 1999. “Undang-undang Republik Indonesia, Nomor 22 Tahun 2003, tentang Susunan and Kedudukan Majelis Permusyawaratan Rakyat, Dewan Perwakilan Rakyat, Dewan Perwakilan Daerah, dan Dewan Perwakilan Rakyat Daerah”. In Lembaran Negara Republik Indonesia, no. 92, 2003. “Undang-undang Republik Indonesia, Nomor 32 Tahun 2004, tentang Pemerintahan Daerah, dengan rahmat Tuhan yang Maha Esa, Presiden Republik Indonesia”. In Lembaran Negara Republik Indonesia, no. 125, 2004. 56

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PART ONE Monitoring Reports & General Analyses

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1 WHEN THE BURDEN IS SHOULDERED ALONE Experiences in Autonomy at Regencies and Municipalities Adi Abidin

INTRODUCTION In the period of 2001–03, many independent steps were taken in regencies and cities to put decentralization into effect, including those which represent initiatives of regency or city governments, the Regional Representative Council (DPRD) and the various communities. The three quotations noted in the following boxes are a small sample to give a picture of such governmental initiatives. They were derived from the Indonesia Rapid Decentralization Appraisal (IRDA) which had been carried out every six months in order to monitor decentralization. Up to the Third IRDA, monitoring activities was carried out in thirty-one regencies and nine cities in twenty-seven provinces.1 The question that formed the focus of attention for IRDA research in each round of investigation was: How do regencies and cities carry on government in the setting of decentralization and manage the resources that they possess? However, there were many debates regarding decentralization, so that attention was adjusted to the needs of the stakeholders at a given time, in particular in order to meet the needs of debate on a certain policy that had to be formulated as quickly as possible so that urgent action could be taken. 59

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Box 1.1: From the First IRDA Report, April 2002 A Provincial Regulation concerning the quality of service to the public was ratified in the city of Pontianak in April 2001. On the basis of considerations of regional potential, community needs and work efficiency, the local government adopted as standard 5.6 hours (out of 8 hours’ work per day) as the minimum length of time which must be made available for providing service to the public. The remaining time is to be used for administrative business. Government units that fail to meet this standard will be evaluated and will be given a warning, with the possibility of being amalgamated with another unit.

Box 1.2: From the Second IRDA Report, November 2002 The Regency of Malang is endeavoring to gain Certificate ISO 9001 for Standard of Service Quality. The office of the regional secretariat is the first to be tested for applying this standard of quality of service (…). The result of this assessment will be made a basis for compiling a plan for training and implementation in the context of meeting this standard.

Box 1.3: From the Third IRDA Report, forthcoming2 Decree of the Regent of Solok No. 256-BUP 2001 concerning the Mechanism for Planning and Development Control (Mekanisme Perencanaan dan Pengendalian Pembangunan, MP3) provides a guarantee of public participation in planning, supervision and implementation of government projects. Monitoring and evaluation will use a participatory method which measures the level of success in implementation and utilisation for the local community.

This was where the IRDA was most useful. This instrument brought about a balance in the provision of useful information for clarifying debate on policy and provided such information in a timely way. Focusing attention on a limited but relevant amount of information was more effective than collecting a large quantity of information which would have required months or even years to process. From the three appraisals that were conducted from the beginning of 2002 up to 2003, a fairly complete picture can be formed of how the process of decentralization in Indonesia was proceeding in regencies and cities. For this chapter, information was obtained from the three rounds that had been 60

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compiled while paying attention to institutions or groups in the regencies and cities which had an influence on government at these levels, and also noting the steps that these institutions and groups had taken in responding to and carrying out decentralization in Indonesia. This chapter starts out with a note on this “rapid appraisal” itself and the perceptions of stakeholders in the regions concerning regional autonomy. This will then be followed by a description of regency and city governments themselves in their administrative performance, institutional management and personnel affairs, as well as their links with other governments of the same level and with ones above them. Following that will be a picture of the fiscal management and capacity of regency and city governments. This will be continued with a sketch of the Regional Representative Council (DPRD) in regencies and cities, followed finally with a brief portrait of “civil society” and community.

NOTE ON ‘RAPID APPRAISAL’ To observe decentralization in Indonesia, the IRDA used the method of evaluation. The IRDA formed part of other systems of evaluation, such as the Rapid Rural Appraisal (RRA) and the Participatory Rural Appraisal (PRA), which used the method of qualitative research with the technique of data collection via semi-structured interviews and secondary analysis of qualitative and quantitative information. In order to get a complete idea of the viewpoint of the regional community, data collection in the area of research is conducted by research institutions that have a good understanding of the area. Regencies and cities were used as the units of analysis in correspondence to the policy framework of decentralization. The use of various techniques and methods enabled the involvement of three levels of government as well as the validation of data obtained from various sources. The process of formulating analysis and developing recommendations within the IRDA framework was of a participatory nature. Hence, by maximizing the use of a participatory method, the IRDA process itself can help in creating a mechanism for dialogue between the main actors at both national and regional levels. The IRDA represents just one source of data regarding the process of decentralization. This study supplements other sources of data which can be used by all levels of government and actors in regional autonomy. With the IRDA, feedback on priority issues can be obtained immediately. This study documents many matters relating to regional government — the level of 61

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change that was occurring, the kind and rate of change, and strategies and approaches that have to be altered. As well as providing quantitative data, the IRDA also took note of various kinds of experience that were not recorded by statistical information. It can therefore provide deeper insights into the process of decentralization. This is very important for Indonesia in view of the wide extent and complex and varied nature of the decentralization operation. Moreover, the IRDA is flexible in the sense that its attention can be directed toward targets or issues that are becoming more important.

STAKEHOLDERS PERCEPTIONS OF REGIONAL AUTONOMY Citizens in the regions had a general understanding of the principles linked with the concept of autonomy, but their interpretations of the concept were very varied. Let us first turn to interpretations of autonomy at the village level (desa/kelurahan). Regional autonomy stimulated greater participation of the local people in village development. The formation of the Village Representative Body (Badan Perwakilan Desa, BPD), for example, and the democratic election of a chairperson and members of the BPD also demonstrated that participation by the inhabitants was growing. In the view of many, regional autonomy also entails delegation of authority from the provincial administration to that of the village. The village thus becomes an autonomous administrative unit and possesses the authority to run its own area. This suggests that the public has the authority to manage the village. Some people even considered regional autonomy as being synonymous with village autonomy. The public did not yet have an understanding of the concept of regional autonomy as stipulated by Law No. 22/1999, and how it would work in practice in the field. It is therefore necessary to make regional regulations in order to clarify what authority the village possesses. Regional autonomy in fact also means shifting the “burden of development” to the community as evidenced by the rising amount of local taxes and charges. As for the understanding of autonomy at the level of regencies and cities, it can be noted that regional autonomy was understood as a transfer or delegation of authority from the central government to the local governments. Regional autonomy had encouraged a repositioning of the institution of the Regional People’s Representative Council (DPRD) in the sense that it now possessed a greater degree of authority in the process of control. Furthermore, it was hoped that a more balanced relationship between the legislative and 62

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executive branches of government will be created. Besides, regional autonomy would involve raising the level of social welfare through the provision of better service by the government. In this connection, regional autonomy would require that the administration officials in the region would consist of professional personnel with sufficient competence to act. Regional autonomy would also mean an empowerment of the people, entailing efforts to bring the government closer to the people. For this reason, regional autonomy would steer the regional government (specifically the executive side) toward becoming a facilitator for the citizens and civil society. In order to fulfil such hopes, however, there needs to be an adjustment in the functions of regional government. During the first round of implementing decentralization, the central government was perceived to be hesitant in giving autonomy to the regions. It was regarded as delegating power for its own benefit, namely reducing the burden of its own responsibilities. Regional autonomy in fact turned out to be an added burden for the regional government, because it possessed only limited fiscal powers. As for the understanding of autonomy at the provincial level, the provincial government was appreciated as a coordinator in dealing with matters between regions (regencies or cities), such as development of the area or settlement of disputes. However, it still experienced difficulties in carrying out this role, so that the province felt that autonomy ought to be placed at the level of the province. The governments of regency and city would represent part of the provincial government, and the provincial government in turn would be part of the central government. In this understanding, regional autonomy would mean the right to self-regulation of the capabilities and skills of the region. Regional autonomy did encourage the participation of ordinary people. It gave freedom and wider rights in managing regional finances, regional development, the development of partnerships, and managing and designing open spaces. Even so, regional autonomy was regarded as an added “responsibility” and power that had consequences in terms of regional financing, staff and equipment/supply (Pembiayaan, Pegawai dan Peralatan/ Persediaan Daerah, P4D).

INITIATIVES BY GOVERNMENTS OF REGENCIES AND CITIES IN TERMS OF GOVERNMENT PERFORMANCE Decentralization produces an increase in interaction and closer ties between the public and the regional government. On the other hand, this also means a rise in demands by the community with regard to improvements in the 63

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quality of government services. Because the community now represents a policy actor that cannot be ignored, it can make a direct evaluation of the public service provided. This process then opens up the opportunity for the public to give feedback with regard to the performance of the bureaucracy which is responsible for carrying out the services concerned. The quantity and quality of public service were still uneven over all regions or sectors. In general, regional governments managed to maintain the level of service previously provided by the central government. After the introduction of regional autonomy, regional governments formed a system of public service in their bureaucracies that was directed towards the needs of their community and geared to rationalizing work procedures, working hours and greater transparency, as in the case of giving permits. Service in this area has become easier and more efficient, and has been carried out under one roof. Information on public services is now available and can be accessed by the public. As an example, clearer information can be obtained concerning government tariffs and service schedules, as in the process of making Resident’s Identification Cards (KTP) and getting business permits. This is a significant step in the direction of raising the level of transparency on the part of the provider of public service. The process of formulating policy or programmes displayed a pattern that did not differ much from the old pattern which was dominated by a topdown approach. The top-down pattern for its part cannot be separated from policies at the national level (central technical departments), the role of the regent or mayor, the Regional People’s Representative Councils (DPRD), and the organization of local officials. On the other hand, the bottom-up pattern (as found in the Village Development Council, Musbangdes/Kelurahan, the UDKP up to the Rakorbang coordinated by the Regional Development Planning Body, Bappeda) would be more receptive of input and relatively less crucial in the formulation of policy. The top-down pattern indicates that the ranks of the bureaucracy, both in the region and at the centre, were dominant in the dynamics of the policy formulation process. In the region, this role was played by the regent or mayor (regional functionaries) and the DPRD. The central government also played a role in the formulation of programmes, as seen in particular in the fields of education, agriculture and health, whereas for other fields more consideration was given to input from stakeholders on the basis of local conditions and needs. The tendency for the top-down approach still being used by regional governments can be attributed to several reasons: 64

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1. More efficient use of time in formulating policy; 2. The correspondence between regional policies and formal documents (Poldas (Regional Policy), Renstra (Strategic Plan) and Repetada (Regional Annual Development Plan)); 3. The perception and attitude on the part of the regional government that it would be better informed about the needs of its region.

INITIATIVES BY GOVERNMENTS OF REGENCIES AND CITIES IN TERMS OF INSTITUTIONAL MANAGEMENT The reorganization gave new power to the regency or city government, which in many cases led to a simplification of work units. This was followed up in the form of combining regional agencies and clarifying the role of a number of governmental agencies. These changes in the structure of government organization demonstrate efforts to accommodate the new powers, and to show that there is a growing understanding of the principle “poor in structure, rich in functions” in government administrations. These changes were also aimed at improving efficiency and avoiding overlaps in the functions of different government agencies. In general, efforts to manage government organization in the region increased the consciousness of differences between duties and functions, not only in the ranks of the regional bureaucracy but especially among the public and the DPRD. At the same time, the DPRD itself had a large role to play in government organization via its legislative function. In several regions, the regency or city government established cooperation among the units of its administration or obtained technical assistance from other units within its administration, or from other governmental agencies, non-government organizations or international institutions in carrying out its policies and priority programmes. Yet despite this achievement, there was still a tendency for regional functionaries to work only within the confines of their own sector. Following from the delegation of functions and the transfer of a large number of employees from the central government, the number of services in the region in general actually decreased because of the amalgamation of several units, although the number of new bodies and offices increased as well. The reason for forming new bodies and offices was to raise the capacities of the regional government as well as to strengthen inter-institutional coordination. This period of transition was pushing local governments to rationalize structures, so that the units that were formed reflected the methods 65

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of carrying out their functions within the overall setting of the regional government. Even so, in some areas restructuring caused overlaps as a result of a lack of clarity in defining functions, to the extent that a number of regency or city administrations reviewed and evaluated the performance of their new structures. Several of these evaluations show that the existing structures were in need of improvement, and several regions were already planning such improvement. In the governmental structure of regencies and cities, positions were either structural or functional. Structural or management positions were based on a hierarchical system with a tight ranking model, in which each position also refer to certain staff qualifications. Structural positions in regencies and cities, that is, at level II (directors), vary in number from 10 (in Kebumen) up to 36 (in Kutai Kertanegara), with an average of 23 positions at this level in one regency or city. At level III (heads of sub-directorates), the range was from 199 in Kutai Kertanegara to 32 in Ogan Komering Ilir, with an average of 122 positions. And at level IV, the range was from 1,917 in the city of Semarang, and 1,389 in Kutai Kertanegara, down to 244 in Kebumen, with an average of 606 positions. For regencies and cities with a large number of employees, it was easier to fill positions with staff with high qualifications, and there was also a greater feeling of competition between staff. On the other hand, in regencies or cities with a small number of staff, it was more difficult to find people who were sufficiently qualified to fill positions, in particular ones who had a high enough ranking, especially for positions at levels II and III. The governments of regencies and cities endeavoured to upgrade the official qualifications of their staff by holding various kinds of training for the purpose of fulfilling official requirements, such as courses in administration and management of government. For staff, the incentive to upgrade their official qualifications became all the greater with increasing opportunities in the regencies and cities to occupy the positions concerned. The governments of regencies and cities conducted administrative assessments of the performance of their functionaries, using for instance, the instrument called LAKIP (Laporan Akuntabilitas Kinerja Instansi Pemerintah, that is, the Government Agencies Performance Accountability Report). Some regions were also using other instruments to measure the level of achievement in their programmes.

INITIATIVES BY THE GOVERNMENTS OF REGENCIES AND CITIES IN TERMS OF PERSONNEL For staff members who were transferred from the centre to the region, their prospects in the local bureaucracy were the main matter of concern. The 66

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anxiety regarding opportunities for promotion was caused by the existing staffing system. Furthermore, the transfer of “block grants” made it all the harder to transfer staff between regional governments. Even so, in general there was no reduction in the number of staff, and several governments had even recruited new staff. The governments of regencies and cities felt that it was necessary to upgrade the capabilities of their staff, although their resources were limited. They were nevertheless committed to creating a culture of serving the public that is not bureaucratic but rather, oriented toward the client and service per se. This attitude caused district governments to raise the level of ability in their workforce by means of various training as well as support for those who continued their education to postgraduate level. Programmes of education and training have already been of benefit, but programmes for improving the level of technical skills were still of limited scope. District governments carried out evaluations on the needs of a proportion of their human resources in connection with the policies that were being implemented, in particular, ones involving direct public services, such as those in the fields of health and education where a large part of their human resources was located. The assessment of whether the number of officers was adequate was not only based on the number of staff they possessed, their availability on the ground, and the distribution of staff, but was also influenced by how the regional government defined the role and function of governmental management, and those of the providers of public service respectively. Besides, the demand for human resources was also very closely linked with the qualifications of existing personnel. In several cases, the number of staff was adequate but their qualifications were not appropriate to the need.

BETWEEN LAYERS OF GOVERNMENT The shared interests of regency and city governments in raising the standard of service to the community, increasing regional income and solving problems and conflicts that arise in the course of implementing decentralization motivated them to cooperate with and assist each other. Regional governments now had a proactive stance in forming associations between neighbouring regions with the aim of sharing information and steps taken for the solution of the issues they faced in common as well as giving advocacy within the framework of policy reform. Among regencies and cities there arose a feeling of self-reliance towards the central government, which was of a positive and constructive nature. This was a trend that should not be wrongly interpreted, as if decentralization 67

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has triggered an inclination toward separatism. Instead, the region interpreted autonomy as an effort to strengthen and tighten the bond between the centre and the regions. The striving towards independence on the part of the regions in managing their own interests has encouraged them to take steps in accordance with the conditions in their areas, and to regard the centre as a facilitator which is urging them to provide service to their communities. More and more vertical links between the central government and the regional governments were developing too. These links articulated the division of duties between the levels of government, and were an important factor in promoting the aspirations of the regional governments carrying out various new functions. Due to the perception that the roles of each level of government were not very clear, a debate has arisen as to whether the scope of the existing policy gives sufficient clarification of such roles. Government Regulation No. 25/2000 concerning the powers of the government and powers of the province as an autonomous region, and Government Regulation No. 20/2001 concerning guidelines for and supervision of regional governments, both assigned to ministries the duty of providing guidelines via the provincial governments, by laying down norms, standards, criteria and procedures for the purpose of supporting the implementation of the delegation of such powers.

REGENCIES AND CITIES’ COMPETENCE AND FISCAL MANAGEMENT Under decentralization, regional governments now possessed a greater degree of freedom in managing their budgets. Development planning was adjusted to the needs of the local area. The frequency of using the taxation instrument PAD (Penerimaan Asli Daerah, that is, Income of Regional Origin) as a direct source for development was clearly rising. Alongside the funding which they received from state-owned enterprises operating in their area, regional governments also identified a number of new opportunities to increase their income. Bearing in mind the need for flexibility for the sake of cooperating with the private sector, they were beginning to invite investors to develop their region. They have also formulated new regional rules in the field of taxation and charges in an effort to raise the level of their income. Regional governments are very dependent on funds provided as subsidies by the central government. According to data on regional revenue and expenditure budgets (APBD) from twenty-two regions examined in the Second IRDA, on average block grants (Dana Alokasi Umum, DAU) accounted for 68

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most of the budget. In regions that are poor in natural resources, such as the regency of Kupang (Nusa Tenggara Timur) and the regency of Malang (Jawa Timur), the proportion of block grants was more than 90 per cent. In regions that are rich in natural resources, such as Kota Dumai in the province of Riau, block grants comprised less than 50 per cent of the budget, while proceeds from the exploitation of resources such as oil and gas provided quite a large contribution to total income. Regional governments showed a tendency to increase the number of sources of taxes and charges in order to raise the level of income. In 2003, this comprised about 7 per cent of receipts. Part of these taxes and charges was regarded as an expense to be borne by the community. When the central government (via the Ministry of Home Affairs) was able to review regional regulations on taxes and charges, a proportion was then abolished, such as, the charge on swallows’ nests (in the regency of Kebumen), the transport of oil palm and plantation products (in the regency of Sanggau), and the registration of livestock and inter-island transport (in the regency of Sumbawa). The greatest proportion of the regional budget was allocated to the payment of salaries and wages, reaching around 57 per cent of the total budget. The next largest part was allocated to “development”. Many regencies or cities allocated a large part of their development budget to public works, while some gave a large portion to the area of health. Others allocated a larger amount to the field of education and culture. These suggest that many regions were still giving priority to developing the infrastructure of their region, in particular transport facilities alongside other utilities for irrigation and residential areas. Regencies and cities also financed their development from other sources of funds. Such funding was allocated first of all to health, followed by public works.

REGIONAL PEOPLE’S REPRESENTATIVE COUNCILS (DPRD) The members of the DPRD endeavoured to equip themselves with the skills that were required in order to carry out the functions expected of them. At the time of the monitoring, almost all members of the DPRD were newcomers. Even old members had little understanding of the new duties, functions and responsibilities of the council. Even so, although there were funding constraints, members of the council themselves took the initiative to upgrade their skills by means of training provided by tertiary institutions or NGOs. Such training was directed primarily to legal drafting, compiling 69

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budgets, using computers and the Internet, orientation courses on regional autonomy, and political education. The DPRD made efforts to collect input concerning ordinary people’s aspirations. The mechanism for doing this included holding both formal and informal meetings in villages and sub-districts (kecamatan), conducting public hearings, receiving visits from the public at the DPRD, and using information obtained from the local mass media or other media. Being aware of the level of public interest in the accountability reports (laporan pertanggungjawaban, LPJ ) of regional heads, a number of members of the DPRD began to conduct public hearings and field visits in order to verify the contents of these reports. This demonstrated a responsive attitude towards critical views in the community which focused on the procedures and performance of the DPRD. The DPRD was slow in taking the initiative in drafting Regional Regulations. Almost all the Draft Regional Regulations were hence initiated by the executive, except in the case of internal policy or annual budget allocations for the DPRD. Nevertheless, in several regions, the DPRD did adopt a positive attitude in drafting Regional Regulations. For example, in the regency of Kebumen, the DPRD took the initiative in drafting regulations to control the sale of liquor, and in Sumba Timur, the DPRD was getting ready to issue regulations concerning a code of ethics for members. There were differences in perception between regional governments and members of the DPRD on the question of the scope and intensity of supervision by the DPRD. The regional government was of the opinion that the DPRD’s supervision should only pertain to the realm of policy and should not include technical matters, whereas the DPRD considered its supervisory function to include also the technical implementation of policies. There was very little support from professional staff in the process of carrying out the DPRD’s functions of making Regional Regulations, setting up the budget, or oversight function. Although it is true that funds available for the purpose of developing professional skills among staff were scarce, the DPRD nevertheless strove to obtain experts to assist in formulating policy.

CIVIL SOCIETY AND COMMUNITY The implementation of regional autonomy encouraged a growing awareness among members of the community that they should participate in the process of government. The communities were becoming more active in demanding better performance from regional governments as well as accountability and transparency at the local level. The framework of 70

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decentralization was viewed as a wider opportunity for civil society to participate in the process of determining policy. Regional autonomy also stimulated participation and transparency in managing regional finances. Regional finances in particular became the focus of public attention. The local community now demanded the holding of public consultations in the context of formulating the Draft Budget of Regional Income and Expenditure (Rancangan Anggaran Pendapatan dan Belanja Daerah, RAPBD). In some regions, district governments gave the opportunity for public debate on the allocation of regional funds. They also invited organizations representing civil society to assist in drawing up the budget. The mass media also played an important part in reporting how funds from the budget were used, to the benefit of greater transparency. Informal channels such as direct talks, public hearings, written complaints and approaches via the mass media still formed the main choice for citizens in giving voice to their aspirations and at the same time conveying their reaction on the policies or programmes of the regional government. In response to the increasing demands from the public for transparency and accountability, there was an increasing appreciation in the ranks of the regional government, of the importance of public participation. Regional government thus created intermediary media for the sake of the involvement of the community, such as holding public hearings before and after issuing regulations. These were, however, still in the initial stage of implementation. The explosion of people’s platforms in a number of regions formed a clear indication that the regional government valued and facilitated public participation in government. At every level of government, from the village to the province, the number of people’s platforms has risen significantly, and they have become a channel for the public to voice their opinions and criticism, to settle disputes, monitor the activities of regional government and to demand better service. The FM2S (see below), the town forums in Majalaya, Bandung and Semarang, are some examples worth quoting. With the increasing participation of civil society in various sectors, the regional government began to involve the public in certain activities such as planning, implementation and supervision of development programmes, although at varying stages. In several regions, participation only consisted of informing the public after the DPRD had already taken a decision on a certain policy or project. In this case, participation of civil society was limited to holding protests or demonstrations if the public did not agree with the decision the regional government had already made. In other cases, civil society supervised the implementation of government projects. In the Regency of Bandung, an independent community forum from various groups, called 71

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the “Prosperous Majalaya Community Forum” (Forum Masyarakat Majalaya Sejahtera, FM2S) supervised and examined the implementation of development projects which the regency government was carrying out. This forum also provided a channel for dialogue between the regional government and the community on various emerging questions. Participation of the community, in particular of women, in the formulation of policy was still weak and not institutionalized. However, in Jember there was at the time a female stakeholder who was working with the Community Empowerment Agency (Badan Pemberdayaan Masyarakat) in drafting government plans for protecting female migrant workers. Community involvement was supported with a formal legal basis through policies which the regional government issued in places, such as: •







Participatory Monitoring Evaluation (PME) by means of Keputusan Bupati (Regent’s Decree) No. 384/BUP/2001, and Mekanisme Perencanaan dan Pengendalian Pembangunan (MP3) (Planning and Development Control Mechanism) by means of Keputusan Bupati No. 256/BUP/2001 (Solok). Sistem Dukungan (SISDUK) (Support System) by means of Regulation No. 1/2002, as well as Surat Edaran Bupati (Regent’s Circular) No. 415.4/543/Bappeda/2001 concerning the involvement of third parties or community groups (Takalar). Pola Mekanisme Pemberdayaan Masyarakat (Pattern for a Community Empowerment Mechanism) by means of Regulation No. 18/2000 (Kupang). Medical Committee of the Regional General Hospital which involves various components as Health Coalition, such as EDI, IBI, LSM and the community, by means of Regent’s Decree No. 68 (Sidoarjo).

CONCLUSION An important note to the report above is that the reported developments took place within the context of all the possibilities provided by the existing framework of decentralization, and all the institutional and personal limitations that applied to institutions, groups and individuals in the regencies and cities. Against this backdrop are two critical matters in strengthening regional autonomy in Indonesia, namely (1) flexibility in administration at various levels, and (2) balance between public policy actors in order to strengthen accountability to the community and the people in the regencies and cities. Both matters are very important targets for the future, so that district 72

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governments are not alone in bearing the authority and responsibilities with regard to public activities in the regions. Apart from the expectations and demands to become genuinely autonomous regions, district governments were confronted with many obligations to provide direct public services, such as primary and secondary education and primary health service. There were, however, still many limitations, internal and structural, resulting from policies that did not yet give sufficient freedom of action to the regions to enable them to function as autonomous regions in a true sense. Moreover, reinforcement of administrative accountability for the regions was still insufficient. In an effort to examine further these limitations, more study need to be conducted on how regency and city administrations operated, by looking at the existing process of policy formulation, resource capacity and accountability. From observation of the process of formulation, it is clear that the model inherited from the New Order era was still widely used, so that the determination of policy continued to be dominated by the elite and the local bureaucracy. Certainly, modifications were made to accommodate public involvement, and there was still scope for innovation, but the situation was very vulnerable to change. This state of affairs was a result of a lack of legislation that could have forced the actors in the process of regional public policy to involve stakeholders on a wider scale. Involvement of the central government and the provinces in regional policy via a process of reviewing regional regulations was still limited, in particular because there was no certainty regarding the timing of the feedback that the regions would get. In order to overcome this, there should be a more defined institutional arrangement at the central government specifically to carry out this important function with a clear timeframe and a transparent process. Administrative resources in the districts were still limited, and even where this was not the case, districts still did not have the flexibility to obtain the best resources, especially in the provision of quality staff. The organizational system, with its strict hierarchy and its remuneration package which was both limited and lacking in transparency, was a disincentive for potential individuals — both within and outside the government administration — to work in public service. The first step towards overcoming this situation is to make a system of ranking that is more flexible to accommodate the differences in needs and available resources from one region to another. District governments still devoted a large proportion of their own budgets to the development of infrastructure, while sources for much of the funding for development still originated from the central government, the provinces, 73

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or international donors, in particular for health infrastructure and services. Getting a complete account of the fiscal capacity of the regions in carrying out their function of direct public service was impeded by a system that did not use a system of regional income and expenditure estimates. At the time of writing this chapter, there continued to be constraints to the oversight function of the DPRD. The constraints were due to the lack of reliable and standard indicators for oversight conflicts of interest, and the low capacity of the DPRD itself, because the council did not yet have the adequate institutional resources the possibility of research or supply of information. Such limitations in the operationalization of regional autonomy occurred widely in regencies and cities, across Indonesia, so that wider policy making opportunities and accountability to the people indeed constitute pressing national needs.

Notes 1

2

At the time of writing this chapter, the Third IRDA Report had not yet been published. The present report represents a compilation of results from the three Indonesian Rapid Decentralization Appraisal which were carried out up to April 2003. This writing were conveyed specifically at the seminar “Decentralization and Regional Development in Indonesia”, held in Yogyakarta 15–17 May 2003, by Adi Abidin who was an officer of The Asia Foundation responsible in organizing the appraisal. The IRDA was carried out by The Asia Foundaton with the support from USAID, as a means of monitoring decentralization in Indonesia. This programme went through to 2004 to five rounds of appraisals. The IRDA is processed together with twenty-eight research institutes located in the areas concerned.

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2 INDONESIA’S TRANSITION TO DECENTRALIZED GOVERNANCE Evolution at the Local Level Widjajanti I. Suharyo

INTRODUCTION In 2003, Indonesia’s decentralization reform was in its third year of implementation. The “big bang” start had marked the transfer of resources — assets, personnel and finances — to the regions to compensate for the newly added authorities and functions. While the speed and size of the changes to formal structure was phenomenal, the adjustment of non-formal institutional settings was likely to take a long time. Many conceptual and practical problems remained and the path to reform was continuously driven by an evolutionary change in the practices as well as in the perception and expectation of decentralization. Drawing from SMERU field research, this chapter highlights the dynamics of the implementation of the decentralization reform at the local level in the first two years of the process as well as some related issues and concerns. Although the reform was still in its preliminary stages, the findings of these studies show how the reform process has influenced the evolution of governance at the local level. In addition to the general findings, special attention is devoted to the problems of budget allocation, community participation and inter-governmental coordination, faced by two resource-poor regions — West Lombok and Bandar Lampung (City) — in relation to the provision of public services. 75

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Although the slow progress at the local level might have been overshadowed by many problems, any progress certainly needs special recognition to allow for special efforts in strengthening local governance. Indonesia’s decentralization reform had been initiated with a hope that it would facilitate better resource allocation and better governance. However, until mid-2003, and after more than two years of implementation, the reform did not yet seem to have delivered significant benefits. Just like many other developing countries undergoing decentralization, the political factors that drive Indonesia’s attempts at decentralization had overlooked technical and economical problems. The general view, as recorded in various studies, seemed to prefer an “implement first and deal with the problem later” approach to Law No. 22/1999 and Law No. 25/1999, the two laws that directed the new form of regional autonomy at the provincial and district levels as well as new inter-governmental fiscal arrangement.1 So, despite much criticism of some of the decentralization framework contained in these two laws, they were made effective as of 1 January 2001.2 Major transfer of assets and personnel and the implementation of a new system of fiscal transfer immediately followed in a “big-bang” start.3 This might have been the right choice given the long-standing reluctance of the central government to devolve real authorities to regional governments during the New Order era. However, the ramification of this choice was the emergence of various problems that could have been anticipated beforehand. Another consequence has been the need to continuously revise decentralization frameworks, some of which involve fundamental issues. Revising the framework is very likely to be a very challenging process given the path dependence of such reform. A government initiative to amend Law No. 22/1999 in 2002 was rejected by the regions, particularly the district government as the amendment was seen as an effort to recentralize some authorities that had been devolved to district government earlier on. Nevertheless, in November 2004, the government issued Law No. 32/2004 and Law No. 33/2004 to replace Law No. 22/1999 and Law No. 25/1999. Among the significant changes introduced in the new decentralization laws were the direct election of governor and bupati/walikota (head of district and city), and a stronger role of the provincial government which had been very weak under the previous law. Regarding the inter-governmental fiscal arrangement, Law No. 33/2004 provides a slightly higher share of revenues from oil and gas to the producing regions, but explicitly states that the regions that have no fiscal gap will not receive general allocation funding from the central government. By its very nature, Indonesia’s attempt at democratic decentralization is a very big institutional reform that affects not only the inter-governmental 76

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relations but also the way all levels of government interact with the community. The experiences of other countries show that this kind of transitions could take a very long time, and Indonesia is still very much in its early stage. The main problem for Indonesia is that the decentralization process was started during the course of a deep social, political and economic crisis, when the expectation of the community to come out of the crisis as soon as possible was very high. Unfortunately, this expectation is something that might not be possible to be achieved by the current reform process. Two differing expectations — quick results or an evolutionary institutional development — thus shape the current debate on the performance of the decentralization reforms. More and more problems are now being widely exposed, while the positive impacts seem very limited, or are not well exposed. However, the ball is already rolling and there might not be time to debate the pessimistic and the optimistic views. This is the time for assessing objectively the progresses and problems so that the reform process can be bound for achieving its primary aims. In an effort at such an assessment, this chapter depicts some findings from SMERU field studies conducted in 2000–2002 that observed the preparation and the implementation of decentralization at the local level. The SMERU research team visited a total of sixteen regencies and two cities for studies on decentralization and regional autonomy (see Table 2.6).4 In each location, information was gathered primarily through semi-structured indepth interviews. The respondents included officials at all levels of government, as well as representatives of political parties and civil society institutions (including community organizations, NGOs, the press, professional bodies, religious leaders, local-level traditional leaders, village heads and members of village-level assemblies). The locations of these studies were selected to reflect the condition of most regions throughout Indonesia, taking into account their per capita gross regional domestic product (GRDP), as well as human development and poverty conditions. The resource-rich regions were intentionally omitted from the sample for two reasons. The first reason was the fact that only a few regions actually possess abundant natural resources. The second reason was that lots of studies have been done in these regions. This limited scope in SMERU’s studies does not allow for contrasting the resource-rich against the resource-poor regions. However, the findings of these studies do provide some insights into the dynamics of the implementation of decentralization reforms at the district level. This chapter is organized as follows. The next section presents some local perceptions and experiences during the pre-implementation period and the 77

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early phase of the reform process. Following this section, some examples on the changes with regard to budget condition, community participation and inter-governmental coordination mechanism will be presented, using experiences from West Lombok and the city of Bandar Lampung.

DYNAMICS OF THE REFORM PROCESS AT THE LOCAL LEVEL Indonesia passed the critical first year of the implementation of the decentralization reform without experiencing any upheavals or major disruption to public services (Deutser 2002). However, the implementation process was not smooth or well managed, and lots of confusion and uncertainties were involved. The calculation of the block grant allocation for the regions, for example, was done ahead of the transfer of personnel and assets. This resulted in a fiscal gap in most regions that was financed through a contingency mechanism. There was also a lack of sufficient guidance from the centre and many implementation regulations were not yet available. On the other hand, some contradictions and inconsistency of various implementation regulations have also created more confusion. These shortcomings have affected the preparation and implementation at the regional level and were reflected in the perception of various stakeholders collected by the SMERU research team during various field studies. During the pre-implementation period, the SMERU team visited five regencies and two cities that were located in seven different provinces. Despite the variation of the district5 characteristics, it seemed that there was a common perception with regard to decentralization and the implementation of the new form of regional autonomy. There was widespread enthusiasm towards decentralization, although the level of preparation taken by local government was varied. There were also common complaints on the slow progress and lack of leadership of the central government. In general, the regional government at the district level did not have any objection to the framework of regional autonomy contained in Law No. 22/1999 and No. 25/1999. They were only questioning the political will of the central government to implement it. On the other hand, at the provincial level, there was much concern regarding the elimination of the hierarchical relationship between provincial and district governments. Interestingly, despite general support for the implementation of the new decentralization framework, some concerns over its potential adverse impacts were expressed. The most common concern of local government officials was regarding the transfer of money from the central government. They worried 78

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that the transfer would not be sufficient to finance the new authorities and functions being devolved to the regions, and moreover felt that raising local revenue would be very hard, particularly with the limitation of regional taxes imposed by Law No. 18/1997. Non-government elements expressed their concerns of potential local government failure to perform their new roles, primarily due to lack of the local parliament’s and local officials’ capabilities, and the potential proliferation of corruption at the local level. They also doubt that local government would pay enough attention to the provision of public services. After the new decentralization laws were made effective on 1 January 2001, the SMERU team visited altogether twelve regencies; ten regencies were visited in 2001 and the other two in 2002. Although only one district, West Lombok, was visited before and after decentralization, there was a strong impression that the perception of various local stakeholders regarding decentralization and the implementation of the new regional autonomy was similar. Most stakeholders in the visited regions raised some common issues and concerns. It was quite interesting to see that most of the concerns expressed during the pre-implementation period had actually materialized. With regard to fiscal transfer, starting in the 2001 fiscal year, the central government made a substantial increase in providing block grants to the regions, particularly to the district level. In all districts visited, the amount transferred from the central government had increased significantly. Figure 2.1 shows that the amount of transfer after decentralization was highly correlated with the amount of transfer before decentralization, but not correlated with the district government’s capacity to raise revenues from local taxes, levies and other local sources which were reflected by the district government’s own revenues. An analysis by Suharyo (2002) also found that the allocation of transfer to district government in FY 2001 tended to increase disparity in the regional financial capacity. In the case of provincial government, Figure 2.2 demonstrates that the transfer varied across provinces. In three provinces, that is, West, Central and East Java, the transfer after decentralization increased significantly, while in East Nusa Tenggara and North Sulawesi, the transfer did not increase. The province of West Java, Central Java and East Java received a relatively high increase in central government transfer primarily because they had a relatively high proportion of population and a large amount of shared revenue from land and building taxes. The amount of transfer after decentralization also highly correlated with the amount of transfer before decentralization, and positively correlated with provincial own revenues. It indicates that the higher 79

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FIGURE 2.1 The Transfer from Central Government and Districts’ Own Revenues before (FY 1999/2000) and after (FY 2001) Decentralization

Ga ru Cia t mi s Ku du Ma s ge tan So lok Sim Karo alu Ba ng nd D un ar eli S La e mp rda un ng We g (C ity st Lo ) Ea mb ok st Su mb Ba nja Sa a rm ngg as a in u (C Bo ity laa ng Min ) Mo aha ng sa on do Go w ron tal o

on eb

Cir

Su

ka

bu

mi

(C ity

)

Billion Rupiah

450 400 350 300 250 200 150 100 50 -

District Transfer in FY 1999/2000

Transfer in FY 2001

Own Revenue in 1999/2000

Own Revenue in FY 2001

Source: Widjajanti I. Suharyo, “Indonesia’s Fiscal Decentralization: A Preliminary Assessment of the First Year Experience”, UNSFIR Working Paper 02/07 (Jakarta: United Nations Support Facility for Indonesia’s Recovery (UNSFIR), 2002).

1,400 1,200 1,000 800

ma No

Transfer in FY 2001

Own Revenue in FY 1999/2000

Own Revenue in 2001

Source: See Figure 2.1. 80

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i es

rth

Ka li th So u

Province Transfer in FY 1999/2000

Su law

nta n

tan an

gg Te n

tK ali m

We s

Nu

sa

Te Ea st

tN us a

We s

ara

ra ng ga

ng

a La mp u

ra

Su ma ter

rth

No

tS um ate

tJ av

We s

Ea s

Ja al ntr Ce

We st Ja

a

va

600 400 200 va

Billion Rupiah

FIGURE 2.2 The Transfer from Central Government and Provinces’ Own Revenues before (FY 1999/2000) and after (FY 2001) Decentralization

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the provinces’ own revenue the higher the transfer they received, which also increased the disparity in financial capacity across provinces. This reflected the failure of the central government transfer in equalizing fiscal capacity across provincial as well as district governments. The transfer of personnel that followed the closing down of the regional offices of the ministries, the functions of which had been devolved to the regions, had increased the routine budget of the regional government, particularly to pay salary. In almost all provinces and district governments included in this study, the salary payment had increased by more than 100 per cent. Only in the provinces of West Java and Central Java, was the increase less than 50 per cent. The changes in salary payment after decentralization are presented in Table 2.7. Except for the provinces in Java, the increase in salary payment was relatively high compared to the increase in the transfer from central government. The relatively low increase in salary payment in the provinces in Java might have been due to a large proportion of former central government’s civil servants having been transferred to district governments and, to a lesser extent, to provincial governments. Figure 2.3 shows that for the provinces of North Sumatra, East Nusa Tenggara, West Kalimantan, East Kalimantan and North Sulawesi, the increase in salary payment exceeded the increase in the transfer from the central government. In addition, Figure 2.4 shows that the increase in salary payment exceeded the increase in transfer only in Karo. However, this figure also indicates that in other districts the largest proportion of the transfer would be used to compensate the increase in salary payment, leaving a very limited amount for financing public services and development activities devolved to district governments. The increase in routine expenditure and salary payments were partly due to the over expansion of the local government that was used to accommodate the excess number of personnel. As can be seen in Table 2.1, in seven out of nine districts where data on the changes in local government structure were collected, the number of working units had increased. However, in one region, Simalungun in North Sumatra, the number of units was trimmed down from thirty-nine to twenty-eight. The government trimmed its organization because this district had been one of the districts included in the pilot study of regional autonomy in the mid-1990s, and this experience had shown them that they could not finance the large number of units created during this pilot study. Another source of the increased routine expenditure that was widely exposed was the increase of the salary of the members of the local assemblies (DPRD). From some regions where data were available, DPRD salaries increased 81

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i law

ta

Su rth

No

So

ut

h

Ka

ali tK es W

es

n

n m

lim an

an

ga

ta

ra

a Te

en Ea

st

Nu

sa

aT us

W

es

tN

No

ng

gg

pu m La

m at

rth

Su

ar

ng

a er

a er

va

um at tS

W

es

lJ

st Ea

nt

ra

es

Ce

W

Ja

av

av

a

a

900 800 700 600 500 400 300 200 100 (100)

tJ

Billion Rupiah

FIGURE 2.3 Increase in Transfer from Central Government, Provinces’ Own Revenue and Salary Payments after Decentralization (FY 2001–FY 1999/2000)

Province Transfer from Central Government

Regional Own Revenue

Salary Payment

Source: Widjajanti I. Suharyo, “Indonesia’s Fiscal Decentralization: A Preliminary Assessment of the First Year Experience”, UNSFIR Working Paper 02/07 (Jakarta: United Nations Support Facility for Indonesia’s Recovery (UNSFIR), 2002).

FIGURE 2.4 Increase in Transfer from Central Government, Districts’ Own Revenue and Salary Payments after Decentralization (FY 2001–FY 1999/2000) 250 Billion Rupiah

200 150 100 50

Ci

re

bo n Ga ru Ci t am is Ku d M us ag ela ng So lo k Si Ka m al ro Ba nd De ung u ar l La i Se n rd m a pu n ng W g (C es t L ity) o Ea mb o st Su k m Ba ba nj Sa ar m ngg as au in (C Bo laa M ity) ng in a h M on asa go nd Go ow ro nt alo

Su

ka

bu m

i(

Ci

ty

)

-

District Transfer from Central Government

Regional Own Revenue

Salary Payment

Source: See Figure 2.3. 82

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TABLE 2.1 Number of District Government Units before and after Decentralization District 1. 2. 3. 4. 5. 6. 7. 8. 9.

Minahasa Bolaang Mangondow Gorontalo Banjarmasin Sanggau Magetan Kudus Karo Simalungun

Before

After

Change

20 16 13 25 18 22 16 15 39

34 25 25 33 25 26 16 19 28

14 9 12 8 7 4 0 4 –11

Source: SMERU Field Reports

TABLE 2.2 Increase in Salary of DPRD Members Region 1. 2. 3. 4. 5. 6. 7.

Change (%)

Province North Sumatera Simalungun Province West Sumatera Solok West Lombok Province of Lampung City of Bandar Lampung

300 250 460 250 330 286 265

Source: SMERU Field Reports

by more than 200 per cent (Table 2.2) and in the province of North Sumatra they increased by more than 400 per cent. The pseudo increase in the fiscal capacity of the regions, after decentralization, had induced regional governments to increase their own revenues. The consequence was an increase in the number of taxes and levies imposed by regional governments, particularly after the amendment of Law No. 18/1999. Interestingly, various officials revealed that they were aware that most taxes would potentially have negative impacts on regional trade and investment as well as impose more of a burden on the local communities. However, it 83

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seems that many decision-makers simply neglected this argument, or were driven more by private interests. Gradually, more and more professional groups, associations, and non-government organizations began to pressure local governments to produce more reliable regulations. The concern from various elements in local communities regarding the potential proliferation of corruption at the local level also materialized. Election of regional leaders, budget allocations and the selection of project implementers were among the most common sources of corruption. Along with the increasing power of the DPRD, it was widely criticized that some members of the DPRD were corrupt, adding to the number of previously corrupt officials. There was also widespread scepticism regarding the capability and capacity of the DPRD to have a positive influence on the performance of local governments. These problems, however, triggered various forms of public participation, although most — not to say all — of them were still at an embryonic stage. There was furthermore increasing involvement by local universities and nongovernment organizations in both monitoring and controlling processes as well as, to a lesser extent, involvement in the decision-making process. Local press also played a greater role in voicing the aspirations of the community as well as facilitating stronger monitoring of the conduct of the local governments. The fact that inclusion of public participation in decision-making still had many weaknesses cannot be neglected. The formation of a “city council” in Banjarmasin that includes some non-government organizations, for example, was perceived to be superficial (Toyamah et al. 2002, p. 20). However, there were some efforts in some districts to end the long-standing exclusion of communities in the matters that were perceived to be “government affairs” under the previous regime.

THE CHALLENGES OF PROVIDING PUBLIC SERVICES: WEST LOMBOK AND BANDAR LAMPUNG In theory, decentralization brings government closer to the people. Thus the provision of public services becomes more effective and efficient. However, international experiences revealed that there is no direct relationship between decentralization and a better provision of public services or pro-poor development.6 The local political and institutional settings potentially determine the end result. On the other hand, the design of the decentralization process and the role of the central government in assisting local government that has limited capacity will also play important roles. This section looks at these issues by examining three important elements in the provision of public 84

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services, that is, budgeting, community participation and coordination, in two relatively resource-poor regions, West Lombok in West Nusa Tenggara (NTB) and Bandar Lampung in Lampung. West Lombok is located on the west coast of Lombok while Bandar Lampung is the capital city of the Lampung province in Sumatra. Although the social economic conditions in Bandar Lampung are relatively better than in West Lombok, both are relatively poor by national standards (see Table 2.3). After the implementation of Law No. 25/1999, West Lombok and Bandar Lampung received a significantly higher transfer from the central government. Compared to the 1999/2000 fiscal year (FY), the transfer to West Lombok increased by 105 per cent from 90 billion to 184 billion Rupiah (US$962,500 to US$1.97 million) and transfer to Bandar Lampung increased by 139 per cent from 80 billion to 191 billion Rupiah. At the provincial level, both NTB and Lampung received an increase of around 77 per cent each. Along with the increase in local revenues, West Lombok, Bandar Lampung and the province of Lampung enjoyed an increase in its total revenue of more than 100 per cent in FY2001 compared to FY1999/ 2000 (see Table 2.4). NTB experienced a lower increase of 91 per cent during the same period. But the largest portion of the revenues still came from the central government in the form of block grants (DAU-Dana Alokasi Umum). However, the routine expenditure of the four regions increased at a higher rate (see Table 2.5). The increase in West Lombok was around 137 per cent, in Bandar Lampung 153 per cent, in NTB 267 per cent and in

TABLE 2.3 Basic Statistics of West Lombok and the City of Bandar Lampung; Local Budget and the Financing of Service Centres

2

Area (km ) Population, 2000 Population Density, 2000 Per Capita GRDP, 1999 (thousand Rp.) Poverty Rate (%) HDI, 1999 HPI, 1998

West Lombok

Bandar Lampung

20,153 663,789 381 852 36.60 49.90 39.00

192 743,109 3,870 1,952 10.00 68.50 20.50

Sources: SMERU Field Reports and BPS-Bappenas-UNDP 2001 85

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Source: Calculated from

Total Revenue Previous Year Surplus Regional Revenue Transfer from Central Government Tax and Non-Tax Share Subsidy and Development Fund DAU (Block Grant) DAK (Specific Grant) Other Receipts Local Government Borrowing

2001

109,385 223,265 4,920 9,767 14,556 18,361 89,909 184,256 6,273 18,863 83,585 – – 165,095 – 298 51 10,881 – –

1999/ 2000

West Lombok

97,192 3,383 13,823 79,986 8,728 71,257 – – – –

1999/ 2000 231,199 6,531 23,697 191,148 31,057 – 159,412 679 9,824 –

2001

Bandar Lampung

187,412 20,491 35,679 127,603 7,546 120,056 – – – 3,639

1999/ 2000 2001 358,973 19,197 66,545 227,151 104,844 – 122,307 – 46,081 –

NTB

222,356 10,265 57,904 154,187 11,711 142,476 – – – –

1999/ 2000

453,333 31,644 148,064 273,625 93,322 – 180,303 – – –

2001

Lampung

TABLE 2.4 Revenues of West Lombok, Bandar Lampung, Lampung Province and NTB before and after Decentralization (Million Rupiah)

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TOTAL EXPENDITURE ROUTINE EXPENDITURE (%) OF TOTAL Belanja Pegawai (%) of Total DEVELOPMENT EXPENDITURE (%) OF TOTAL Industry Agriculture and Forestry Water resources and Irrigation Labour Trade, Finance, Commerce and Cooperative Transportation Mining and Energy Tourism and Telecommunication Regional Development and Settlement

87

200,233 147,504 74 120,336 60 52,729 26 405 3,242 2,638 105 2,612 9,275 239 938 3,833

3,075 6,031 30 313 5,169

2001

96,331 62,083 64 49,642 52 44,306 46 127 1,724 270 88

1999/ 2000

West Lombok

1,461 6,015 – 26 2,560

94,391 71,044 75 55,926 59 23,347 25 436 606 – 50

1999/ 2000

1,077 9,190 26 30 8,850

220,675 180,070 82 146,086 66 40,605 18 52 288 – –

2001

Bandar Lampung 2001

12,796 37,760 254 800 1,527

8,269 14,802 761 1,015 2,084

165,384 312,714 59,547 218,453 36 70 28,595 90,856 17 29 105,836 94,261 64 30 526 484 3,435 6,086 7,662 1,671 317 108

1999/ 2000

NTB

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620 36,819 813 597 2,799

356,789 234,388 66 127,789 36 122,400 34 869 7,834 15,003 816

2001

continued on next page

1,349 40,815 175 590 1,195

207,597 103,195 50 43,777 21 104,402 50 1,151 10,258 8,681 205

1999/ 2000

Lampung

TABLE 2.5 Government Expenditure of West Lombok, Bandar Lampung, Lampung Province and NTB before and after Decentralization (Million Rupiah)

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Source: Calculated from

Environment and Spatial Education, Culture, Youth and Sport Demography and Family Welfare Health, Social welfare, Women, Children and Youth Housing and Settlement Religion Affair Science and Technology Laws Civil Servants and Control Politics, Information, Communication and Mass Media Security and Public Order 672 5,072 126 4,535 1,099 475 1,138 159 14,983 474 711

6,192 9,672 144 362 103 4,105 590 39

2001

2,703 3,259 310

1999/ 2000

West Lombok

40 585

492 3,274 315 1,072 150 2,032

615 3,208 385

1999/ 2000

192 36

2,512 7,549 570 1,524 30 4,790

989 1,335 1,564

2001

Bandar Lampung

TABLE 2.5 — cont’d

2,029 542

6,826 1,484 999 1,837 162 14,024

4,914 5,973 82

1999/ 2000

NTB

6,931 692

10,748 2,153 4,097 2,495 394 23,541

2,956 4,938 38

2001

250 495

6,008 1,849 711 2,358 20 14,574

3,946 6,561 –

1999/ 2000

580 1,980

17,077 – 1,381 1,425 614 19,666

2,095 11,195 218

2001

Lampung

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Lampung 127 per cent. This limited the ability to increase the budget allocation for development expenditure. Consequently, although in nominal terms the amount allocated to development increased, the proportion of development spending to total expenditure decreased. As can be seen in Table 2.7, each region allocated their budget differently across sectors. Compared to FY1999/2000, Bandar Lampung spent less on education but spent more on the health sector. At the provincial level, Lampung spent more on both education and health. On the other hand, West Lombok spent more on education but less on health, and at the provincial level, NTB spent more on health and less on education. A more critical question is whether local governments are able to finance service providers, such as schools and health centres, so that the quality of services is at least the same as they were in the pre-decentralization period. People directly engaged in the provision of health and education services indicated that it is unlikely. A primary school in Bandar Lampung explained that in the pre-decentralization period, they received an annual operational allowance of two million Rupiah per year, but only received 400,000 Rupiah in 2001. An open junior high school (SLTP terbuka) in Bandar Lampung related a similar story. Previously, this school had received an operational allowance of one million Rupiah per month, but since the implementation of regional autonomy they received only one million Rupiah every three months. This decrease has not directly reduced the quality of teaching as the teacher was paid out of routine posts that remained at the same level. However, the significant decrease in operational cost resulted in the deterioration of school infrastructures since there were not enough funds for maintenance. One of the reasons for these decreases was the additional expenditure assignment on the education sector at the local level. Local governments were now responsible for secondary schools, which previously used to be under the authority of the provincial government. On the other hand, in the pre-decentralization period, primary schools had also received additional funding from various central government programmes. The situation in the health sector was similar. A public health centre [puskesmas] in Bandar Lampung, which used to receive an annual operational allowance of 45.7 million Rupiah, now only received 50,000 Rupiah per month, or 600,000 Rupiah annually in 2001. Another puskesmas in West Lombok received around 15 million Rupiah in 2001, whereas previously it had received around 50 million Rupiah. This reduction forced the puskesmas to consider the alternative of increasing service cost paid by patients, but this was not implemented yet because they were afraid of a negative response from the community. However, the burden for puskesmas was lightened by 89

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Sukabumi (City) Kudus Magetan Solok West Lombok Sanggau Banjarmasin (City)

Preparation Study West Java Central Java East Java West Sumatra West Nusa Tenggara West Kalimantan South Kalimantan

Implementation Study North Sumatra Karo Simalungun Deli Serdang East Nusa Tenggara East Sumba North Sulawesi Minahasa Bolmong Gorontalo

District

Province

2,803 2,538 1,799 825 1,642 1,144 1,504

1,022 4,433 901 1,174 852 1,481 2,301

GRDP per capita 1999 (Thousand Rp)

69.1 65.1 66.1 55.7 69.3 66.9 63.3

63.2 66.0 64.7 61.6 49.9 61.0 67.1

HDI 1999

21.7 20.2 26.3 29.1 17.5 19.5 32.2

15.5 25.4 16.7 24.6 39.0 46.5 14.3

HPI 1998

5.0 20.8 10.5 27.2 7.5 15.1 40.1

7.2 14.6 32.0 8.7 36.6 34.1 5.5

Poverty Rate (%), 1999

TABLE 2.6 Location of SMERU’s Studies on Regional Autonomy; 2000–03

February/March 2001 February/March 2001 February/March 2001 September 2001 May 2001 May 2001 May 2001

April 2000 November 2000 October 2000 July 2000 May/June 2000 September 2000 August/September 2000

Time of Visit

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820 1,026 1,255 2,803 2,538 1,799 1,642 1,144 1,504

Regional Investment Study West Java Cirebon Garut Ciamis North Sumatra Karo Simalungun Deli Serdang North Sulawesi Minahasa Bolmong Gorontalo* 61.6 61.7 64.8 69.1 65.1 66.1 69.3 66.9 63.3

68.5 49.9

* In 2000, Gorontalo became a new province, separated from the Province of North Sulawesi. Source: Calculated from .

1,952 852

Implementation and Impact Study Lampung Bandar Lampung West Nusa Tenggara West Lombok

28.1 28.8 24.9 21.7 20.2 26.3 17.5 19.5 32.2

20.5 39.0

33.9 33.8 17.4 5.0 20.8 10.5 7.5 15.1 40.1

10.0 36.6

October 2001 October 2001 October 2001 February/March 2001 February/March 2001 February/March 2001 May 2001 May 2001 May 2001

June/July 2002 April 2002

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Provincial Government West Java Central Java East Java West Sumatra North Sumatra Lampung West Nusa Tenggara East Nusa Tenggara West Kalimantan South Kalimantan North Sulawesi 589 519 337 157 247 154 128 163 170 216 139

1999/ 2000* 1,161 875 862 262 393 274 227 168 231 259 138

2001* 97% 69% 156% 66% 59% 77% 78% 3% 36% 20% 0%

Change

Transfer from the Central Government

448 319 540 60 188 58 36 20 54 56 28

1999/ 2000

Revenues

1,211 831 1,311 141 423 148 67 43 108 131 78

2001

Own Revenue

170% 161% 143% 133% 126% 156% 87% 110% 100% 134% 175%

Change

301 302 101 51 64 44 29 29 29 31 35

1999/ 2000

324 411 295 153 270 128 91 104 107 125 174

2001

8% 36% 192% 198% 321% 192% 218% 258% 275% 310% 400%

Change

Salary Payments

TABLE 2.7 Changes in the Transfer from Central Government, Province’s and District’s Own Revenues and Salary Payments, before and after Decentralization (FY 1999/2000 and FY 2001)

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54 132 164 159 66 92 66 64 140 159 80 90 22 84 65 136 70 92 106 324 397 326 201 241 167 115 321 378 191 184 135 210 158 291 150 168

Source: Calculated from data available in

District Government Sukabumi (City) Cirebon Garut Ciamis Kudus Magetan Solok Karo Simalungun Deli Serdang Bandar Lampung (City) West Lombok East Sumba Sanggau Banjarmasin (City) Minahasa Bolaang Mongondow Gorontalo 97% 146% 142% 105% 203% 163% 152% 81% 129% 138% 139% 105% 527% 151% 141% 114% 115% 83% 8 13 10 9 12 6 3 4 5 14 14 15 1 2 13 4 2 2 13 20 20 13 22 18 5 5 12 27 24 18 4 4 19 9 8 6 64% 60% 102% 42% 86% 215% 80% 31% 135% 100% 71% 26% 156% 117% 46% 139% 255% 168% 24 85 117 109 48 66 37 40 93 104 56 50 17 49 41 103 47 60 67 216 299 271 124 157 97 100 200 287 146 120 56 109 117 207 89 125 185% 153% 155% 148% 160% 137% 159% 153% 115% 175% 161% 142% 222% 124% 186% 102% 89% 108%

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the continuous supply of medicines and vaccines from the central and provincial governments. The failure of the current political parties system as well as the accountability mechanisms raised the importance of public participation, particularly in decision-making and monitoring. Between the two districts, the community and the government of Bandar Lampung seems to have been more dynamic, possibly because of the urban environment and the proximity to a university. Bandar Lampung experimented with participatory mechanism, while there was no specific information on such initiatives in West Lombok.7 Two kinds of mechanism that were developed in Bandar Lampung, bottom-up planning at the kelurahan (village) level and participatory development planning. However, each of these initiatives faced its challenges. A team called TPPK (Village Team for Development Planning) was formed at the village level to conduct the bottom-up planning. The members of TPPK were directly elected by the local community based on residential cluster. No government officials at the village and kecamatan (sub-district) levels were eligible for TPPK membership. The discussion forum used in this process was similar to the old mechanism used for village discussions established by the New Order government. The difference was that instead of the head of village and other medium-level officials dominating the forum, the members of TPPK now played a larger role. A team from the Institute of Public Services, University of Lampung, was assigned to assist TPPK members in developing the proposal that would be presented by the representation of the TPPK at the meeting at sub-district level. This new mechanism that was initiated in 2001 seemed to work well. However, two problems arose. Firstly, there was a demand from TKKP members to formalize the team so as to allow members of the team to receive regular payments. At the time of SMERU’s visit, the local government had not responded to this demand. The second problem consisted of the uncertainty of the size or values of the projects to be proposed and government commitment to implement the projects that would have been approved. In 2001, 80 per cent of the projects were implemented but there were complaints about the low quality of the roads. However, in 2002 none of the projects were implemented, and the team was preparing the proposal for 2003. Another mechanism was the participatory development planning. This initiative involves various measures, including coordinating meetings on various development issues, distributing questionnaires to gather public opinion on city development issues and local radio talk shows. However, the main obstacles to this initiative came mainly from internal local government institutions. For example, the local government-owned radio station charged 94

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a high price for the talk show, while a private radio station allocated the time for free. In addition, the attendance and participation of local government officials and members of DPRD at various meetings that discussed the result of the questionnaires and other development issues were very low. Another critical question of public service provision in the era of decentralization is the notion of sharing responsibility across levels of government. This also involves an inter-governmental coordination mechanism. The decentralization reform brought about the devolution of most authorities and functions to the district government, accompanied by the merging of ministerial regional offices with regional government’s offices. These alterations curtailed the pre-decentralization coordination and planning mechanisms. At the central level, line ministries lost significant control over development in the regions. On the other hand, local government upward channels were also missing, making it very difficult for them to access information, programmes and assistance available at the centre as well as to convey local needs. The lack of upward and downward channelling was complicated by the confusion in the planning process between different levels of government. This problem was reflected in the lack of connection between various planning documents developed at the central, regional and local level. For example, West Lombok developed its Basic Development Plan (Poldas) based on the State Guidelines (GBHN), and based on the Poldas it developed a Strategic Plan (Renstra) and Regional Development Programme (Propeda) that basically contained the same issues. These planning documents, however, did not make any reference to the national and provincial planning document (Propenas) and the Provincial Development Programme (Propeda Propinsi). This also happened in Bandar Lampung, but unintentionally, the provincial Propeda was generally in line with the city Propeda. This situation forced local government officials to approach the central government individually and in many cases to bypass the provincial government. Informal processes such as these could potentially lead to a highcost economy and non-transparent allocation of the central government’s development projects that are vulnerable to rent-seeking activities. Rich regions that can afford the cost of approaching the central ministries may benefit at the expense of the poorer regions.

CONCLUDING COMMENTS The implementation of the decentralization reform, complemented by democratization, has overhauled the entire system of governance, influencing 95

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not only the way local, provincial and central governments interact, but also the way the government interacts with the people. This transition is a difficult and time-consuming process, and it faces many challenges from various interests that could divert the reform process from its ultimate goal. This study has highlighted the slow and fragile institutional evolution that is taking place at the local level. The SMERU field studies have uncovered the fact that despite the many weaknesses in the implementation of decentralization and the misbehaviour of local governments and DPRDs, the decentralization and democratization reform has induced the birth and the enhancement of various forms of public participation. However, these are still at an embryonic stage. Meanwhile the practice in budgeting, coordination and the increase in public participation have not yet provided a strong base for at least maintaining the pre-decentralization level of public service delivery. This implies that there is a need to safeguard the decentralization reform not only by action at the local level, but also by various measures at the national level. Most recently, the central government, donor agencies and nongovernment organizations have initiated various programmes to enhance the capacity of district governments. The central government has also promulgated new laws to replace Law No. 22/1999 and Law No. 25/1999, but these have received mixed reactions since many analysts still perceived that the new laws have not settled the problems related with the arrangement of authorities and functions between various levels of government as well as mismatches in inter-governmental fiscal arrangements.

Notes The author would like to thank Syaikhu Usman, Nina Toyamah, Vita Vebriany and Sulton Mawardi for providing reports, field notes and other relevant information for this chapter, and to Maimunah for assisting with data collection and processing. However, the views and interpretation in this chapter are those of the author and should not be attributed to the SMERU Research Institute or any agencies providing financial support to SMERU. 1 This perception dominated the debate over the choice between implementing Law No. 22/1999 on regional governance and Law No. 25/1999 on the fiscal balance between central and regional government as they are (although many analyses found many loopholes in these laws) or delaying the implementation of these laws to allow for more public debate and revision. This was recorded among others in Suharyo (2000). 2 Law No. 22/1999 was replaced by Law No. 32/2004 in November 2004, and Law No. 25/1999 was replaced by Law No. 33/2004 in November 2004. 96

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4 5

6

7

97

Hofman (2002) used this term to illustrate the speed and the size of the reform at its initial period. The field reports of each study are available at . The term “district” used to represent both regency and city, or the level of government that was known as government level 2 in the previous system. See, for example, Kahkonen and Lanyi (2001), MDGD-UNDP (1999) and World Bank (1999). SMERU field report (June 2001) on West Lombok revealed an increase in the activity of NGOs and public in general in monitoring and controlling of the performance of and corruption in local government and DPRD. But there is no information on a formal attempt toward inclusive decision-making process.

References BPS-BAPPENAS-UNDP. Indonesia Human Development Report 2001 — Towards a New Consensus: Democracy and Human Development in Indonesia. Jakarta: BPSStatistics Indonesia, BAPPENAS and UNDP Indonesia, 2001. Deuster, Paul R. “Survey of Recent Developments”. Bulletin of Indonesian Economic Studies 38, no. 1 (2002): 5–37. Haris, Syamsudin, et al. Paradigma Baru Otonomi Daerah. Jakarta: Center for Political Studies, Indonesia Institute of Science (P2P–LIPI), 2002. Hidayat, Syarif and Carunia Mulya Firdausy. Exploring Indonesian Local State-Elite’s Orientation towards Local Autonomy. Jakarta: Final report submitted to Japan International Cooperation Agency (JICA), 2002. Hofman, Bert and Kai Kaiser. The Making of Big Bang and Its Aftermath: A Political Economy Perspective. Paper presented at the conference “Can Decentralization Help Rebuild Indonesia?” sponsored by the International Studies Program, Andrew Young School of Public Policy Studies, Georgia State University, Atlanta, 1–3 May 2002. Kahkonen, Satu and Anthony Lanyi. Decentralization and Governance: Does Decentralization Improve Public Service Delivery? The World Bank: PREM Notes Number 55, June 2001. Malarangeng, Andi A. and M. Ryaas Rasyid. “Otonomi dan Federalisme”. In Desentralisasi, Demokratisasi dan Akuntabilitas Pemerintah Daerah, edited by Syamsussin Haris. Jakarta: Association of Indonesian Political Scientists and the Partnership for Governance Reform in Indonesia, 1999. MDGD-UNDP. Good Practice in Decentralization and Local Governance: A Synthesis of Case Studies in Nine Countries. New York: Management Development and Governance Division, Decentralized Governance Program, United Nations Development Programme, 1999. Rasyid, M. Ryaas. “Otonomi Daerah: Latar Belakang dan Masa Depan”. In Desentralisasi, Demokratisasi dan Akuntabilitas Pemerintah Daerah, edited by 97

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Syamsussin Haris. Jakarta: Association of Indonesian Political Scientists and the Partnership for Governance Reform in Indonesia, 2002. Shah, Anwar. Balance, Accountability and Responsiveness: Lessons about Decentralization. Paper presented at the World Bank Conference on Evaluation and Development, The World Bank, 1–2 April 1997. SMERU. Persiapan Desentralisasi dan Otonomi Daerah: Kasus Kabupaten Solok, Sumatra Barat. Draft of the field report of the Social Monitoring and Early Response Unit (SMERU) supported by the World Bank, AusAID, ASEM and USAID, Jakarta, August 2000. ———. Otonomi Daerah dan Iklim Usaha: Kasus Tiga Kabupaten di Jawa Barat. SMERU report in collaboration with the Partnership for Economic Growth (PEG) and the USAID. Jakarta: SMERU, 2002. ———. Pelaksanaan Desentralisasi dan Otonomi Daerah: Kasus Kabupaten Sumba Timur, Nusa Tenggara Timur. Field report of the SMERU Research Institute with the support of AusAID and the Ford Foundation. Jakarta: SMERU, 2002. ———. Dampak Desentralisasi dan Otonomi Daerah atas Kinerja Pelayanan Publik: Kasus Kota Bandar Lampung, Propinsi Lampung. Field report of the SMERU Research Institute with the support of AusAID and the Ford Foundation. Jakarta: SMERU, 2002. ———. Dampak Desentralisasi dan Otonomi Daerah atas Kinerja Pelayanan Publik: Kasus Kabupaten Lombok Barat, Nusa Tenggara Barat. Field report of the SMERU Research Institute with the support of AusAID and the Ford Foundation. Jakarta: SMERU, 2002. Suharyo, Widjajanti I. Voices from the Regions: A Participatory Assessment of the New Decentralization Laws in Indonesia, UNSFIR Working paper 00/02. Jakarta: United Nations Support Facility for Indonesia’s Recovery (UNSFIR), 2000. Undang-Undang Nomor 32 Tahun 2004 Tentang Pemerintahan Daerah. Jakarta, 2004. Undang-Undang Nomor 33 Tahun 2004 Tentang Perimbangan Keuangan antara Pemerintah Pusat dan Pemerintah Daerah. Jakarta, 2004. Toyamah, Nina, et al. “Mencari Alternatif Penyempurnaan Kebijakan Desentralisasi dan Otonomi Daerah: Beberepa Pelajaran dari Daerah”. Paper presented at the workshop “Otonomi Daerah dan Akuntabilitas Publik dalam Perspektif Lokal”, organized by LIPI and SMERU, Jakarta, 2002. Usman, Syaikhu. “Indonesia’s Decentralization Policy: Initial Experiences and Emerging Problems”. Paper presented at the Third EUROSEAS Conference Panel on Decentralization and Democratization in Southeast Asia, London, September 2001. ———. “Regional Autonomy in Indonesia: Field Experiences and Emerging Challenges”. Paper presented at the Seventh PRSCO Summer Institute/The Fourth IRSA International Conference, “Decentralization, Natural Resources, and Regional Development in the Pacific Rim”, Denpasar, 20–21 June 2002. World Bank. Entering the 21st Century — World Development Report 1999/2000. New York: Oxford University Press, 1999. 98

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3 CORRUPTION AND DECENTRALIZATION Bert Hofman, Kai Kaiser, and Günther G. Schulze

INDONESIA’S DECENTRALIZATION1 Indonesia is rapidly moving from a highly centralized system of government to a largely decentralized one (World Bank 2003a). Law No. 22/1999 on Regional Governance devolves most functions except for national defence, international relations, justice, police, monetary policy, religion, and finance. The local governments are obliged to perform a set of key functions, including health, education, environmental and infrastructure services, and can perform any function not explicitly reserved for the centre or the provinces. The province has only a minor role, mainly in coordination, and backstopping rural regencies and urban municipalities that cannot yet perform their functions. The province will also continue to perform deconcentrated central tasks, including supervision, on behalf of the central government. Law No. 25/1999 sets out a revised inter-governmental fiscal framework. Through the introduction of a general allocation grant (dana alokasi umum, DAU) and stipulations on shared taxes and local tax bases, the system significantly increases financing for local governments. Moreover, it also moves largely away from the former system of subsidy for autonomous regions (Subsidi Daerah Otonom, SDO), and presidential instruction (Instruksi Presiden, INPRES) grants characterized by a high degree of earmarking and centralized control. Regional governments are now responsible for local 99

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public service delivery in areas previously executed directly by the central government through its deconcentrated regional agencies and civil servants.2 The deconcentrated agencies in the decentralized sectors have been largely merged into the local government apparatuses (pemerintah daerah, PEMDA), and over half of Indonesia’s civil service — 2.1 million people — have been transferred to the local governments. While government spending has been regionalized to a substantial degree, taxation remains largely centralized and the regions depend in their financing on central government allocations.3 The on-going decentralization process will bring about a fundamental change in the organization and functioning of Indonesia’s government. It will also bring in new actors that are, at least in principle, accountable to their local electorate. The question that arises is how these changes will affect the quality of governance in general and the level and structure of corruption in particular. While it is far too early to give definite answers, we can identify the channels through which decentralization will affect the quality of governance and the extent of red tape and corruption in the regions. Moreover, there is some preliminary evidence on some changes in corruption following the devolution of authority towards lower levels of government.

HOW DECENTRALIZATION MAY AFFECT CORRUPTION: IDENTIFYING TRANSMISSION MECHANISMS Decentralization shifts the decision-making power to the local level of government. It thus replaces one set of decision-makers in the centre with many sets of decision-makers in the sub-national jurisdictions. Trivial as it may sound, this notion is a convenient starting point for the classification of transmission channels through which decentralization may affect governance and corruption. First, to substitute central actors with local ones in policy areas such as health, education, road construction and other public procurement, etc., increases the proximity of decision-makers on public service delivery to the consumers of these services. This should imply that information on the decision-making process and the implementation of the project or the delivery of the service is more easily available to the communities and thus that politicians’ behaviour can be better monitored. Other things being equal, this should increase politicians’ accountability to the public and thus reduce corruption. The greater proximity of decision-makers and the people affected by their decisions should also establish greater incentives to the affected communities to participate in the decision-making process. Likewise, the information advantage of local politicians over national politicians should lead to a better matching of the policy pursued with the

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preferences of their constituencies. Furthermore, the ability to compare the performance of many local governments rather than observing the performance of one central government would empower local constituents with better information on how their local government is doing. Finally, competition of many local governments for mobile resources such as investment capital and human resources increases pressure on local government to perform innovation in service delivery from the individual local governments. All these arguments imply that decentralization would lead to better governance quality and less corruption following decentralization. Yet, these predictions are built on the implicit assumption that the political process is the same on the local and the central levels, apart from the information advantages of the local level and their consequences. This need not be the case as factors such as transparency, the strength of the civil society, the role of the press or the capacity of local institutions to implement and/or to monitor policies may or may not be weaker on the local level than on the central level. If these factors were weaker on the local level, proximity of the decision process might not lead to better information, and even if it did, this would not necessarily feed into a better system of governance, including lesser corruption, as those who engage in corruption (or bad governance) would be less accountable than national decision-makers. Finally, local governments may be more easily captured by local elites, which could lead to local policies and services that only serve them, rather than the local electorate. In particular, lacking capacity may prove to be a major obstacle to reduce graft and red tape through decentralization, especially in the transition phase when local communities have not yet adapted to their increased role. This comprises the capacity of the local bureaucracy to implement policies effectively, the capacity of the local community to monitor local politicians’ and bureaucrats’ behaviour as well as the capacities of local politicians to hold the bureaucracy accountable. Second, not only is the authority transferred to the local level, but it is split up to smaller entities, the performance of which can be compared. This comparison leads to inter-jurisdictional competition for those who have a choice where to reside, that is, for footloose capital and mobile residents. For instance, if you regard corruption in regulating business activities as a tax levied on the business sector, the capability of regions to levy such a tax will be limited by the firms’ option to move out of the region and to resettle elsewhere. This freedom to choose the most forthcoming region particularly applies to the establishment of new firms or plants, but their option will have disciplining effects also for the corruption that existing firms are exposed to, as new firms will locate according to the level of corruption on existing firms, 101

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among other location factors. The same logic applies to mobile residents who may choose to locate in regions of better governance and lower corruption. This exit option alone could curb excessive corruption even if the political system is not functioning well, that is, when transparency is relatively low, politicians and bureaucrats are only accountable to a very limited degree and civil society is underdeveloped. It is in the own interest of policymakers to limit the “informal tax” as a high tax rate will reduce the tax base, thereby leading to lower overall revenues beyond a certain “corruption tax rate”. For this mechanism to work, however, three requirements have to be met: (1) Politicians need to have a sufficiently long time horizon so that they are effectively deterred from raising the corruption level by the prospects of dwindling revenues in the future if they did raise it and firms relocate as a consequence. If the political system is very unstable and incumbents want to maximize short-term profits, inter-jurisdictional competition may not restrain corruption. (2) Corruption payments levied on the local level have to be coordinated to a certain degree by local actors. If they are not, each local actor will realize that (s)he has only a limited influence on the overall level of corruption in a district, but will have to bear the full cost of reducing his or her own bribes. This amounts to a typical prisoners’ dilemma situation with the consequence of excessive corruption — the so-called “overgrazing” phenomenon. (3) Obviously, capital or local residents need to be mobile across jurisdictions. A district that has its economic base primarily in resourcerelated and thus immobile activities such as oil or mining will be much less affected by this exit option than a district that relies mostly on footloose manufacturing firms. Ideally different levels of corruption for individuals and firms that have an exit option can be expected from those who do not.4 The comparability of jurisdictions’ performance leads to a second form of competition, the so-called yardstick competition. Although politicians’ motivations and efforts may not be directly observable and there may not be an absolute yardstick against which to measure local political outcomes, people may compare the policies in their jurisdiction with “neighbouring” jurisdictions’ policies.5 If local politicians perform significantly worse than their counterparts in the neighbouring jurisdiction, they may face difficulties to be re-elected by the local constituency. Politicians aware of such re-election constraint will have an incentive to implement policies that reflect the constituency’s preferences and a system of good governance including a low level of corruption. For this competition to work effectively in curbing corruption, factors of production need not be mobile between jurisdictions, which may not be very realistic for the short run, nor does this mechanism require a fully transparent 102

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political process. What it does require is that people are able to observe political outcomes in their own and the neighbouring regions sufficiently well, and that they can effectively hold politicians accountable through binding re-election constraints or juridical measures. Again, re-election constraints are not binding if local politicians have very short-term horizons and for that, or other reasons, do not care about their re-appointment. In sum, the various transmission channels through which decentralization may increase governance quality and lower the level of corruption are tied to certain pre-conditions, which may or may not be satisfied for the district under consideration. Decentralization may thus well lead to local capture and higher corruption instead of better governance. This might also be fuelled by the sense of local politicians that while in the past central politicians were in the position to extract rents it is now their turn to increase their income by informal payments. The outcome depends on local circumstances, which will almost certainly differ among regions. We should therefore expect a variety of outcomes and probably an increase in dispersion of outcomes in the course of decentralization. The effect of decentralization on corruption is ultimately an empirical issue; it also depends on the timeframe under consideration — institution building on the local level may take time. For instance, local parliaments and local auditing bodies need training, an appropriate legal framework, and sufficient resources to work effectively. Negative impact effects may (or may not) be reversed in the course of time. Therefore it is important to track decentralization effects on governance quality, public service delivery, red tape, and corruption not only across regions, but also over time. The Indonesian Decentralization Empirical Analysis (IDEA) project intended to do that by investigating the effect of decentralization on key sectors such as health, infrastructure, education and natural resource management as well as crosscutting themes such as the effect of decentralization on the fiscal structure, on governance and the political system, on poverty alleviation, and on investment and growth (World Bank 2003b).

FIRST EMPIRICAL EVIDENCE The following section discusses available results for the first implementation period of the 1999 legislation on decentralization and regional autonomy, based on findings of the Governance and Decentralization Survey carried out in February 2002 in the framework of the IDEA project, and of findings from a report by the Regional Autonomy Watch on regional investment climate. 103

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The Governance and Decentralization Survey (GDS),6 carried out in February–May 2002, aimed at providing a better understanding of the development of governance in the course of decentralization by surveying the perceptions of key respondents on various aspects of governance in their districts. It covered 177 districts (kabupaten/kota) out of a total of 348 districts at the time the survey was conducted (the current figure is 362 districts). In each district, 60 household respondents and 36 non-household respondents were sampled. The surveyed households consist of 15 randomly selected households from four randomly selected villages/neighbourhoods in each kabupaten and kota, respectively. The non-household respondents fall into three groups: government officials, representatives of the private business sector and representatives of the civil society. The first group includes officials from the local health and education agencies, from local health centres (PUSKESMAS), members of the local parliament (DPRD), the head of a district (bupati/ walikota) and his deputy, heads of local finance and revenue office (DISPENDA), and monitoring offices (BAWASDA and BAPPEDA), senior judges and district attorneys, and school principals. The second and third group comprises representatives of the local chamber of commerce, of NGOs, lawyers, and print media journalists. Questions centre around governance issues such as participation, rule of law, accountability, participation, equity, responsiveness of politicians, corruption, collusion and nepotism, and efficiency and around questions of decentralization, inter alia civil service reform, service quality and commitment to public needs, the technical capacity of the local government, the understanding of local autonomy, and the level of conflict. Note that these data are perception-based and thus potentially subject to answering biases or misperceptions. Concerning Corruption, Collusion, and Nepotism (known by its Indonesian acronym KKN),7 the GDS painted a clear and bleak picture: KKN is rampant in every sector of government activity and on every level. What is even more alarming is that many respondents from within and outside the government state that KKN is on the rise, rather than decreasing as a consequence of successful decentralization. Overall, however, private sector respondents hold the view that KKN has not changed since decentralization as Figure 3.1 shows. Although KKN is found in all government agencies and institutions, differences in occurrence are found for the different government bodies. According to the views of NGO representatives, KKN is found most often in the local legislative assembly (DPRD) (47 per cent of respondents), followed 104

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FIGURE 3.1 Forms of KKN before and after Decentralization, 2000–01

(Percent of Private Sector Respondents) 80

74,77

69,2

66,38

70 60 50 40 30 20 10

7,71

7,71

10,2

8,03

8,87

11,6

0 Potongan (Cuts)

Pungutan (Unofficial levy) More

Same

Suap (Bribe)

Less

Source: See note 7.

by the district head (45 per cent), the district education office (36 per cent), district health office (30 per cent), sub-district (23 per cent), and village (22 per cent). This is interesting as this perception reflects the shift in relative power. While prior to decentralization the district head wielded most power, decentralization has transferred substantial power to the district legislature and therefore rent-seeking activities have found a new home. The most important areas for corruption are government procurements in the tender procedure for public works or projects, followed by recruitment of civil servants in all areas. The perception of media and NGO representatives are given in Figure 3.2. It is no wonder that perceptions of KKN differ widely between various stakeholder groups. For instance for the involvement of money politics in the appointment of public officials, perceptions are distinctively different with respect to the extent and the relative frequency of its occurrence: respondents from government offices and members of the local parliament report much less money politics than households and especially respondents from media and NGOs, and they ascribe the highest relative frequency of money policy 105

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FIGURE 3.2 KKN in Government Administration (Perception by NGO and Media)

77,45

80 70

62,5

60,62

60 50

50,26

48,48 40,53

40

36,64

28,53

30 20 10 0 Recruitment

Tender of Projects

Regency

Compilation of Local Regulation

Compilation of Local Budget

City

Source: Cf. note 7.

Box 3.1: Corruption, Collusion, and Nepotism A bureaucrat in Central Java describes the practice of KKN as follows: “… in the tender of projects, price manipulation occur to the point that the level of a building project inefficiency can reach 30 per cent. Promotion of rank requires quite a lot of money. For promotion to echelon 4 you must pay 15 million Rupiah to the official who is the promotion decision-maker. For promotion to echelon 3 you have to pay 50 million Rupiah, and for echelon 2 you have to pay 100–150 million Rupiah. The promotion process in the state education field also uses money. To become the principal of a primary school takes 10 million Rupiah, junior high school 20 million Rupiah and senior high school 30 million Rupiah, and this is given straight to the head of the district. (GDS, 2002; quoted from UGM Policy Brief, cf. note 7).

to the appointment of village heads while media, NGOs and households see district heads’ and members of DPRD’s appointments most often tainted with illegal payments. These very marked differences in stated perceptions may reflect different interests rather than differences in information as those 106

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involved in KKN may try to downplay the importance of KKN and to shift the blame. A particularly interesting finding is that KKN has increased in the community health centres after decentralization according to the heads of these centres. The health centres have come under district authority in the course of decentralization and must be financed out of the district budget. The presumption is that health centres try to supplement income from cashstrapped districts through unofficial payments. These perceptions are coupled with a perceived low level of law enforcement, enabling such a ubiquitous system of corruption to persist. Moreover, equality before the law is often seen to lack in the juridical system that favours people with higher social status. The consequence of the practice of KKN is, of course, deficiencies in public service delivery as civil servants — contrary to the term — do not only provide services, but delay service delivery in order to extract rents for more speedy service delivery or service delivery at all. The majority of respondents did not see a significant change in the quality of services immediate after decentralization. This is not to say that service public delivery has not been found wanting, on the contrary, public service delivery is still very unsatisfactory with health and police services performing poorest. This is all the more troublesome as police should guarantee the rule of law that is necessary to effectively fight corruption. Figure 3.3 shows community satisfaction for selected services. A second finding refers to discrimination in service delivery. Even a quarter of the bureaucrats questioned admit that crony relationships will result in biased service delivery. Other factors include political affiliation, ethnicity, and religion. Given the differences in perception between the various groups, it seems very likely that discrimination will be regarded an even more worrisome phenomenon by the general public. Of course, corruption makes public services more expensive to consumers, that is, the general public. It also deliberately increases uncertainty with respect to the speed of service delivery in order to provide bureaucrats with leverage to extract rents from the public and to procrastinate over service delivery for those unwilling or unable to provide the required informal payment. Figure 3.4 compares formal and total payment (formal and informal) for the issuing of birth certificates and identification cards. Table 3.1 illustrates the time variation in service delivery. It indicates that service delivery varies substantially in time. As stated above, transparency is a pre-condition for holding politicians and bureaucrats accountable and thereby reducing corruption. Transparency 107

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FIGURE 3.3 Level of Community Satisfaction with Public Services (Percentages)

35

Police Senior high school

66.1

Junior high school

65.9 64.3

Elementary school

55.1

Subdistrict office

58

Village office Integrated health service post

68.2 64.7

Village Midwives Community health center's doctor

58.3 39

Community health center

0

10

20

30

40

50

60

70

80

Source: UGM policy brief, “Assessing the Process of Governance through Service Delivery”. (Yogyakarta: University Gadja Mada, Center for Population and Policy Studies, 2003).

FIGURE 3.4 Comparison of the Average Actual Payment with the Payment According to Local Regulations Rupiah 25000

21500

20000 15000 10000

9788

9131 4659

5000 0 Birth certificate

Payment according to local regulations

ID card Actual

Source: 108 See Figure 3.3.

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TABLE 3.1 The Time Needed for Several Services Services

Average Time

Minimal Time

Maximal Time

Birth Certificate Family Card ID Card Land Certificate Community health centre service

8.9 days 7.3 days 8.8 days 4.5 months

1 day 1 day 1 day 1 month

4 months 3 days 4 months 3 days 4 months 3 days 5 years

1.3 hours

1 hour

12 hours

Source: See Figure 3.3.

is found to be low in particular with respect to drafting the regional budget (APBD), but this perception differs again between the groups of respondents. While NGOs and the media perceive this process to be very intransparent, public officials and the members of the regional assembly (DPRD) assert the contrary and business people occupy a middle position (see Figure 3.5). While there is difference in opinion concerning transparency of the budgeting process, which might be explained by different understanding of transparency but again also by different interests of the various stakeholders, there is almost consensus among respondents from the media, NGOs, and FIGURE 3.5 Perceptions on Transparency of APBD

100 80 60 40 20 0 Low NGO DPRD

Medium Media Public Officials

High Entrepreneurs

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DPRD that the internal auditing through the monitoring office BAWASDA is very intransparent. In sum, overall corruption levels have not altered much on impact of the decentralization, but a shift towards the local assembly (DPRD) has been observed as this body has gained influence in the course of decentralization and there has been an increase in the health sector which has largely been placed under local authority. Note that these are preliminary findings and that respondents come largely from households, the government sector and civil society; the perceptions of the business sector may differ to some extent. The report by the Regional Autonomy Watch investigated the relative importance of various location factors in the perspective of the business community for 134 regions in 26 provinces, consisting of 97 regencies and 37 cities.8 While this study focuses on the entirety of location factors such as the quality of infrastructure or the local labour force, some of the location factors reflect governance quality and corruption. One general finding pertains to the high relative importance of political factors. That evaluation by the business community suggests that the Indonesian investment climate is still far from normal conditions, under which economic endowment variables (regarding the availability and costs of labour, physical infrastructure, human capital, etc.) would have a greater weight. Manufacturing in particular is prone to illegal levies, either by government officials or the surrounding community (mass organizations, village youth or gangsters). Trade and service industries encounter discrimination when securing their business licences. Small and medium-scale businesses receive poorer services than large-scale operations. There are widespread complaints about retributions, taxes, and other local levies that are unfriendly to the business community. Also the uncertainty on regulations, procedures, time, and tariff structure is seen as a major obstacle to the business community. There are, however, also attempts by certain regions to simplify procedures through introducing one-stop service that abolishes the multitude of bureaus involved in a certain licensing procedure in order to create a more favourable business climate.

SOME IMPLICATIONS In a previous section, transmission channels have been identified through which governance can be improved and corruption reduced. Policy recommendations focus on strengthening all of these channels in a concerted effort. In order to enhance inter-jurisdictional competition, mobility of labour 110

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and capital should be enhanced, that is, mobility restrictions need to be abolished (“exit” option). In order to improve the political process, transparency must be stepped up as a pre-condition for accountability and an efficient political yardstick competition; this includes strengthening the role of a free and pluralistic press as well as the creation of independent monitoring agencies. Likewise, civil society needs to be strengthened and forums for their participation in the political process should be created (“voice” mechanism). Of course, accountability of bureaucrats and politicians alike need to be a particular focus of policy reforms — this includes free and fair elections, information and monitoring of the political process through the media and independent monitoring agencies, and an efficient legal system. The weakness of the juridical system must be a specific target of every policy reform. If the guardians of law and order are themselves inefficient or corrupt, we cannot expect sustainable improvement governance or a significant reduction in the level of corruption. While this is all non-controversial, it is too general and may be too non-committal at the same time. Concrete measures need to be implemented that produce measurable improvements in governance quality. The following are some specific recommendations for avenues of a concerted approach to fight corruption. These measures should be seen as part of an overall strategy for corruption reduction and not as a menu of single measures from which to choose. Also, this list is not inclusive, but it highlights important key elements of a reform that follows from general ideas set out in the first paragraph of this section. •





Open list elections: Voters should be entitled to vote for selected people from given lists, so that they are able to vote those individuals out of office that have gained a reputation of being corrupt or inefficient in representing their constituency’s interests. This prevents politicians from cutting deals with the party leadership for a certain position on the election list in exchange for favours or informal payments and thus reduces also corruption within the party. Police reform: This needs to include the creation of an internal affairs department, clear operating standards, and political education. Police action must be subject to potential trials by regular criminal courts. Publication of detailed regional budgets: Budgets need to be published to a prescribed level of detail; that is, the centre (not the local DPRD) should impose binding accounting standards and limits beyond which budget items have to be separately published. Parliamentary sessions need to be open to the public. 111

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Transparent public procurement procedures: Public projects exceeding certain limits need to be publicized according to clear procedures set by the centre. Bids should be published and decisions should be made in auctions open to the public. Clear and transparent licensing procedures and operating regulations for print media and radio and TV stations that allow independent reporting, provide freedom from government interferences, and ensures plurality. The German broadcasting laws may serve as an example. Creation of an independent local auditing agency that reports to the local parliament; it needs to be guaranteed full access to all budgetary information of all local government branches and is obliged to publish its report. It needs to be allocated a fixed percentage of the districts budget set by either the province or the centre (but not the local parliament). Referenda: The possibility of referenda limits local politicians’ power to bypass their constituency’s interests in favour of their own interests. It is a powerful tool to prevent legislation that deliberately creates discretionary scope for politicians or bureaucrats which creates leverage for corruption and thus makes it more rampant and more severe. Credible rating systems that monitor performances of the district head, the bureaucracy, and the local parliament in terms of governance, corruption and the quality of public service delivery as well as providing information on the emerging role of civil society and the media in the policy formation process. It is important that this rating scheme is produced by a truly independent organization in order to ensure credibility, attract media attention, and thus provide information as valuable input for a political yardstick competition. It should cover not only households’ perceptions but also cover the business sector, government officials, civil society and the press. UGM does it, KKPOD does it. Continuous research on decentralization is needed to track decentralization successes and failures across regions and over time in order to single out major obstacles for ongoing decentralization process as well as circumstances favourable to creating good governance and fighting corruption successfully and in a sustainable manner.

Notes 1 2

This chapter draws on World Bank 2003a and World Bank 2003b. We are grateful to Agus Dwiyanto and his team from the Gadjah Mada University in Yogyakarta for providing evaluations of the Government and Decentralization Survey 2002, and Bambang Suharnoko and Fitria Fitrani for valuable research assistance.

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5

6

7

8

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For a detailed account of the Indonesian decentralization, see World Bank 2003a. This may in part explain why tourists are hardly exposed to corruption, as tourist flows are very sensitive with respect to bureaucratic hassle. They are mobile par excellence. Neighbouring jurisdictions may not necessarily share a common district border; they need to be comparable and information on their policies needs to be readily available to the neighbouring local constituency. This section draws on Dwiyanto et al. (2003) as well as on several policy briefs, also prepared by the GDS team of Gadjah Mada University, Center for Population and Policy Studies. According to Law No. 31/1999, section 2, corruption is the misuse of public power for private benefit at the disadvantage of state finances or the state economy. Collusion is an illegal conspiracy or cooperation between state officials and other parties that disadvantages others, the society, or the state. Nepotism is any illegal act of state officials to the benefit of their families or cronies contrary to the interests of the society, nation, or the state. The following findings on KKN, including graphs, are taken from the policy brief, “Fighting Corruption, Collusion, and Nepotism”, prepared by the Center for Population and Policy Studies of Gadjah Mada University, Yogyakarta. This section draws on KPPOD 2003.

References Dwiyanto, Agus, et al. Governance Practices and Regional Autonomy: Evidence from Governance and Decentralization Survey (GDS) 2002. Mimeographed. Yogyakarta: Gadjah Mada University, 2003. KPPOD. Daya Tarik Investasi Kabupaten/Kota di Indonesia. Jakarta: Komite Pemantauan Pelaksan Otonomi Daerah, 2003. World Bank. Decentralizing Indonesia. Washington, D.C.: East Asia Poverty Management Unit, 2003a. ———. Indonesia Decentralization Empirical Analysis (IDEA) “Decentralization, Governance, and Public Services: An Assessment of the Indonesian Experience”. Research Concept Note prepared by Bert Hofman, Kai Kaiser, and Günther G. Schulze. Jakarta: mimeo, 2003b.

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4 THE ROLE AND FUNCTION OF THE REGIONAL PEOPLE’S REPRESENTATIVE COUNCIL (DPRD) A Juridical Study J. Endi Rukmo et al.

BACKGROUND ISSUES The Implementation of Regional Autonomy according to Law No. 22/1999 (UU 22/1999) concerning local government has provided a new direction for managing decentralization. It has also entailed a complete overhaul of legal products that existed before it, specifically those that regulated regional autonomy. This study represents the first piece of research carried out by the Center for Local Government Innovation (CLGI), responding to the need to explore more deeply the legal issues that have arisen from the implementation of decentralization and regional autonomy which have been in operation since 1 January 2001. In the first round of implementation, that is, 2001–03, decentralization and regional autonomy was put into effect in full by all areas in Indonesia. Even though regions which did not yet possess the ability to implement their autonomy in full were allowed to do this in stages in accordance with the ability they have (TAP No. IV/MPR/2000 on Policy Recommendations in the Implementation of Regional Autonomy, point 2c), not one region 114

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had postponed the implementation of decentralization and regional autonomy. Among the various measures taken by the region, some were quite progressive and innovative, some were very cautious, and in other cases regional governments have taken steps that were ill-advised. Some local governments even tended to deviate from the intention of regional autonomy by issuing regulations in order to increase regional revenue, a move that has the effect of actually impeding economic growth nationally. As a result of observations in the field, it can be said that the root of all the problems that have arisen in the implementation of regional autonomy is the fact that the central government and the regional governments are not executing a number of obligations of a regulative and juridical nature in the context of adjusting their legal stipulations in keeping with the changes in the system, the implementation and the demands of new needs flowing from regional autonomy. There are at least four areas where this general issue has become apparent: 1. At the time when the central government established the new kinds of power on the basis of the stipulations of Law No. 22/1999 and its Governmental Regulation No. 25/2000, it did not match this with activities to initiate reviews and adjustments with regard to other legal products beyond Law No. 22/1999 which, long before this law was shaped, had handed powers to regional governments which may have been of a different kind or of a different scope. 2. Apart from Law No. 22/1999 and Governmental Regulation No. 25/ 2000, there are legislative regulations of a sectoral nature, such as the ones that regulate the sectors of health, forestry, education, and communications and so on. The central government did not prepare a mechanism to carry out the synchronization of legal products that might no longer be completely relevant to the spirit of the new law. As a result, the central government experienced a real overlap in its arrangements which also had an impact on the implementation of the above powers in the regions, so that this often gave rise to a conflict of powers in the regions. 3. The transitional period resulting from changes in the exercise of regional autonomy represents a critical time that was very decisive for the effective implementation of Law No. 22/1999, in particular the handing over and withdrawal of governmental powers which have to be accompanied by funding, human resources, facilities and infrastructure, and documentation. Law No. 25/1999 titled “Fiscal Balance between Central 115

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and Regional Governments” settled only part of the problems of funding. This was caused by the fact that it is the region that has the programme, whereas it is the central government that has the money, so that a programme framed by a regional government on the basis of its decentralized powers did not fit with the allocation of funds from the centre. In other words, the central government did not allocate expenses to the regions based on the kind of activity concerned. What made matters worse is the fact that regional facilities and infrastructure and human resources had scarcely been even touched by the actual decentralization process in the time of transition. 4. Very much in the pre-decentralization bureaucratic tradition, the central government has handed over governmental powers on the basis of legislative regulation. The regional governments for their parts had been used to working in a narrow corridor of powers, and in a governmental culture that had made every regional civil servant dependent on instructions, guidelines and pointers from the centre. The lack of completeness in the regulations for implementing Law No. 22/1999 consequently made civil servants in the regions confused, and this included confusion on how to adjust themselves to the new powers. Our exploratory research, carried out by means of interviews and discussions with leading figures in the regions, such as mayors, regents (bupati) and chairs of the DPRD, very much supports the field observations outlined above. Five crucial findings for the period of 2001–03 have been made, namely: 1. Many legislative regulations that should be a guide to the implementation of Law No. 22/1999 had yet to be published. This was obstructing the implementation of regional autonomy. Hence, the central government was urged to immediately supplement Law No. 22/1999 by publishing the intended legislative regulations and immediately adjusting the stipulations that are in conflict with and/or are not in accordance with Law 22/1999, such as the one laid down in paragraph 133 of Law No. 22/1999. 2. There were many overlapping powers between the provincial government and the regency or city, and between the central government and that of regency or city. 3. There were still a number of paragraphs from Law No. 22/1999 that require clarification so as to not give rise to multiple interpretations. 4. The main problematic area is the question of land and forestry, where presumably the government has been half-hearted in transferring power (see Presidential Decree No. 10/2001 concerning the implementation of regional autonomy in the area of land policy, which was reinforced by 116

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Presidential Decree No. 62/2001). In a report of Committee A (covering Government and Regional Autonomy) at its National Working Meeting held on 11 July 2002, APEKSI even pressed the central government to withdraw these two decrees. It was stressed that the two Presidential Decrees only increased the problems surrounding land policy in the regions, as many regions had themselves formed a Land Service which was now in conflict with the Regional Office of the BPN (State Land Agency) established by Presidential Decree No. 10/2001. An explanation from the government was therefore needed as to whether Paragraph 11 of Law No. 22/1999, which conveys the powers to manage matters relating to land upon the regions, would be withdrawn, or else the two decrees. 5. There is also the matter of the percentage share of regional taxation between the province and the district or city, such as the tax on motor vehicles. Regencies (districts) and cities (municipalities) feel that since the motor vehicles are located in districts and cities, they are the ones that have to face all the daily problems relating to motor vehicles. For this reason, both district and municipal governments were demanding a larger percentage. Law No. 34/2000 concerning “Changes to Law No. 18/1997 relating to Regional Taxes and Charges”, Paragraph 2A, Section 1a, states that districts and municipalities within the territory of the province concerned obtain at least 30 per cent. It thus clearly allows for regencies and cities to demand a bigger share. It was originally hoped that the successive changes in the legal products, which have formed the basis for providing regional autonomy, would aim to provide evenly distributed, good quality, efficient, just (accessible), on time and accountable service to the public. However, the findings in the field indicated the opposite. Administrative services, for instance, include affairs relating to the provision of the KTP (Resident’s Identification Card), birth certificates, marriage certificates, land titles, and permits to carry out something that may affect the public (for example, building permits, permits for various kinds of enterprise, permits to invest capital, to guarantee public order and safety, and the citizen’s right to run a business). Actual practice demonstrated that up to 2004, there was no meaningful change since Law No. 22/1999 had come into effect. What had happened was in fact an overlap of authorities in the area of permits that caused serious delays. When problems connected with the granting of permits arose, it was simply not clear to local civil servants how they should be settled. The community is allowed to live in an atmosphere of dispute with the granter of the permit for an indefinite period. The matter becomes even more complicated when it has to do with powers in the area of forestry. Paragraph 22, Section 5 of Law No. 117

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41/1999 on Forestry stipulates that the division of a forest into blocks is based on ecosystem, type, function and planned use, while the subdivision of blocks into compartments is based on the intensity and efficiency of management for a certain period of time as determined by Government Order (Peraturan Pemerintah, PP). This order contains provisions that include regulations for protocols of forest structuring, usage, period of time, and local considerations. From a juridical viewpoint, the issuance of this paragraph was sloppy, because five months before the Law No. 41/1999 was passed (that is, September 1999) the government had already formulated Law No. 22/1999 on local government (that is, May 1999). In connection with land, the environment and natural resources, Law No. 22/1999 had decreed the following: “the areas of government that the regency and the city are obliged to carry out include (…) the environment, land policy (…)” (Paragraph 11, Section 2 of Law No. 22/1999). In the general clarification, Part I, (i) 5, it is stated further that for “(…) specific areas that are managed by government or other parties such as official bodies, industry, plantations, mining, forestry, new housing, tourism and the like, the provisions of the autonomous region apply.” With specific reference to the exploitation of a forest, the provisions of Law No. 41/1999 are as follows: (a) a permit to exploit a forest can be given for all forests with the exception of a nature reserve as well as the core zone and jungle zone of a national park (Paragraph 24, Law No. 41/1999); (b) for a protected forest, a nature reserve, a tourist forest and a forest with special allocation, forest concession rights (HPH) and forest products collection rights (HPHH) cannot be granted (Paragraph 10 Section 4 of Government Regulation No. 21/1970 on HPH and HPHH); (c) forests that may be loaned are only productive forests and other forests apart from productive forests if they are to be utilized for limited public benefit (Decision of the Minister of Forestry No. 55/KPTS-II/1999; (d) in national parks, tourist parks and forests with special purposes, bearing in mind their function and where they are located, general investigation, exploration, exploitation, processing and refining and general mining may not be carried out (Paragraph 2, Joint Directive of the Minister of Mining and Energy and the Minister of Forestry No. 969.K.M.PE/1989 and No. 429/KPTS-II/ 1989 concerning guidelines for the regulation of mining and energy operations within a forest). The restrictions mentioned in these provisions were ineffective in practice because the central government itself was not consistent in determining the limits of these prohibitions, in particular those connected with the provisions concerning the loan of a forest for the activities of mining and energy, as is set 118

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out in the joint directive referred to above. Paragraph 3 states: “mining can be carried out within a nature reserve and wildlife sanctuary, game preserve, protected forest, limited production forest [or] production forest with a permit to make use of a forest granted by the Minister of Forestry.” The provisions of the Joint Directive are, however, quite clearly in conflict with Law No. 41/1999, which states that a forest permit can be used for all forests with the exception of nature reserves and the core zone and jungle zone of a national park. From a juridical viewpoint, the Joint Directive is invalid at law and everything in connection with it as well as all legal events, permits and mining activities based on the Joint Directive thereby possess no validity whatsoever. Juridical problems have arisen in the regencies of Bandung, Timor Tengah Selatan, Timor Tengah Utara, and Jayapura. In the city of Kupang, for example, in connection with the permit, the presence of the mining concession of Marma Swasta lies on the inconsistency mentioned above, which then raises the question of coordination, a conflict of interests with the autonomous region, and other problems of an economic, sociocultural and conservational nature. Marble quarrying in Kupang is also a case in point. It demonstrates the accumulation of problems that result from a neglect to carry out reviews of various other legal products linked with the areas of forestry and mining after Law No. 22/1999 had been passed. As a result of this neglect, there have been widespread effects on the quality of service to the public in the area of permits, with consequences to the stability of the industries involved.

SCOPE OF THE RESEARCH, METHODOLOGY, RESPONDENTS In the first stage of research, the CLGI research team deliberately chose toppriority topics by laying stress on the results of discussions with both local government associations and officials in the central government, as well as the findings obtained during the initial research and meetings with working partners. The following topics were extracted from these discussions, findings and meetings: (1) Powers (Law No. 22/1999, Paragraph 7-13 and Government Regulation No. 25/2000); (2) Sources of regional finances (Paragraph 75-77 and Government Regulation No. 84/2000); (3) Legislative function (Paragraph 15–29 and Government Regulation No. 110/2000). 119

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However, this chapter will only report on one aspect of the results of the study, namely the problem of the function and role of the Regional People’s Representative Council (DPRD). The fact that demands to conduct this juridical study of the implementation of regional autonomy according to Law No. 22/1999 have emerged, shows that there have indeed existed problems in the implementation of regional autonomy. From a “content analysis” angle, there are several views regarding the causes of such problems. First, there is the view that focuses on the making of laws (legislative drafting), claiming that the process legislative drafting was too rushed, without prior indepth research. Second, Law No. 22/1999, which gives the regions a wide measure of autonomy, was already a good thing, but the publication of its organic regulations was too late, with the result that this did little to support the smooth implementation of the law. Third, there are also those who say that there were wide-scale errors in interpreting regional autonomy, giving the impression of arrogance on the part of the regions that are obstructing the introduction of autonomy. The analysis was conducted by using the ROCCIPI method, as set out by Ann Seidman et al. (2001). It is a “problem-solving method” applied to questions pertaining to rule, opportunity, capacity, communication, interests, process, and ideology. In this first stage, the study gave priority to five provinces, namely West Java (Jawa Barat), Bali, South Sulawesi (Sulawesi Selatan, Sulsel), East Nusa Tenggara (Nusa Tenggara Timur, NTT) and Papua. Respondents consisted of officials (including members of the DPRD) from the provincial governments, NGOs, and observers from the provinces under study, as well as officials (including members of the DPRD) from the district or regency administrations, NGOs, and observers from the regencies of Bandung, Bangli, Maros, Timor Tengah Selatan (TIS) and Jayapura.

FUNCTION AND ROLE OF THE DPRD Law No. 22/1999 states explicitly that regional government consists of the Head of the Region together with the other regional functionaries who, within the system of regional government, occupy positions as the Regional Executive Body and the DPRD which represents the Regional Legislative Body (Paragraph 14). As the Regional Legislative body, the DPRD is on par with, and a partner of, the regional government (Paragraph 16, Section 2). In carrying out his duties and exercising his powers, the governor is responsible to the DPRD of the province (Paragraph 31, Section 2), whereas the regent or mayor is responsible to the DPRD of the regency or city (Paragraph 32, Section 3).

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Prov. Jawa Barat Reg. Bandung Prov. Bali Reg. Bangli Prov. Sulsel Reg. Maros Prov. NTT Reg. TIS Prov. Papua Reg. Jayapura

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 34,588.89 2,954.02 5,632.86 520.81 6,236.17 1,619.11 47,349.9 3,947 421,981 61,493

Area (KM2)

* Data taken from the year 2001. Source: Center for Local Government Innovation.

Region

No. 36,147,488 3,716,012 3,019,816 197,970 7,855,472 274,394 3,927,039 387,588 2,233,530 158,340

Population 2,251,753,186 841,550,790 684,418,356 137,310,047 622,500,000 199,700,000 177,984,500 199,745,363 1,958,738,667 294,005,248

Budget* (000)

TABLE 4.1 Regional Profile of the Respondents

552,325,423 654,074,000 168,160,000 98,610,000 246,200,000 130,100,000 149,115,000 186,360,933 345,530,000 249,535,527

Block Grants*

1,184,619,508 66,119,438 380,182,318 5,740,075 200,500,000 11,700,000 19,811,100 8,537,623 51,444,700 1,312,794

Regional Revenue*

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The duties and powers of the DPRD, as set out in Paragraph 18 of Law 22/1999, include formulating regional ordinances and passing the budget together with the governor, regent or mayor. The DPRD also has the power to exercise supervision over the implementation of regional ordinances and other legislative regulations, the implementation of the decisions of the governor, regent and mayor, the implementation of the budget, local government policies and the execution of international cooperation in the region. Paragraph 19 specifies the rights of the DPRD, namely to request a statement of accountability from the governor, regent and mayor, to ask for information from the regional government, to hold an investigation, to carry out revisions to the draft budget, to present a statement of opinion, to present the draft budget, to pass the DPRD’s budget, and to pass DPRD disciplinary regulations. The DPRD also possesses the right to raise questions, rights according to protocol, fiscal or administrative rights as well as the right to ask an official of the state, an official of the government or a member of the community, to provide information concerning any matter that needs to be dealt with in the interests of the state, people, government and development. The obligations of the DPRD, stipulated in Paragraph 22, include: the duty to defend and foster the integrity of the unitary state of the Republic of Indonesia, to comply with the Pancasila and the Constitution of 1945, as well as to obey all legislative regulations, to promote democracy in the provision of regional government, to raise the level of community health in the region on the basis of economic democracy, and to pay attention to and channel aspirations, receive complaints and appeals from the community and at the same time to facilitate follow-up steps to settle these. The head of the region, partner of the regional parliament or DPRD, has obligations that are almost the same as those of the DPRD, namely: to defend and foster the integrity of the unitary Republic of Indonesia, to adhere firmly to the Pancasila and the Constitution of 1945, to respect the sovereignty of the people, to uphold the whole body of statutes, to raise the level of the welfare of the people, preserve the peace and order of society, as well as proposing the draft budget and passing it as a regional regulation together with the DPRD (Paragraph 43). Interestingly, Paragraph 19 provides that proposing the budget is a right of the DPRD, whereas Paragraph 43 specifies it as an obligation of the head of the region. The head of the region also possesses the obligation to convey a statement of accountability to the DPRD at the end of each budgetary year. Apart from this, it is obligatory to give a statement of accountability to the DPRD for 122

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certain matters at the request of the DPRD (Paragraph 45). The DPRD may reject the statement by the head of the region, and if that happens, the latter must improve and complete it within a period of thirty days, before it is returned to the DPRD. If the statement is rejected for a second time, then the DPRD can recommend to the president that the head of the region be dismissed (Paragraph 46, Section 3).

FUNCTION AND ROLE OF THE DPRD IN JAWA BARAT (WEST JAVA) PROVINCE Several findings have been made in both the province of West Jawa and the regency of Bandung. According to Paragraph 16, Section 2 of Law No. 22/ 1999, the DPRD — in its capacity as the legislative organ of the region — is positioned on an equal footing and is the partner of the regional government. Responding to the formulation of this paragraph, Drs Maman Sulaeman, Head of the Regional Autonomy Sub-Directorate, Regency of Bandung, stressed that “on an equal footing” means that they may not bring each other down and there is no subordination of the one to the other. However, this provision runs counter to a clause that states that the head of the region is responsible to the DPRD (Paragraph 31, Section 2 and Paragraph 32, Section 3). It also contradicts Paragraph 18, Section 1c, where it is stated that the DPRD has the duty and power to propose the appointment and dismissal of a head of the region. Mohammad Rizal Fadillah S.H., Deputy Chair of Committee A in the DPRD of the province of Jawa Barat, however, was in agreement with the formulation of “on an equal footing”. Nevertheless he acknowledged that as far as the provision in Paragraph 18 is concerned, the DPRD is indeed above the head of the region. The regulation of the status of the head of the region and the DPRD as well as the connection between them has demonstrated an inconsistency between one provision and another. This unclear situation gave the DPRD a great opportunity to “dictate” to the regional government in carrying out its administration. When the regional government had plans to make a new regional regulation, it had to obtain the DPRD’s agreement. Discussions of a certain term that was going to be used in the regulation could take days. If a difference of opinion arose between the regional government and the DPRD while debating a draft regulation, decision-making would take a long time, and in the end the regional government would give in. The regional government would conform to what the DPRD wanted. Rizal suggested that the equal status between the head of region and the DPRD could perhaps be achieved in a consistent way, by considering the 123

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possibility of letting the people elect directly the head of the region. In this way, the head of the region would not be answerable to the DPRD, which would then also not be able to dismiss him. Instead, he would be responsible directly to the people. Law No. 22/1999 would have to be modified or changed accordingly. This would be a very beneficial exercise in democracy for the community, if it had ample scope to participate directly in the process of delivering government service in the region. According to Law No. 22/1999, there are three main areas in which the DPRD has government functions: legislation, supervision and budget. As formulated in Paragraph 18, Section 1f, the DPRD carries out a supervisory function with regard to: 1) The implementation of regional regulations and other statutes; 2) The implementation of the directives of the Governor, Regent and Mayor; 3) The implementation of the regional budget of income and expenditure; 4) Policy of the regional government; 5) The implementation of international cooperation in the region. One way in which the DPRD carries out this supervision is by exercising its right to conduct an investigation. To what extent did the DPRD in the area researched make use of this right? Abdullah Amin, Head of the Sub-directorate of Administrative Training, Regency of Bandung, revealed that in the regency of Bandung, the DPRD supervised the process of government right down to matters of a technical nature. Rizal for his part stressed that it would not be necessary for the DPRD to supervise matters of a technical nature. Quite possibly, this would fall under the authority of another body. To carry out supervision, the DPRD has the right, among other things, to ask for information from the government and to conduct investigations. To exercise this right, the DPRD does not have a “hook-up” or even a basis in law. There indeed exists a law concerning the right to hold an inquiry from the year 1958, but this is aimed at central parliament. Law No. 22/1999 states that the use of this right is governed by the Disciplinary Regulations of the DPRD. According to Rizal, this idea is not correct, because this would refer to the protection of a person’s rights. He therefore insisted that the procedure or method of exercising the right of investigation be regulated in Regional Regulations. In the same way, the procedure for summoning an official of the state or of the government, or a member of the public, should be laid down in the Regional Regulations. If the DPRD suspects that the head of the region has transgressed against a statute, then the members of the DPRD can, according to Rizal, exercise their right, by asking for information 124

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from the government or holding an investigation by summoning the head of the region and other parties whom they consider to be connected with the case. If the DPRD’s investigation concludes that a transgression of the law may have indeed occurred, then the follow-up steps would fall within the powers of the police and persecutor. Given the lack of clear provisions that state the limits of its powers, the DPRD cannot exercise its supervisory function legally. But in practice, this function still has to be performed. So the DPRD is likely to act according to its own wishes, thereby coming into conflict with the powers of another authority, such as the BPK or the police. Both Amin and Rizal therefore emphasized that it is necessary to have clear provisions that define the limits of the DPRD’s powers in carrying out its supervisory role. In carrying out his duties and obligations, the head of the region is accountable to the DPRD in the form of a report. Law No. 22/1999 lays down three kinds of accountability for the head of the region, namely: 1) The report to the DPRD at the end of each budgetary year (Paragraph 45, Section 1); 2) The report to the DPRD for certain matters at the request of the DPRD (Paragraph 45, Section 2); 3) The report of the head of the region to the DPRD at the end of his term of office (Paragraph 53, Section 2). The “hottest” issue in this context is the accountability report at the end of each budgetary year. This report is like a scary spectre haunting the head of the region — if the DPRD rejects the head’s report for a second time, then it can “suggest” that the president dismiss him. The word “suggest” can in practice mean “press” or even “force” the central government to grant what it wants, which is in turn an effective threat to keep mayors and regents (bupati) in line with the ideas of their respective DPRD.1 In case his report is rejected, a head of region has a maximum period of thirty days to improve it. The problem is whether thirty days is enough for him to complete and improve his report. Another problem is that it is not clear what is meant by completing and improving the report. According to Rizal Fadillah, a period of thirty days would be enough, if the improvement only refers to matters of a technical administrative nature, such as editorial errors, the format and organization of the report. But, if what has to be rectified pertains to his overall governmental policy, then thirty days would certainly not be enough. Improvement would in fact be impossible. Similarly, Maman Sulaeman expressed the view that what is being evaluated by the DPRD is policy, including governmental performance.

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Improving governmental performance within a period of thirty days is something very difficult to achieve. Both Rizal and Sulaeman then gave the following suggestions in favour of the position of the head of region: 1) The report at the end of the budgetary year should be regarded as a “progress report”. If the report is rejected, then the DPRD’s power should be limited to giving a reminder that in the second financial year the head of the region should improve his policies and performance. In other words, the head of the region would be able to stay in office. Only if the report for the second budgetary year is rejected, should the DPRD take steps to propose that he be dismissed. 2) The report should in fact be made only every two years. Paragraph 46, Section 3, of Law No. 22/1999 states that after the report of a head of the region is rejected a second time, the DPRD can propose to the president that he be dismissed. The procedure is established in Government Regulation No. 108/2000 on procedure for accountability of the head of region. This regulation provides for, amongst other things, a quorum in the plenary session and a quorum for taking a decision to reject the report. Paragraph 9, Section 2 states that the evaluation of the head of the region’s revised statement of accountability is made in a plenary session of the DPRD; this session has to be attended by at least two-thirds of its members. The DPRD’s rejection of a revised report can only be decided upon with the agreement of two-thirds of the number of members present and including all factional groups. According to Rizal Fadillah, this provision would in fact curb the power of the DPRD to evaluate the head of region’s report. The clause “two-thirds which includes all factional groups” would be very difficult to implement in practice, the main problem being the inclusion of all factional groups. If only one group — even though its number of seats might be minimal — does not support the rejection of the report, then the DPRD would not be able to pass the decision to reject it. In Law No. 22/1999, the DPRD’s decision to recommend the dismissal of a head of region is conveyed directly to the president. However, Governmental Regulation No. 108/2000 determines that the DPRD recommends the dismissal to the president via the minister of home affairs in the case of a dismissal of a governor, and to the minister of home affairs exclusively in the case of a regent or mayor. The regulation has thus increased the number of steps for recommending the dismissal of a head of region. This regulation has also introduced a new body tasked with evaluating whether the 126

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DPRD’s decision regarding a rejection of the head of region’s report is in accordance with the applicable provisions. This body is called the “Independent Investigative Committee” and is formed by the minister of home affairs with regard to a province and by the governor for a regency or city. If this committee judges that the DPRD’s decision to reject the head of region’s report is in accordance with the applicable provisions, the recommendation to dismiss a governor is passed on to the president to be confirmed, while a recommendation to dismiss a regent or mayor is passed on to the minister of home affairs. Otherwise, the decision of the DPRD will be annulled by the president or the minister of home affairs as the case may be. Rizal Fadillah expressed the opinion that the operative regulation should function to facilitate and expedite the implementation of the law, but Regulation No. 108/2000 would actually hinder the DPRD’s power to evaluate the head of region’s statement of accountability. If this regulation were put into practice consistently, then the possibility of a head of region’s report being rejected would be very small. According to Rizal, this regulation is actually in conflict with Law 22/1999 in a substantial sense. At the time of the interview, he said that the Association of Councils was holding a judicial review which would be passed on to the Supreme Court in order to have this regulation annulled. According to Law No. 22/1999, the DPRD has the right to propose drafts of regional regulations. This is known as the “right of initiative” on the part of the DRPD. Since the law had been in effect in the province of Jawa Barat, there was not a single regional regulation issued at the initiative of the DPRD up to 2004. According to Rizal Fadillah, the constraints to the DPRD’s initiative were related to lack of funding, data, and also human resources. In order to place the head of the region on an equal footing with the DPRD in a genuine sense, as was intended by those who made Law No. 22/1999, other provisions and related regulations need to support this in a consistent way. There is a choice from several alternatives: 1. If there are several provisions in the law that give such wide powers to the DPRD such as recommending the dismissal of a head of the region, then in order to balance them, consideration should be given to establishing the position of head of the region as a secure post with a fixed term. 2. There has to be a definition concerning the limits of the DPRD’s powers in supervising the regional government. 3. There should be changes in the procedure for electing the head of the region. The method of filling the position of head of the region, in 127

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particular that of mayor or regent, could be through direct election by the people, so that the head of the region is not answerable to the DPRD but to the electors. 4. In order to assist and expedite the work of the DPRD in the field of legislation, a legislative team needs to be formed.

FUNCTION AND ROLE OF THE DPRD IN THE PROVINCE OF BALI The mechanisms and implementation of the duties, powers, rights and obligations of the DPRD were carried out in accordance with the provisions contained in Law No. 22/1999 as well as the rules of the DPRD of Bali. In order to implement the provision of Paragraph 16, Section 3, of Law No. 22/1999 which states that the DPRD is of equal status and is a partner of the regional government, coordination, cooperation and meetings with the executive side were held routinely, and special meetings were arranged every three months, when it was agreed that the agenda will include discussion of draft regulations. In the period of investigation, the DPRD of Bali had fifty-five members (all of them male), of whom 51 per cent had a bachelor’s degree and 49 per cent had completed high school (Sekolah Lanjutan Tingkat Atas) education. The Balinese DPRD had five functional committees, namely: a. b. c. d. e.

Committee A, covering the field of government; Committee B, covering economics; Committee C, covering finance; Committee D, covering development; and Committee E, covering welfare.

In the period of investigation, the DPRD never took the step of rejecting the governor’s accountability report. The relationship between the legislative and executive arms was always characterized by coordination and dialogue in order to achieve unanimity of opinion. In accordance with its tasks and powers as determined in Law No. 22/1999, the DPRD in Bali always carried out supervision of the implementation of regional regulations, directives of the governor, the regional revenues and expenditure budget and the policies of the regional government. There may have been an impression of excess in the DPRD carrying out its role of supervision, as when the Bali Arts Festival Committee was summoned, or when the plan was made to form a special committee in the PKB-Gate 128

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case. Yet, this was done in the context of improving the government’s performance in raising the standard of community welfare in the region. Similarly, when the DPRD summoned the director of the Bank Dagang Bali, who was being sued by his former clients, this step was taken in the context of carrying out the provision in Paragraph 22(e) of Law No. 22/1999, which obliges the DPRD to heed and channel aspirations, to receive the complaints and appeals of the community, and to facilitate follow-up steps to settle these. Supervision of the executive ought to be viewed as a process of cooperation, and not as an act of revenge by the legislature, whose rights were limited before the era of reformation. The DPRD and the executive should behave as sensible people and partners who cooperate and coordinate their tasks in delivering government service, as enjoined in the clarification within Paragraph 4, Section 2. The legislative function of the DPRD has also been exercised, although the number of initiatives originating from the council is smaller compared with those from the executive. This is caused by the fact that the executive has more bodies or units (organs, services, bureaus, sections), so that it is more productive in making draft regulations depending on its field. In Bali, out of a total of thirty-four items published between 2000 and 2003, only three originated from an initiative from the council. In other words, its percentage was 8.8 per cent out of the total number of regional regulations. Regarding the provision of equal status, this has often been interpreted as being something that has to be the same in various matters, so that when the executive receives something (a right or facility), then the DPRD has to get it too. This understanding has often given rise to strong negative feelings on both sides, affecting relations between the legislature and the executive. For example, members of the DPRD in Bali were offended when they were not given the same seats as the governor of Bali at the opening of the Bali Arts Festival in June 2002. Although in the end, the offence could be blamed on an individual rather than an authority, this matter clearly affected the relations between the legislature and executive from a psychological angle. In order to avoid such interpretations of the provision of Paragraph 16, Section 2, the words “of equal status” (berkedudukan sejajar) would be better off deleted. The formulation “partners” (mitra) would perhaps be much more appropriate, because it means that both DPRD and head of region are placed on par. Still, there are provisions in Law No. 22/1999 that do not tally even with this formulation. In Paragraph 44, Section 2, it is stressed that the head of the region is answerable to the DPRD. Such unclear or even contradictory provisions also provide an opening for “money politics” (corruption), if the head of the region engages in a process of bargaining with the DPRD lest his 129

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report be rejected. It is therefore recommended that the provisions be clarified and changed in such a way that misunderstandings and chances for misuse are precluded. In the context of supervision, The DPRD has the right of asking for information and holding an investigation. Here, a clear understanding is needed so that these steps do not give the impression of a criminal probe. As Paragraph 18, Section 1 (f ) of Law No. 22/1999 stipulates supervision as being of a general nature, further regulations as to the procedure of the supervision should be issued, so that the relationship between DPRD and the executive as partners becomes clear, and conflict between the two does not arise. In connection with establishing the DPRD’s budget as laid down in Paragraph 19, Section 1 (g), the impression was that this was not subject to supervision. There was, in other words, a lack of transparency in the management of the DPRD’s budget. At this point the question can be asked, if the DPRD is given the power of supervision, then who is going to supervise the supervisor? Hence, in order to avoid a lack of transparency in the management of the budget of the DPRD the role of the executive as partner of the legislature can be made functional. Consequently, the provision of Paragraph 19, Section 1 (g) could be supplemented with the clause “the obligation sincerely and earnestly to devote attention to the suggestions and opinions of the executive”. In the province of Bali, the DPRD showed very little initiative in putting forward draft regulations, and in the regency of Bangli, the DPRD never showed any. From the perspective of educational background of DPRD members, those of the provincial DPRD were equally divided between those holding a degree and those with a high school certificate. Their efforts in putting forward draft regulations still amounted to only three out of thirtyfour passed within a period of two-and-a-half years. In the regency of Bangli, most members of the DPRD had graduated from high school. None held an academic degree though, while the rest did not even have a high school education. This suggests that thought should be given to laying down educational requirements for members of the DPRD, for example a high school education as a minimum. Another measure which could spur on members of the DPRD to take action in proposing draft regulations is to alter the provision of Paragraph 19 of Law No. 22/1999. While now it identifies the proposing of draft regulations as a right of the DPRD, it could be changed into a duty. This would balance the burden between the DPRD and the executive, as Paragraph 43 of Law No. 22/1999 describes proposing draft regulations as an obligation of the head of the region. 130

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The role of the DPRD in appointing the secretary of the region also needs to be given attention. The DPRD does not need to get involved in the internal affairs of the executive, especially when it concerns the career of a government official. A revision of Paragraph 61, Sections 2 and 4, would thus be necessary, whereby the approval of the DPRD in appointing a secretary of the region would be removed.

FUNCTION AND ROLE OF THE DPRD IN SULAWESI SELATAN PROVINCE In the province of South Sulawesi, the three functions of the DPRD, namely legislation, supervision and budget, were not yet of optimal standard. Regarding legislation, the DPRD had only proposed draft regulations pertaining to the supervision of fuel oil and the transport of goods. Concerning the function of supervision, the right to request information, to express an opinion, to hold an inquiry and to request a statement of accountability, only the rights to request information and to request a statement of accountability had ever been exercised. As for the function of budget, it was more often exercised than the previous two. Usually, when a budget related policy originating from the executive had reached the DPRD, a budget committee was formed to discuss the matter before a new Regional Regulation on revenue and expenditure was passed. The dominant problems which arose in the province of South Sulawesi in connection with the implementation of Law No. 22/1999 were the following: 1. The supervision of the DPRD was “excessive”, that is, not only political in nature as described in Law No. 22/1999, but often even going into technicalities. It thereby interfered in the field of authority of the Regional Supervisory Body (BPK/BPKP). 2. Because the DPRD is a political institution, it is unavoidable that political issues, such as obtaining influence and power, determine its functions. If the power holders among the members of the DPRD are of different political persuasions, it becomes all the harder to distinguish between an excessively rigid position and political interests. This occasionally impeded the efficacy of the DPRD. 3. A major factor in this respect was also the low quality of human resources. It is an open secret that the human resource quality of members of the DPRD and regional governments in general is minimal, so that much of the behaviour of members of the DPRD appears excessive and is politicized. 131

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As a result of this low quality of the human resources, it frequently happened that the accountability reports of the regent and the governor were used as a basis for members of the DPRD to extract facilities from the executive or the regent or governor. These problems have to be put into perspective by applying the following considerations: 1. The DPRD should not interfere with matters of a functional-technical nature, because this falls within the authority of the Regional Supervisory Body. Very often however, the behaviour of the DPRD which gave the impression of being excessive was also caused — apart from the generally low level of human resources — by the “euphoria of reformation”. There was furthermore sometimes a kind of unhealthy competition between fellow members of the DPRD in the execution of their tasks, to the detriment of the executive who often became the object of “extortion” when accountability reports were being discussed in sessions of the DPRD. 2. Political problems are of course difficult to avoid, because members of the DPRD each have their own political aspirations depending on the aspirations of the people backing them. What need to be avoided are narrow, short-term political interests. Constant efforts have therefore to be made to raise the level of insight and national awareness among members of the DPRD in order to put party loyalty within a wider framework of loyalty to the nation and the state. 3. The lack of capability among members of the DPRD is an intrinsic factor of the proportional system of general election. In this system, it is the people who decide directly who their representatives will be. Yet, this factor has to be balanced by another equally intrinsic one: people’s actions under the district system are likely to be genuinely oriented to local interests, checked and balanced by both formal and informal sanctions by their local community. The high level of their aspirations can thus be relied upon. This provides a formidable basis for raising the human resource quality of the people’s representatives elected under the district system.

FUNCTION AND ROLE OF THE DPRD IN THE PROVINCE OF NUSA TENGGARA TIMUR Implementation of Law No. 22/1999 in the Province of Nusa Tenggara Timur was characterized by the following factors:

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1. The working relations between the DPRD and the executive were characterized by lack of proper procedures. The regional government, for instance, implemented the Regional Revenues and Expenditures budget and only informed the DPRD later. 2. The DPRD did not yet carry out its function as a legislator, and there was a total lack of draft regulations based on initiatives from this council. The DPRD’s ascribed function of representation was moreover apparently turned into “mediating in one’s own interests”. 3. The DPRD was unable to distinguish between legislative supervision and functional control or other kinds of control (see Governmental Regulation No. 20/2000 and Presidential Decree No. 74/2001 “On Supervision of the Provision of Regional Government”). 4. The DPRD’s power over the executive was too great, which gave rise to arrogant and improper behaviour. 5. The lack of competence among members of the DPRD and the weakness of their ability to comprehend the legislation concerning regional autonomy were the cause of differences in interpretation and perception concerning the implementation of regional autonomy. The fundamental problem was the interpretation of the provisions of the 1999 legislation concerning the very wide power of the DPRD, at the level of both province and regency. The question that emerges here actually pertains to checks on the DPRD itself. Although there were many pieces of legislation that could be used as a basis for placing checks on the DPRD, they were still felt to be not quite right, as they would involve a long process of enforcing the law. For the future, a legal mechanism for exercising checks on the DPRD will nevertheless be very necessary.

FUNCTION AND ROLE OF THE DPRD IN THE PROVINCE OF PAPUA The DPRD of the province of Papua consisted of forty-five members, fortytwo of whom were men and three women. 75 per cent had a bachelor’s degree and 25 per cent a high school certificate. Nearly all the members of the DPRD had followed various kinds of training, both through the OTI/DAI of USAID or the USF LD Bali Project, although specific figures regarding budget were not available. The DPRD of the province of Papua consisted of twelve factional groups: 1. Golkar; 2. PDIP; 3. PPP; 4. TNI/POLRI; 5. PKB; 6. Partai Katolik Demokrat; 7. Daulat Rakyat; 8. PAN; 9. PDKB; 10. PBB; 11. KRISNA; and 12. PDI. The relatively large number of factional groups was caused by an 133

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internal policy of the Papua DPRD of that every party which possesses seats can form its own factional group, even if it has only one member. This deviates from the provisions of the relevant legislation, which requires a minimum of 10 per cent of the total number of members. The work format and status performance reports of the DPRD were unclear. Every member who made a visit to the region failed to make a report afterwards. Even though nine billion Rupiah of funding was available to the DPRD, the public seldom found out anything about DPRD activities regarding the budget. The community for its part wanted all sessions of the DPRD to be open to the public and to be published in the mass media, so that DPRD’s work would be transparent. While is true that the members of the DPRD did go out to the community to have a look at various problems, they failed to note them in an official report. Making a report was however, not required by law. Some members of the DPRD did take action, as can be seen from the ratification of the regional budget of the province of Papua for 2002, when several small factional groups refused to ratify it and staged a walkout. Small factional groups in the DPRD did not have any influence in taking important decisions. Members of small parties such as PAN, PDKB and PBB therefore took recourse in a walkout to make their point. Besides, there were members of the DPRD who belonged to factional groups such as the PDIP, who were beginning to work together with NGOs.

CAUSES OF PROBLEMS The fact that the council’s performance is apparently still weak, in legislation, budgeting and supervision, is at least connected with the capabilities of the individuals who comprise its members. Apart from that, there is a link with the interests they represent or their political parties. Meanwhile, the problem can be traced to the existence of the ample opportunities given it by law as a legislative body, to the extent that it often looms as a figure with very great power. In connection with the role and function of the DPRD, the legislation should, as stated above, stress that the conditions for becoming a member of the DPRD are at the very least an upper high school (SLTA) or general high school (SMU) certificate, or else having adequate experience of working in organizations or parties, and possessing enough basic knowledge about the duties and powers or role and function of a legislative body. Apart from this, it should be obligatory to periodically and continuously follow programmed and structured training in connection with the tasks of the DPRD. In connection with recruiting members of the DPRD from the various parties 134

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that at this time are everywhere springing up like mushrooms, it is very important to investigate thoroughly whether a person has a good personal record and integrity of character.

FUNCTION AND ROLE OF THE DPRD IN THE REGENCY OF BANDUNG The data obtained in the regency of Bandung concerning the function and role of the regency DPRD are very meagre indeed. This was caused by the fact that at the time of the research, it was very difficult to meet and interview members of the DPRD because they were busy with various activities such as field observations or making comparative study trips to other areas outside the regency of Bandung. Nevertheless the researchers were able to obtain data from two informants. In general, the function and role of the DPRD were in accordance with Law No. 22/1999. Kasrul Anwar, a member of the DPRD of the regency of Bandung, questioned the authority of the Presidential Decree No. 10/2001 concerning land matters, which he regarded as deviating from Paragraph 11 of Law No. 22/1999 and as denying the spirit of regional autonomy contained therein. As the status of a Presidential Decree is lower than a law, a Presidential Decree cannot be in contradiction with or deviate from a law. This Presidential Decree is therefore legally invalid.

FUNCTION AND ROLE OF THE DPRD IN THE REGENCY OF BANGLI The DPRD of Bangli consisted of twenty-four members, all male, with the following educational backgrounds: 37.5 per cent (nine persons) held a bachelor’s degree; 58.5 per cent (fourteen persons) had a upper high school (SLTA) certificate; and 4 per cent (only one person) had a lower high school (SLTP) certificate. The DPRD had five committees: 1. Committee A, covering the fields of government, order, security, population, information, permits, law and legislation, staffing, sociopolitics, social organization and land matters; 2. Committee B, covering commerce, industry, agriculture, fisheries, animal husbandry, plantations, forestry, food supply, logistics, cooperatives and tourism; 3. Committee C, covering finance, taxation, charges, banking, local businesses, joint ventures, the field of enterprise and capital investment; 135

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4. Committee D, covering public works, urban planning, parks and gardens, cleanliness, communications, mining and energy, public housing and environment; 5. Committee E, covering manpower, education, science and technology, youth affairs and sport, religion, culture, social affairs, health and family planning, the role of women and transportation. The DPRD and the executive had a good understanding of their relationship as partners, in particular in passing regional regulations and the budget. Within this relationship as partners, the DPRD and the executive quite often had differences of opinion, but by focusing on a spirit of mutual cooperation they could always achieve unanimity. During the period under investigation, the DPRD never rejected an accountability report from the bupati. It was furthermore felt that the role of the DPRD in appointing the secretary of the region (in accordance with Paragraph 61, Section 4) was not appropriate, for reasons already stated in the section on the function and role of the DPRD in the province of Bali. Also in the regency of Bangli, form and technique of the function of supervision were not clear, so that the DPRD often went beyond the bounds of its supervisory authority. When the DPRD for instance suspected that there had been irregularities on the part of executive officials, it would have been better to hand things over to the regional supervisory body or an authorized investigator. This actually ties up with the common feeling that the DPRD should equally be supervised, especially in the management of DPRD finances. The DPRD council never proposed a regulation. On the positive side, it can be noted though that while, previously, participation of the public in the process of making regional regulations had seldom received attention, both the legislature and the executive invited stakeholders to join in giving suggestions for issuing two draft regulations for “Motor Vehicle Testing Charges” and “Public Passenger Vehicle Charges”.

FUNCTION AND ROLE OF THE DPRD IN THE REGENCY OF MAROS Between 2001 and 2003, the DPRD of the regency of Maros was not yet fully implementing the three functions of legislation, supervision and budget. The budget function was implemented relatively well compared to the other two though, because the practice of this function is, after all, of a 136

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technical nature. The functions of legislation and supervision, on the other hand, are abstract and require a comprehensive understanding. Apart from the insufficient functioning of the DPRD in Maros, the following problems emerged that were incidentally not different from those that affected the provincial DPRD: 1. Excessive supervision by the DPRD which entered into technical matters, such as halting the completion of a project or summoning the leaders of the project. Such powers belong with the Regional Supervisory Body (formerly called the Regional Inspectorate), and not the DPRD; 2. Poor quality of DPRD human resources, which partly accounted for the excessive supervision mentioned above. Thus it is necessary to develop DPRD members’ capacity by means of education and training, upgrading and information sessions, or in the form of orientation programmes. These activities can be run separately within the environment of the DPRD, or organized in collaboration with related groups; 3. Slow release of funds for the DPRD budget on the part of the executive. The delay in releasing the DPRD’s budget was caused by several factors: a. Prior to the implementation of Law No. 22/1999, the release of the DPRD’s budget had been in the hands of the executive. This practice was continued under decentralization. Because the Head of the Region and the DPRD no longer form part of the executive, as they did in Law No. 5/1974, this practice should be revised. Yet, the executive still found it difficult to hand over authority in this respect. b. Another reason for the executive not wanting to let go its authority over the finances of the DPRD pertains to the matter of financial administration. In the end the whole financial responsibility is in the hands of the head of the region, and the budget of the DPRD is included in the revenue and expenditure estimates. Thought should hence be devoted to the management of the DPRD’s finances, whereby the important factor to pay attention to is creating clear and specific rules and procedures so that the finances of the DPRD can be utilized and accounted for as they should. 4. Faults in the proportional election system, such as that the representatives of the people are chosen on the basis of the authority of the party, not on the basis of the expectations of the electorate. Hence, people get elected who have close links with certain political leaders, which is a situation that is still conditioned by the long-standing culture of collusion and nepotism. 137

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FUNCTION AND ROLE OF THE DPRD IN THE REGENCY OF TIMOR TENGAH SELATAN (TTS) The problems that were faced by the regency of TTS in implementing the provisions of Law No. 22/1999 were the following: 1. Difficulties with regard to the accountability report of the regent were caused by the fact that the regent had already been installed in 1998. At that time, the Regional Annual Development Plan (Repetada) had been used, while under decentralization, the basis for the DPRD’s right to ask for an accountability report was now the Strategic Plan (Renstra). 2. The DPRD’s supervision over the executive exceeded its boundaries, as for example in the matter of the regent’s accountability report when the DPRD asked for a balance sheet to be appended, whereas the legislation does not require any. 3. The legislative function of the DPRD was not executed because of a lack of available professional staff. The same held true for the executive. 4. The DPRD could not accurately voice or fight for the interests of its members because of a lack of data on the actual implementation of regional autonomy. 5. The DPRD’s power over the executive was too great, encouraging excessive behaviour on the part of the DPRD. 6. Members of the DPRD lacked competence and had a poor understanding of the legislation concerning regional autonomy. This gave rise to unnecessary differences of interpretation and perception on how regional autonomy is to be implemented. The analysis of the problems that the regency DPRD faced shows that they were very much the same as those faced by the provincial DPRD. In order to improve the implementation of the functions of the DPRD in the regency of TTS, it is necessary to make rules that can provide a check on the DPRD in exercising its duties, including putting into effect the legislative provisions pertaining to its membership. An example is the improvement of Paragraph 42 of Law No. 3/1999 concerning the composition and status of the People’s Consultative Assembly (MPR), the Parliament (DPR) and the Regional People’s Representative Council (DPRD). In order to assist with raising the level of DPRD members’ capacities, it is necessary to put into effect the provisions of Paragraph 29, Section 2, of Law No. 22/1999 concerning the obligation to provide experts. The researchers saw the usefulness of having experts present to discuss various matters pertaining to the implementation of Law No. 22/1999 in the regions. 138

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FUNCTION AND ROLE OF THE DPRD IN THE REGENCY OF JAYAPURA The DPRD of the regency of Jayapura had a total of twenty-five members, consisting of twenty-three men and two women. Two held a master degree (S2), three a bachelor degree (S1), eighteen had completed upper high school and two lower high school. The majority of DPRD members had participated in various training sessions on legislative drafting. The DPRD consisted of the following nine factional groups: 1. Partai Golkar (eight persons); 2. PDI Perjuangan (eight persons); 3. TNI/POLRI (three persons); 4. PPP (one person); 5. PDI (one person); 6. PDR (one person); 7. PDKB (one person); 8. KRISNA (one person); and 9. PKB (one person). It had furthermore five committees, namely: 1. 2. 3. 4. 5.

Committee A, covering the fields of government and law; Committee B, covering economic matters; Committee C, covering finance; Committee D, covering development; Committee E, covering social welfare.

The educational stratification of the DPRD members had quite an influence on the performance of the DPRD. Respondents admitted that although the DPRD has the right of initiative to put forward draft regulations, up till then it had never actually proposed a draft. Apart from the limited capability of individual members, the provision regarding the condition for making an initiative also hampered the legislative function of the DPRD. A draft regulation can only be introduced by a minimum of three members from a minimum of two factional groups. The respondents acknowledged further that with regard to carrying out the function of budgeting, they had limited skills in making estimates. The secretariat of the DPRD was led by a secretary who was in fact an employee of the government of the regency, so that many matters were dictated and subjected to the wishes of the regional government. Furthermore, when the DPRD was discussing programmes with the regional government, stakeholders — for instance local adat or religious leaders — were not involved. When the DPRD and the district government were debating budget, they were frequently locked into very tough discussions. As for the DPRD budget, the regional government and the DPRD had adopted a policy in the form of an agreement regarding the size of the DPRD budget each financial year. So aside from the fact that Government Regulation No. 110/ 2000 limits agreement, this policy constituted a breakthrough. 139

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The implementation of the function of supervision was achieved by working meetings and through the annual government accountability report. Intervention of the parties was, however, still very dominant, so that many members of the DPRD kept their silence and did not perform their duty as they should have. Again, the weakness in performing the functions of the DPRD cannot be separated from the quality, integrity and experience of the members themselves, as well as their dependence on their parties. Other factors were the intervention by the regional government in the secretariat of the council in connection with the DPRD budget. And as for its function of supervision, the DPRD did not have the power to apply sanctions on the regional government. Provisions therefore need to be made to empower the DPRD to apply sanctions. To avoid interference from the regional government in the affairs of the Council Secretariat, the secretary should be an independent and responsible person who is appointed and dismissed by the DPRD.

CONCLUSIONS To sum up the following points for conclusion: 1. The DPRD of the province of Jawa Barat and the DPRD of the regency of Bandung regulated their financial system themselves, such as the payment of members’ salaries, means of transport and official housing, and even “private” houses. These DPRD thus did not carry out Government Regulation No. 110/2000 concerning the finances of the DPRD. 2. From the three functions of the DPRD, that is, legislation, budget and supervision, supervision and budget were the ones most often performed. Sometimes, supervision was carried out in an “excessive” way, infringing upon other authorities. The function of legislation in the form of proposing draft regulations, on the other hand, was scarcely exercised. 3. In terms of supervision, a basic problem was that there were no checks on the DPRD itself. 4. The functions of the DPRD at the provincial level were not yet fully implemented because of the low quality of human resources. For the same reason and due to the influence of the euphoria of reform, performance of the functions of the provincial DPRD tended to be excessive. The functions of the DPRD of the regency of Maros were not yet fully implemented either as a result of the still very low quality of its human resources and due to the fact that powers were still concentrated in the hands of the regional executive. 140

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5. In the specific case of the province of Papua, with the enactment of Law No. 22/2001 on the one hand, and the simultaneous enactment of the Law on Special Autonomy on the other, the process of establishing special autonomy was characterized by much confusion. In particular this was caused by insufficient understanding and knowledge of the essence and specific nature of the Law No. 21/2001 on special autonomy as a special law (lex specialis). It was of course this law which should have been the basic point of reference in establishing the province of Papua as an autonomous region. 6. A secretary of the DPRD council who is in fact a civil servant employed by the government is subject to the executive, so that in many matters he is easily dictated by wishes of the local government. This situation was unfavourable for the function of the DPRD.

RECOMMENDATIONS The following recommendations follow from the foregoing: 1. To avoid unbalanced interpretations, the provisions of Paragraph 16, Section 2, need to be simplified by removing the words “of equal status”. The expression “partners” already means that the DPRD and the head of region have the same status. 2. Apart from the power of supervision (Paragraph 18, Section 1f), the DPRD also has the right to ask for information and to conduct an investigation, as laid down in Paragraph 19, Section 1b and c. With regard to asking for information and holding an investigation, there needs to be a clear understanding about the procedure so that these measures do not give the impression of being a criminal inquiry. The function of supervision by the legislative body, moreover, is not technical or functional supervision but general supervision. The provision concerning the power of supervision laid down in Law No. 22/1999 should therefore be expanded further in the form of regulations, so that the relationship between the DPRD and the executive will become clearer, and they will not infringe upon each other’s rights. 3. In view of the low level of initiatives from the DPRD in proposing draft legislation (there are even regency DPRD that have never done so), it is necessary to consider setting up educational requirements for members of the DPRD, for example, having as a minimum completed upper high school. Besides, it is also necessary to consider changing the provision of Paragraph 19 of Law No. 22/1999 which describes the proposal of draft 141

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regulations as a “right” of the DPRD into a “task” of the DPRD. This will certainly balance the burdens of the head of region — for whom proposing draft regulations is already a duty (Paragraph 43 of Law No. 22/1999) — with those of the DPRD. 4. In order to improve the human resource quality of members of the DPRD training, work is required by means of education, upgrading, seminars, workshops and so on, either organized by the DPRD itself or in collaboration with other bodies, such as the Association of Councils (ADEKSI and ADKASI). 5. In order to improve the implementation of the function and role of the DPRD, rules need to be made which can serve as a basis for checking the DPRD in carrying out its tasks, including putting into effect the provisions of the legislation connected with the DPRD, for example, Paragraph 42 of Law No. 34/1999 on the composition and status of the MPR, DPR and DPRD. However, this paragraph needs to be improved as its norms are merely prohibitions, and it does not contain provisions for criminal sanctions that could be used to punish a person who contravenes these prohibitions. There are sanctions, but these are administrative sanctions in the form of dismissal from membership of the DPRD via the council’s internal disciplinary procedures. The DPRD did in fact deliberately avoid criminal sanctions because this was apparently detrimental to their own interests. There is furthermore a conflict of interests in Paragraph 42 of Law No. 34/1999. The suggestion to manipulate the paragraphs that refer to the head of the region’s accountability report seems to be not very suitable for settling this problem, because Paragraphs 45–47 of Law No. 22/1999 urge the regional government to become more open, rational and accountable. Because the provisions of Paragraph 48 of Law No. 22/ 1999 contain prohibitions applying to the head of the region, Paragraph 49 on the contravention of these prohibitions can be taken as a basis for dismissing the head of the region. Careful attention still needs to be given to the mechanism for such dismissal however, in keeping with the provisions of Paragraphs 45–47. The provision of Paragraph 45, Section 1, which obliges the head of the region to present an accountability report to the DPRD at the end of each financial year, is very liable to become a matter of political interests. Hence, the provision concerning this report needs to be reconsidered so as to allow it to be presented at the point when the head of the region ends his term of office. 6. In order to help improving the capacity of the DPRD, it is necessary to put into effect the provision of Paragraph 29, Section 2, of Law No. 22/1999 concerning the obligation to provide experts. On the basis of 142

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their own experience as experts with a certain city DPRD, the researchers saw the benefit of experts being there to discuss various things, especially when interpreting the applicable legislation in the context of the implementation of Law No. 22/1999. 7. There needs to be further studies of the substance of Paragraph 61, Sections 2 and 4, especially pertaining to “the agreement of the DPRD in appointing the Secretary of the Region”. Because the position of secretary of the region is not a political one but a career position, its appointment should be an internal matter of the executive. 8. In order to avoid interference in the Secretariat of the Council on the part of the regional government, the appointed secretary should be an independent person who is responsible to, appointed by and dismissed by the DPRD.

Notes This chapter was written on the basis of the joint research of a Center for Local Government Innovation (CLGI) research team comprising the following members: J. Endi Rukmo, Dewi Kania Sugiharti, Ali Abdulrahman, I. Nyoman Suyatna, I. Wayan Wenagama, Faisal Abdullah, Marwati Riza, Deno Kamelus, Eddy I. Hahuly, Yosner Simanjuntak, and Joran Wambrauw. 1 An interesting and at the same time controversial case in this respect was that of the mayor of Surabaya which had mayors and regents in other places have the wind up.

References Allen, Hubert J.B. Cultivating the Grass Root: Why Local Government Matters. The Hague: International Union of Local Authorities, 1990. Badan Perencanaan Daerah Propinsi Jawa Barat. Ikhtisar Data Pembangunan Jawa Barat Tahun 2001. Bandung: Badan Perencanaan Daerah Propinsi Jawa Barat, 2001. Bagian Pengembangan Otonomi Daerah Kabupaten Bandung. Esensi Implementasi Otonomi Daerah di Kabupaten Bandung. Soreang: Bagian Pengembangan Otonomi Daerah Kabupaten Bandung, 2002. Koswara, E. Otonomi Daerah, Untuk Demokrasi dan Kemandirian Rakyat. Jakarta: Yayasan Pariba, 2001. ———. Otonomi Daerah Bali, Kendala dan Harapan. Denpasar: Ikayana, Kampus Bukit, 2002. Lapera, Tim. Otonomi Pemberian Negara, Kajian Kritis Atas Kebijaksanaan Otonomi Daerah. Yogyakarta: Lapera Pustaka Utama, 2000. Saafroedin Bahar et al. Risalah Sidang BPUPKI, PPKI, 28 Mei s/d 22 Agustus 1945. Jakarta: Setneg RI, 1995. 143

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Seidman, Ann, et al. Penyusunan Rancangan Undang-Undang Dalam Perubahan Masyarakat Yang Demokratis. Jakarta: Proyek ELIPS, 2001. Syaukani et al. Otonomi Daerah Negara Kesatuan. Yogyakarta: Pustaka Pelajar, 2002. The Asia Foundation. Indonesia Rapid Decentralization Appraisal (IRDA) Pertama: Sinopsis Hasil Temuan. Jakarta: The Asia Foundation, May 2002. Usman, Syaiku. “Indonesia’s Decentralization Policy: Initial Experiences and Emerging Problems”. Paper presented at the Third EUROSEAS Conference Panel on Decentralization and Democratization in Southeast Asia, London, September 2001. Warta Bappeda Propinsi Jawa Barat, Edisi April–Juni 2002. Widarta, I. Cara Mudah Memahami Otonomi Daerah. Yogyakarta: Lapera Pustaka Utama, 2001. Legal Sources Kepmendagri No. 41 Tahun 2001 tentang Pengawasan Represif Kebijakan Daerah. Kepmendagri No. 130-67 Tahun 2002 tentang Pengakuan Kewenangan Kabupaten dan Kota. PP No. 25 Tahun 1999 tentang Kewenangan Pemerintah dan Kewenangan Propinsi sebagai Daerah Otonom. PP No. 20 Tahun 2001 tentang Pembinaan dan Pengawasan Atas Penyelenggaraan Pemerintah Daerah. Undang-Undang No. 22 Tahun 1999 tentang Pemerintahan Daerah. Undang-Undang No. 25 Tahun 2000 tentang Perimbangan Keuangan Antara Pemerintah Pusat dan Daerah. Undang-Undang No. 34 Tahun 2000 tentang Perubahan atas Undang-Undang Republik Indonesia No. 18 Tahun 1997 tentang Pajak Daerah dan Retribusi Daerah. Undang-Undang No. 21 Tahun 2001 tentang Otonomi Khusus Bagi Propinsi Papua.

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5 REGIONAL AUTONOMY, REGULATORY REFORM, AND THE BUSINESS CLIMATE Mohammad Sadli

During the Conference organized by USAID-PEG and the Ministry of Industry and Commerce (Departemen Perindustrian dan Perdagangan) convened at Hotel Borobudur in Jakarta on 13 August 2003, a lot of complaints were heard, supported by surveys of credible research institutions, as regards new taxes, user charges (retribusi) and other levies that had been extracted by provinces, districts and municipalities (kabupaten & kota) in the past two years in which the laws on regional autonomy had been implemented. Many of those charges were levied on trade or on the movement of commodities in, or passing through, a certain territory. Such levies were depicted as having a distorting effect on the economy, as they would hamper the free flow of goods within national borders, an important economic policy principle to be upheld. The central government had tried to roll back such levies in 1997 by Law No. 18, but after the implementation of the laws on regional autonomy in 2001, especially Law No. 34/2000, they have come back. The legal status of some of them is, however, more than questionable. Apart from charges on transportation of goods, there are also reports of exactions on enterprises by local governments, ostensibly as user charges, such as contributions for street lightings, even when the electricity is produced by the companies themselves. The practice of demanding “third party contributions” by local governments is also a new cost-increasing phenomenon 145

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making the affected enterprises less competitive or less profitable. According to a survey in fifty-five districts (kabupaten) by the research institute of the economics faculty of the Universitas Indonesia (LPEM) in Jakarta, such charges have sometimes amounted to up to 10 per cent of the costs since 2001, and impose a relatively heavier burden on smaller establishments. Other surveys presented in this anthology, however, concluded that the impositions have weighed more heavily on larger enterprises. Hence it is still not easy to form a firm conclusion. Perception surveys have also indicated that most companies do not report a larger change in impositions as compared to the situation before the year 2001. There are even respondents who perceive a slight improvement of the business climate after the implementation of regional autonomy. Whatever the direction, lighter or greater burdens, the changes are marginal (below 0.5 on a scale of 2). Bert Hofman, former chief economist of the Jakarta office of the World Bank, had said at the beginning of 2003 that “the implementation of the laws on regional autonomy in Indonesia has created great new fiscal and administrative problems and confusion but has not caused a major calamity”. What he had meant was that in the realm of public administration and finance, the transfer of some two million central government personnel to regional entities and the transfer of a significant part of central government expenditures to local governments had not wrecked the system. The minister of finance was able to control the deficit in his budget, the growth of money in circulation was properly managed by the Bank of Indonesia and the inflation abated in 2003. The rate of growth of the economy dropped from a post-crisis peak of about 5 per cent in 2000 to levels between 3 and 4 per cent per annum. The figure remained relatively stable, showing even a very slight increase from 2001 to 2003. The relatively high growth figure for 2000 has also to be seen as a recovery from a low point. In 1998 the economy had contracted almost 14 per cent; this contraction, however, stopped in 1999. Exports were still holding up (between US$55–60 billion annually), growing a bit from year to year, again the year 2000 being recorded as a peak after the very deep crisis in 1998. Only investments remained the weak spot in the economy after tumbling heavily and becoming negative during most part of the crisis. The movements in macro-economic indicators may have been more influenced by macro-economic and international factors rather than by the implementation of the law of regional autonomy starting in 2001. By putting a damper on the loud cries of complaints is not to sideline them though. The new taxes and charges may perhaps not have been excessive and, for the time being, most were absorbed by the enterprises and not fully passed on to the consumers or buyers of the products. The impositions have 146

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not “instantly killed the goose that lays the golden eggs” but perhaps, if not stopped, they will gradually starve the goose to death. The absorption of the additional costs by the enterprises has been documented in some of the surveys. But if profits are reduced, so will be the capacity of the enterprises to expand by putting in more money. It has to be borne in mind that the distorting effects of the implementation of the regional autonomy laws may take a few years to materialize. Looking back at the efforts of the central government in the late eighties to “deregulate” (the word “liberalization” was at the time not so politically correct) the economy, one of the efforts was to roll back the multitude of regional and local taxes and user charges (retribusi). The whole process of deregulation had effectively boosted the economy and made possible the boom of the nineties before being hit by the crisis. Many of the local taxes and charges were also “nuisance taxes”, that is, the cost of collection outweighing the gains. Many of the post-regional autonomy impositions have also been nuisance taxes. When they are billed as “user charges”, no corresponding benefit to the user can be verified. Hence, once more, they should be rolled back. This brings us to the problem of compensations. To give an incentive to the local governments to roll back their charges, or to give them some consolation, the central government has to enable them to receive more revenues. Such efforts have been made. Important revenue taxes are mostly still collected by the central government but some part has been apportioned to provinces, districts and townships. Some are already directly administered by the local governments. The local governments complain that the time lag waiting for their tax share from the central government is a big nuisance and that the verification is often not very transparent. Why not allow immediately direct collection of the taxes by the local governments? In time, this may become practicable, but administrative capacity of new tax collection agencies cannot be built overnight. Moreover, there are two tiers of local governments, the province and the district. If later the kecamatan (sub-district) and desa (village) are recognized as legitimate tax collectors, this will add to the practical problems. The tax basis for desa, and kecamatan should be reviewed. A desa is the home of mostly poor peasants or villagers living from non-farm income. Should they be taxed, how and how much? So far, that is until 2004, the central government did not collect land tax from poor peasants, and sales or value added taxes were only imposed one time, at factory level on manufactured goods. Small eating stalls (warung) were not paying the consumption tax paid by larger restaurants. In the old days, the incentive to become lurah (village head) was that he received a piece of land from which he could sustain 147

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himself. The efficaciousness of this arrangement, however, depends on whether or not the village still has spare land to give out. The camat (sub-district head) was usually paid as a local civil servant. In one of the tables summarizing local levies imposed by desa and kecamatan, civil servants appear as significant in percentages of complaints (Fauzi 2003, table on Pelaku Pungutan Liar). Local collection of taxes will also not solve the problem of equity between regions. Most districts are poor because they are rural. They have not much of a base for property taxes, vehicle registration taxes, consumption taxes on hotels and restaurants, even for billboard advertisement taxes. Only municipalities or districts with a capital city will have that potential. Then, perhaps, the provinces should perform such redistribution tasks. Under pressure from the regions, the central government has recently given in to tax revenue sharing of personal income taxes, that is, 20 per cent is allocated to the local government where the tax is collected. This is a practice that only profits large cities where many of the affluent residents live. Income taxes of companies should not be given the same treatment because only Jakarta, Surabaya and Medan will stand to gain, as companies operating in the regions and localities are paying income taxes at the cities where the companies are registered. Most of the 350-plus districts are rural and have no strong tax basis. Their local revenues (PAD) are often less than 10 per cent of their budget needs. They will permanently depend heavily on central government transfers, and that should be recognized as a natural thing and nothing to be ashamed of. Instead of joining the present euphoria to increase PAD, they should instead concentrate on the efficiency and efficacy of their expenditures. The central government has insisted that budgetary planning should adhere to the principles of “performance budgeting”. This practice should also become a topic of seminars on the implementation of the laws on regional autonomy. The pressure for automatic tax revenue sharing is great. The regions producing natural resources were at the forefront. Aceh, Riau, East Kalimantan, Papua and others have complained that for decades the central government has drained the rent from exploitation of natural resources (oil and gas, minerals, timber) to the benefit of Jakarta, leaving the producing regions at the short end of the redistribution. The lion’s share, they have complained, went to Java on the principle that the benefits of natural resources should be enjoyed by all the people, and that natural resources are the property of the nation as a whole, not of the local people. Accommodating such pressures and accusations from the regions, the central government has agreed that some portion of the rent (that is, government revenues above company income taxes per se) is to be directly shared by the people of the producing 148

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region. This revenue sharing has boosted the revenues of regions such as East Kalimantan, Riau and Aceh by over one trillion Rupiah (US$107 million) per year. Other regions, such as West Java, then demanded that their most important resource, that is, manpower (for industries), should also count in the tax sharing principle. Should regions be given a tax sharing of wages tax, or should the right of imposition of wage taxes be given directly to regions? At the moment, Indonesia has no specific tax on wages. It has a personal income tax of three tiers and with an exempted minimum. Factory workers are subject to this (PPh perorangan) for the part above the statutory minimum. In the meantime, the General Allocation Fund (Dana Alokasi Umum, DAU) with a legal minimum of 25 per cent of the total of domestic revenues of the government and, in 2003, standing at about 80 trillion Rupiah (equivalent to about US$10 billion), is the most important variable in the fiscal equation. Because of budgetary limitations, the amount of DAU is still very restricted but in the future this amount will grow in relative terms (percentage of government revenues) as well as in nominal amounts. Because of its size, the DAU is the major instrument for fiscal equalization. The much smaller Special Allocation Fund (Dana Alokasi Khusus, DAK) in 2003, of only some 2.7 trillion Rupiah is an additional instrument. The allocation formula will experience modifications over the years reflecting the search for a better, and more equitable, formula, but also reflecting the constant pressures of regions for a greater share. Regional lobbies in parliament are strong. Hence, such formula will never be ideally equitable.

Reference Fauzi, Indra N. Final Report: Survey Persepsi Pelaku Usaha Tentang Otonomi Daerah dan Dampaknya Terhadap Iklim Usaha di Daerah. Jakarta: Regional Economic Development Institute (REDI) in cooperation with the Partnership for Economic Growth and The Asia Foundation, 2003.

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6 DECENTRALIZATION, REGULATORY REFORM, AND THE BUSINESS CLIMATE David Ray

INTRODUCTION This chapter examines the many regulatory problems in local government in Indonesia and proposes simple models for regulatory reform. From the outset, it is important to stress that decentralization is not the major cause of regulatory problems in the regions. Many of the problems discussed in this chapter represent nothing new and have been documented elsewhere. For example, SMERU Research Institute (1999) and others identified a range of local government imposed tariff and non-tariff barriers in internal trade in the mid-late 1990s. The World Bank (1994) discussed the inappropriate use and pricing of user-charges in local government in the early 1990s. Goodpaster and Ray (2000) outlined the discriminative and anti-competitive nature of many local government regulations just prior to the commencement of the autonomy process. Decentralization nevertheless does present new challenges and pressures. For example, under pressure to raise own-source revenues, local governments have turned to using a number of trade-distorting taxes and charges that were commonly found in the regions in the early-mid 1990s, but later banned through deregulation measures in 1997/98. Also under decentralization, new legislation on local taxes and charges (UU 34/2000) has lead to sub-optimal 150

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arrangements governing the supervision of local regulations. As a result distorting local taxes and charges are being implemented without effective review of their regulatory impact. Monitoring and addressing the many regulatory problems in local government and policy-making has been an important focus for the USAID Partnership for Economic Growth (PEG) project based at the Ministry of Industry and Trade. This paper draws on, and builds upon the work by PEG and MOIT counterparts and includes the many regional and desk studies carried out under the PEG-USAID banner by local research groups such as the SMERU Research Institute, BIGS (Bandung Institute of Government Studies), KPPOD (Regional Autonomy Watch), LPPPM Sawala, AKADEMIKA, REDI (Regional Economic Development Institute), as well as a number of contracted individual researchers (see Table 6.l). This chapter considers local regulatory problems at two levels. The first problem is at the process level. That is, the process by which a regulation (or other forms of government intervention) evolves from initial idea, to the design and review stage, through to final implementation. This includes TABLE 6.1 Select PEG Studies on Regulatory Problems in Local Government Research Group/Researchers under PEG

Research Topic/Activity

SMERU Research Institute

Regional Studies: North Sumatra, North Sulawesi and West Java

Regional Economic Development Institute (in cooperation with The Asia Foundation)

Business Perceptions Survey (over 1,000 small businesses)

Bandung Institute of Government Studies

Developing pro-market licensing sensitive to public interests

EP3M Sawala

Case studies on retribusi regulations in Garut and Tasikmalaya

KPPOD — Regional Autonomy Watch

Desk reviews of 700 local regulations

Frida Rustiani

Reforming business licensing in local government

Source: Author’s compilation. 151

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important elements such as problem identification, stakeholder participation, consideration of non-regulatory alternatives and internalizing cost-benefit analysis into policy process. The second problem is the product of the policy process, namely the use of specific regulatory or fiscal instruments that impact directly upon the business climate. Attention will focus primarily on the use of user-charges (commonly known as retribusi in Indonesia), and to a lesser extent, on local taxes and non-revenue raising instruments (that is, non-tariff barriers or tataniaga). Having discussed a broad cross-section of key regulatory problems in local government, attention in the final section of the chapter will focus on developing a simple model for regulatory reform.

PROBLEMS IN THE REGULATION-MAKING PROCESS Analyses on regulatory problems typically focus on regulatory outcomes (such as tax or retribusi regulations) and not on the regulatory process. Discussed below are a number of general weaknesses in the local policy process that often result in unnecessary or inappropriate regulation. The starting point in the regulatory process is the clear identification of the particular problem that needs addressing through regulation. If there is no real problem, then there is no need for regulation. This is an obvious, but often neglected point. Many local regulations are often drawn up with no clear objective, or with objectives inconsistent with their title and substance. Commonly, local regulations are designed not to protect the public interests or to provide services, but to raise own-source revenues. In the forestry/wood sector for example, regulations are sometimes drawn up with the stated objective of ensuring sustainable forestry management but tend to focus more on revenue collection. Whilst effective supervision of forest exploitation requires a broad range of activities (for example, that cover planting, felling, land-title, transport, etc.) supervisory activities tends to focus only on areas where exactions are most easily imposed, such as taxing the transport of logs, licensing chainsaws, etc.1 Such problems are also common in the trade and transport sectors. Prominent amongst the list of problematic regulations cancelled by the central government are retribusi charges that distort internal trade. These include licenses to import or export agricultural boundaries across subnational borders, certificates of origin in domestic trade, licences to load or unload road vehicles as well as quarantine and inspection charges on goods traded internally. In almost all cases it is difficult to determine what the actual 152

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problem is that requires regulation (that is, there is no public interest aspect that needs protecting). Often the starting point in the regulatory process is not the identification of particular problem that needs addressing through government intervention, rather the assumptions regarding own-source revenue in the local budget. In these circumstances each DINAS (civil service) office is given a revenue quota that it must then meet typically through licensing and other regulatory activities. There is considerable pressure to respond to these demands as reaching or exceeding revenue targets is seen as an important indicator of success for DINAS officials. In some cases the most distorting regulations are drafted by the local revenue office (Dinas Pendapatan Daerah, DISPENDA) and then forcibly imposed upon (often reluctant) DINAS officials to implement.2 Good regulatory practice requires that regulations must be the minimum necessary to achieve the desired objectives. This means that government action should only occur where there are no non-regulatory alternatives available.3 Such alternatives could include self-regulation, voluntary standards or codes of practices, information or socialisation strategies (such as public education programmes) as well as the use of market-based solutions. In Indonesia local governments give little consideration to non-regulatory alternatives. As a result, most tend to over-regulate. A common problem is the use of retribusi charges to fund so-called “guidance and supervision” activities (pembinaan dan pengawasan) in key agricultural sectors such as fishing, livestock, forestry, plantations and agribusiness (see the example in Box 6.1). The reasons typically put forward for these regulations are to ensure standards and quality control and/or to promote sectoral development. Most provide little, if any, material benefits for producers and are usually Box 6.1: Alternatives to Regulation: Cloves in North Sulawesi In North Sulawesi, the Provincial Government in early 2002 imposed a retribusi charge on all exporters of cengkeh (cloves) and cinnamon to fund development and quality control measures. Funds collected from this user-charge were divided roughly 30–40% for the provincial government and 60–70% for district governments. Beyond this, there is little indication how the funds were used to develop the sector or to ensure quality control. If these were the real objectives of the regulation (as opposed to simply raising own-source revenues) then a number of non-regulatory alternatives may have been more appropriate. For example, producers through the operations of an association could setup their own arrangements to promote product quality, through self-regulations or information and education services.

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regarded as nuisance taxes. As sectoral development and product quality are clearly in the interest of producers a better solution would be for the government to leave such matters in the hands of producer or professional associations (assuming no major public interest considerations such as health or safety standards). Another example, perhaps common to every local government in Indonesia, is the legislated monopolization of public services by local government agencies or companies. As noted later, many services reserved for the public sector can be provided, in many cases more effectively, by the private sector. Examples include the provision of services associated with vehicle road worthiness inspections, laboratory testing, as well as surveying and other procedural requirements for building approvals. Monopolization of these and many other services by the public sector typically results in suboptimal service delivery. There are a variety of factors behind this heavy-handed approach to government that essentially eschews non-regulatory alternatives, particularly those alternatives involving the private sector. To a certain extent this could be driven by the pressures to raise own-source revenues and, in the case of service delivery reserved for the public sector, the need to provide employment opportunities for the large numbers of under-employed civil servants at the local level. It may also be a reflection of a continuing paternalistic culture within government, ground in feelings of suspicion if not outright hostility toward the market mechanism, that instinctively seeks to regulate all economic activities, whether necessary or not. A critical test of government policy is its ability to generate net-benefits for the community. This is a difficult yardstick to use in Indonesia as few, if any, elements of government have internalized cost-benefit analyses into the policy-making process. At the local level this might be due to a lack of capacity. More likely, however is that most local governments are simply not aware of the importance of undertaking even the most elementary forms of cost-benefit analysis before a local regulation is submitted to the legislature and then implemented. As a result local governments often impose regulations that might generate a net benefit for government, but impose a net cost for the broader community (for example, consumers and producers). One example is the range of charges and fees often imposed upon domestic trade in agricultural produce. These types of exactions typically generate small amounts of net revenue for government — that is, revenue net of implementation and “leakage” costs — but due to their distorting nature generate substantial costs for producers, in particular farmers. In some cases, the high costs of 154

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implementation, administration and compliance ensure that local exactions are unable to generate net benefits for government, let alone the broader community. In other cases, regulations serve the interests of one sector of the economy, but impose high costs upon almost every other sector. For example the banning of sugar imports into East Java obviously benefits sugar farmers, but imposes serious costs upon downstream users (for example, food and beverage processors, etc.) and, perhaps more importantly, consumers. In these and many other cases, even simple cost-benefit analyses would show that these policies generate net costs for the community and should not be pursued. A theme common to all PEG studies is the clear lack of participation by stakeholders in the regulation-making process. Participation has not improved under decentralization. Of the 1,014 business surveyed by REDI in 2002, only 14 per cent responded that stakeholder participation in the policy process had improved under decentralization. Other studies report that even when consultation with stakeholders does occur it is often done at such a late stage that the regulation is already a fait accompli, that is, the community has little opportunity to influence it. In addition poor socialization after implementation often leads to a general lack of awareness and/or confusion regarding regulations. There appears to be few, if any effective feedback mechanisms regarding the impacts of local regulations. Accountability to the public vis-à-vis regulations is poor.

PROBLEMS WITH LOCAL REGULATIONS Discussed below are a broad cross-section of problem regulations that tend to distort trade, investment and other economic activities. The underlying cause behind many of these problematic regulations is the perceived need by local governments to raise own-source revenues. Most problem regulations in Indonesia are retribusi, not taxes. Of the 173 local regulations banned by the central government as of June 2003, 141 or almost 82 per cent were retribusi. Using a larger sample set, the KPPOD (2002) reviewed 693 local regulations issued over the 2000–02 period, and found that 492 were problematic, 70 per cent of which were retribusi. This is not to suggest that retribusi regulations are taboo. Better targeting and pricing of retribusi represents an important means of improving service delivery and more generally, the regional business climate at the local level. Moreover, the efficient use of retribusi to fund service delivery can provide much needed relief for local budgets whilst reducing dependence on inter-government transfers. Unfortunately, retribusi typically finance only a small proportion of 155

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Box 6.2: Where do Local Regulations come from? The BIGS (2002) study provides an interesting account of the process of developing local regulations, beginning with the initial idea, the review process, debate, revisions and then final implementation. Regulations originate from two sources: the executive (DINAS offices, etc.) or the legislative. Consistent with earlier findings by SMERU (1999), BIGS found that most regulations came from the executive.4 The reasons for this, according to local parliamentarians surveyed by BIGS, are that officials from the relevant agencies have a better understanding of the problems in the field. BIGS provides an alternative interpretation that this also reflects the relative weak relationship that legislators have with their constituents and, as a result, cannot get sufficient information to aggregate the interests of their constituents into effective local regulations. BIGS also found a number of local regulations that were not a direct result of local initiative, but were drawn from higher levels of government (for example, central government legislation recast as local regulations such as Local Regulation No. 5/2001 governing work hours in Bekasi) or copied from neighbouring jurisdictions (for example, Kota Tasikmalaya using regulations from Kabupaten Tasikmalaya). In other cases new regulations, are often old regulations that were abolished by deregulation measures in the late 1990s, but revisited post-regional autonomy. For example, SMERU (2001) legislation regarding “Plantation Company Contributions” in Simalungun, North Sumatra (essentially an illegal exaction duplicating higher level taxes) is a rebirth of the previously banned Regulation No. 39/1995 concerning “Plantation Management Fees”.

public services as local governments continue to give greater emphasis to raising own-source revenues through taxes. There are two basic types of retribusi, each fulfilling different functions: 1. Regulatory types: Service fees and levies to fund the issuance and administration of licenses and permits (typically where there is a clear public interest aspect that needs protecting, for example, driver’s licences to ensure road safety). 2. Financing types: User fees to fund public service delivery, such as Utilities, access to public facilities, etc. Key concepts underlying the appropriate use of retribusi include: 1. User-pays: Retribusi, unlike local taxes, are designed to fund specific government services and not to raise own-source revenues (a rule not 156

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generally understood nor adhered to in Indonesia). The key criterion for using retribusi is whether the particular government service, for which the levy is being imposed, is separable. A separable government service is one where the benefits of the service can be attributed specifically to individuals, households or businesses. In these circumstances the appropriate approach is to charge the beneficiaries. Private financing of government services on a user pays cost-recovery basis in turn provides much needed relief for local budgets. 2. Cost Recovery: All funds collected though the imposition of retribusi levies upon service users should be expended in the provision of those services. That is the sum of all fees should be just enough to pay for direct provision as well as an appropriate proportion of cover government overheads.5 Revenues necessary for cost recovery in the administration of licenses and permits are typically small, but much larger for key public services, such as Utilities. Appropriate pricing is the key to achieving cost recovery (see below) and also to ensure better equity and efficiency in service delivery. 3. Retention: To strengthen the link between costs and benefits of payment, and to promote greater accountability and transparency, it is desirable that at least a substantial portion of the funds collected through the imposition of retribusi fees should be retained by the particular agency providing the service, rather than transferred to the local treasury office. 4. Pricing: Appropriate prices help achieve cost recovery in service delivery, and also ensure the correct amounts and types of services are provided to those prepared to pay for them. If retribusi are priced below cost, nonusers would effectively subsidise users, and excess demand would typically result in inadequate and poor quality service provision. Moreover as cost recovery is not achieved, further pressures are placed on the local budget to fund the increased demand for the service. For both equity and efficiency reasons, it is important that prices reflect costs to the largest extent possible.6 In Indonesia there are a number of problems that typically undermine the effectiveness of retribusi regulations: 1. No real tangible services provided: Retribusi charges are often imposed on the grounds of providing a service, when no tangible service is provided, nor is one required (see earlier example involving unnecessary “guidance and supervision” charges). Another common problem is where the service provided is the issuance of an otherwise unnecessary licence, such as a 157

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licence to import commodities into a jurisdiction (for example, Perda Kabupaten Jombang 6/2001), a licence to load or unload road cargo (for example, Perda Kabupaten Indramayu 11/2001) or a licence to sell plantation produce (for example, Perda Kabupaten Gowa 15/2001). In other cases local governments impose a fee for granting contracts to the private sector, whereby firms that win contracts must then pay a service fee to the government — essentially formalizing a kind of “reverse kickback” mechanism — but offering no material service in exchange for payment (for example, Perda West Nusa Tenggara 7/2001). 2. Lack of retention: Levies collected through the imposition of retribusi charges are immediately transferred to the local revenue office (DISPENDA) and only a fraction of the original monies collected is returned to the implementing agency to fund service delivery. This reflects a general misunderstanding within government that the primary function of retribusi is to raise own-source revenue, not to fund service delivery. The 2002 BIGS study provides an interesting example in Bekasi where only 500 million Rupiah (US$53,500) of the 1.4 billion Rupiah retribusi fees collected by the local manpower office (DINAS Ketenagakerjaan) over the first nine months of 2002 were returned to this agency from the local treasury to fund service delivery. This, according to the study, is an important factor behind the poor quality of manpower services provided by the local government in Bekasi. 3. There is often no public interest aspect that needs protecting: Local governments in Indonesia favour a heavy-handed approach when governing business activities. Regulations supposedly designed to protect the public interest often represent an unnecessary and additional layer of licences and permits to burden local producers. The instinctive approach of government is to over- rather than under-regulate. An example is the imposition of retribusi charges for unnecessary inspection and quarantine requirements (for example, Perda Propinsi Lampung 10/2000). Also, sectors previously unregulated are now the subject of new regulations (for example, the licensing of becak pedicab in Kabupaten Hulu Sungai Selatan Perda 5/2001). 4. Regulations designed to protect the public interest, often have the opposite effect: A common finding in the PEG studies is that many regulations often undermine, rather than promote the public interest. BIGS (2002), for example, identified a number of labour regulations in Bekasi, West Java that provide no real protection for workers (such as ensuring safety and health standards) but nevertheless generate employment disincentives by increasing regulatory costs. Sawala (2002) reported that even when regulations are clearly designed to protect the public interest, local DINAS 158

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agencies typically fail to provide sufficient monitoring and supervision to ensure effective implementation, because of a lack of resources and manpower, and also interest. 5. Pricing retribusi well below or well above that required for cost-recovery: Throughout the archipelago, licences and permits are being used as revenue raising instruments, that is, priced well above that required for cost recovery. Evidence suggests that under decentralization the costs of licences have increased sharply. The business perceptions survey in attached appendix for example, reports that over the past two to three years business perceive more transparent, faster and simpler licensing processes, but considerably higher licensing costs. The misuse of retribusi charges for licensing and permits represents an important means by which DINAS heads can respond to internal pressures to meet own-source revenue targets.7 For utilities and other key government services, charges continue to be priced well below marginal cost on the grounds that lower income groups need to access these services at low cost. This is neither equitable nor efficient, as it results in excess demand for services (particularly by those with higher incomes) and ultimately poor service delivery. More appropriate pricing, and better targeting of subsidies are required if service delivery is to be improved. Retribusi licences and fees are especially burdensome and distorting for small business activities. Formalization requires many licences, but very few are necessary on public interest grounds. The licensing process is overly complicated requiring many unnecessary documents and approvals. Fee setting is non-transparent, lacks rationality and is typically very burdensome. Often, licences from one agency duplicate that of another, but are imposed upon the same business. Moreover, licensing often restricts expansion of small businesses into neighbouring districts, as new sets of licences (and therefore relationships with local officials) must be pursued. BIGS (2002) noted that local officials are typically resistant to efforts to simplify the licensing process. Only 20 per cent of licences in the areas they surveyed were issued by one-stop shop services. Moreover there has been no effort to decentralize licensing authority to lower level, and in many cases more appropriately positioned, agencies such as village and camat offices (whose role is limited to issuing recommendation letters to higher level agencies). BIGS (2002) also noted that there is a clear lack of competence from officials issuing licences. This problem becomes particularly serious when the official must understand technical matters, such as the likely environmental impact of a project, or the market (and other) impacts of issuing a large numbers of licences/permits. It also prevents much needed 159

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coordination with other agencies; including those from neighbouring governments (this is particularly important for example when coordinating public transport across West Java and Jakarta). The REDI (2002) survey reported that under decentralization the businesslicensing environment has more or less remained the same. There appears to be an improvement in processing time required and to a lesser extent, in procedural and cost transparency. However, these improvements are offset by higher licensing costs as local governments seek to raise own-source revenues (PAD), most likely through the pricing of licences/permits (retribusi izin) beyond that required for cost-recovery. One salient point illuminated in the REDI survey is that almost half the respondents report that they are still paying informal facilitation or brokerage fees to officers in the licensingissuing agency (see appendix for summary of survey). Trade distortions have been a perennial problem undermining internal market efficiency in Indonesia. As shown by a number of earlier studies, local government interference in domestic trade through the imposition of tariff and non-tariff barriers was common well before decentralization.8 SMERU for example noted that the problem was particularly serious during the second half of the New Order period. During the 1980s and the first half of the 1990s, Indonesia’s rural sector became increasingly heavily taxed and regulated. There was growing concern about a decline in incomes of the original producers of rural products (mostly agricultural goods but they included other low value, resource based commodities, usually minor mining products such as sand, gravel, clay, etc.). Producers received an increasingly smaller percentage of final prices for their goods. Agricultural incomes were subjected to downward pressures, which distorted prices. Incentives to increase production decreased. The desire to produce a surplus for trade fell (SMERU 1999, p. 1). Indonesian local governments are prone to tax trade as they feel that the present taxation system does allow for many alternatives. Local governments are mostly unable to draw local revenues from taxes on assets, incomes and value added, leaving trade as a residual and obvious target. Another reason is that it is very simple to tax trade. This is done by positioning officials at key strategic locations, such as at city and district boundaries, weigh stations, ports, bridges and crossroads. However, as noted below, not all trade distorting regulations are designed to raise own-source revenues. Types of trade distorting regulations cover the following: 1. Import-Export Tariffs in internal trade: Perhaps the most common form of trade distortion is the imposition of tariffs upon goods, and sometimes 160

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services, being traded across sub-national boundaries. These can take many forms such as: a. Trade taxes: The imposition of taxes for all commodities exported/ imported across jurisdictional boundaries (Kabupaten Bima 16/2000, Lombok Tengah 5/2001). b. Licences to export/import: Typically retribusi charges for the issuance of a licence to transport goods across jurisdictional boundaries (Provincial Regulation of Lampung No. 6/2000, Kabupaten Ogan Komering 20/2001). c. Taxes and charges on specific commodities: Most commonly taxed commodities include fish, cattle, and plantation produce and forestry products. d. Agreements across Kabupaten governments (see Box 6.3). Certificates of origin: These regulations often have the stated objective of improving the quality of goods in circulation, or ensuring quarantine or health standards (for example, Kabupaten Pasaman 2/2001). In reality they tend to be very distorting and unnecessarily protectionist as they impose added costs on imports into a jurisdiction, as well as throughtrade. Most well known of these types of regulations was the ID card for cattle used by almost every government at the municipal level in East Java in 2000/01. Loading/unloading fees: These are licence fees for the loading and unloading of products within jurisdictional boundaries, but typically imposed at key transport terminals, such as main road intersections, regional boundaries, ports, bridges, etc. (for example, Kabupaten Tanggumas 20/2000, Kabupaten Ciamis 17/2001). These regulations are not driven by any public interest considerations and therefore comprise another nuisance tax on internal trade. Third party contributions (Sumbangan Pihak Ketiga): The “third party contributions” facility has become a de facto tax on trade in a number of outer provinces. This facility requires local business to provide “voluntary” payments to local government. Devices, ranging from subtle pressure to explicit threats of punitive action (that is, sanctions), serve to collect this type of levy (for example, Kabupaten Ogan Komering 5/2001, Bima 15/2001). Road and transport charges: Over 15 per cent of local regulations cancelled by the central government are charges imposed on road users. These charges are intended to finance road-works and maintenance, but often duplicate other taxes and charges, such as vehicle registration taxes, fuel taxes, etc. 161

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Box 6.3: Joint Agreement by Bupati in the Island of Lombok to Tax Outward Trade Surat Keputasan Bersama (SKB) Bupati dan Walikota Se-Pulau Lombok No. 11/2001, 15/2001, 317/2001 and 434/2001 are an agreement between the three Regents (Bupati) of Western, Central and Eastern Lombok and the Mayor of Mataram to impose a 5 per cent tax on all goods being sent out of the main provincial port of Lembar in the south of Lombok. An “implementation team” comprising officers of the Western and Eastern Lombok Revenue Offices (DISPENDA) is responsible for collecting the tax. Every six months the local governments involved issue a schedule of base prices for 174 (mainly agricultural) products as a reference for the 5 per cent tax. By working together to impose this tax, the municipal governments in Lombok are effectively acting as a de facto province. The provincial government has objected to the jointly imposed tax; however, due to present institutional arrangements governing local regulations (which removes the vertical relationship between the province and lower level governments), it does not have the authority to rescind the tax. The tax is problematic on four accounts: 1) The tax is regressive: As with most forms of direct taxes/charges on domestic trade, the burden of payment ultimately falls upon the producer/farmer. Those responsible for transporting goods through the port, typically traders, adjust their buying prices to cover the 5 per cent tax; 2) The tax undermines regional competitiveness: Traders who cannot depress their buying prices must then either absorb the loss themselves or try to increase their selling price; 3) Given that much of what Lombok produces is agricultural produce sold in competitive markets, 5 per cent increase in selling price would seriously undermine Lombok producer competitiveness in both national and international markets; 4) The tax has no legal basis. According to Law No. 34/2000, taxes at the Municipal level can only be determined by local regulations. The joint agreement has no legal basis. Moreover the same law holds that local taxes cannot be imposed upon goods with high mobility (that is, those which are traded across sub-national borders).

6. Inspections and quarantine requirements: These are typically disruptive, and in most cases highly unnecessary inspection requirements imposed upon a range of goods and commodities, both imported into, and produced within the region. The provincial government of Lampung, for example, in 2000 produced a regulation detailing eleven pages of 162

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quarantine charges for virtually all goods crossing provincial boundaries (Lampung 10/2000). Meat and cattle imports are particularly prone to these types of requirements (for example, Kabupaten Kuantan Singingi 13/2001, Kabupaten Aceh Tengah 35/2001) 7. Vehicle and road safety requirements: These are imposed upon vehicles using regional roads and/or vessels using regional waterways in a way that is often discriminative against non-locals, and also disruptive to throughtrade. That is, it is difficult for road users that are not domiciled in the particular jurisdiction to obtain necessary certificates and permits, resulting in fines and other exactions when entering the jurisdiction (for example, Lampung 1/2000). 8. Import bans: In many cases, local government actions can also distort international trade. For example in July 2002, the Governors of South Sulawesi and East Java both refused shipments of imported rice into their provinces in order to protect local farmers.9 9. Other non-tariff barriers (NTBs): NTBs such as price controls, forced monopsonies and geographical allocation of markets were very common during the Suharto period. However, most were eradicated in the late 1990s following national deregulation measures. Under decentralization there have emerged very few NTBs that distort internal trade. The rush to raise own-source revenues has meant that tariff barriers are now more common. However, as the decentralization process continues, there is likely to be growing pressure upon local administrators to assist certain groups and to protect against out-of-region competition. Examples which have emerged in recent years include an effective investment ban and other discriminative treatment toward non-local pharmacies in North Sulawesi, requirements to collaborate with local partners in mining (Kota Bekasi 13/2001) and forced use of government fish auctions (Kabupaten Cirebon 53/2001). Whilst truck drivers, traders, farmers, as well as small and large businesses and others involved inndomestic trade maintain report that formal exactions are problematic, it is the accompanying “pungutan liar” or illegal exactions they maintain are much more burdensome, as they are erratic in their imposition. The REDI business perceptions survey showed that illegal exactions are the most common cause of complaint for small business (see Table 6.2). Part of the problem is that, given their erratic imposition, informal exactions are difficult to pass on to suppliers and must be absorbed by reducing profits or the rate of capital accumulation. Formal exactions, on the other hand, such as the many formal taxes and charges on internal trade 163

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TABLE 6.2 Factors that Impact Negatively on the Business Climate Illegal exactions Formal taxes and charges Infrastructure constraints Non-tariff barriers/constraints Lack of security Total respondents

262 113 181 204 101 861

30% 13% 21% 24% 12% 100%

Source: REDI 2002

discussed above are much easier to pass on to suppliers as there is greater certainty in their imposition, and their costs can be incorporated into buying prices. The REDI survey reported that the burden of informal payments appears to have eased slightly under decentralization. However, increases in the burden of informal payments are correlated positively with firm size. Larger firms report greater amounts, frequency and number of exacting agencies/ individuals.

PROBLEMS IN ENSURING COMPETITIVE NEUTRALITY Competitive neutrality is an important principle underlying regulatory reform efforts in Australia and a number of other OECD countries. It is based on the widely held view that free, rather than regulated markets provide the best outcomes for consumers and producers. The principle holds that the various forms of government intervention, such as the imposition of regulations and by-laws, the activities of departments and ministries, and the activities of government owned and run enterprises, should not unduly inhibit the ability of private sector businesses to compete.10 A common problem in the regions is the legislated monopolisation of services by government agencies and companies. Whilst public interest considerations may make it necessary for certain services to be reserved for the public sector, many others could be delivered, perhaps more effectively by the private sector. Suhirman (2001) for example noted that the building planning and approval process in Bandung requires a broad range of services to be delivered by local government, including information services, technical inspections on-site, verification, surveying, boundary marking, site mapping 164

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as well as numbering and building registration. In each case, he argued, such services can be better provided by accredited professionals from the private sector. Other examples include regulations requiring yearly vehicle roadworthiness inspections at workshops belonging to local transport and communications agencies (DINAS Perhubungan) as well as regulations requiring quarantine inspections for cattle and meat being traded across sub-national boundaries. In each case the stipulation that these inspections must be done by local officials inevitably result in poor service delivery. In Garut for example, Sawala (2003) reported that local bus drivers complain of losing three days business due to long queues outside government vehicle inspection workshops. In these and many other cases where services are provided through legislated monopolies it is often unclear whether any service is actually carried out. Moreover long queues and supply constraints may invite rent-seeking by service providers as private sector users seek to short cut the system. An approach consistent with the competitive neutrality principle would be to allow private sector groups, say an association of accredited mechanics/ workshops or laboratories, to undertake the testing and to provide some kind of standardized and acknowledged form of certification in the case of the two examples discussed here. The effective privatization of a number of government services at the local level would open up new opportunities for private sector investment and inject much needed competition into the service sector. The net result would be better services, delivered at lower cost and in a more transparent and accountable manner. An unfortunate omission from Indonesia’s anti-monopoly law concerns the activities of government owned enterprises. Supported by the necessary regulations, some of the worst cases of anti-competitive behaviour are those of government enterprises. The central government, for example, provides the necessary regulatory authority to the state-owned port corporations (PELINDO) such that they can prevent private sector ports from competing with their public ports in servicing third-party cargo. Telkom, the central government owned telecommunication firm, allows local call charges for non-local (that is, rural) users of its ISP subsidiary, Telkom Net. This prevents the development of private ISPs in rural areas where internet connections require long-distance calls. Similar violations are likely at the local level as there is now increasing pressure to tap into the profits of local governmentowned enterprises to raise own-source revenues. REDI (2002) reported one example in Jember, East Java where new investors requiring radio advertising must use the local government-owned radio station. 165

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OTHER PROBLEMS A major problem is multiple taxes. Many local governments are clearly frustrated at their inability to directly draw upon revenue sources within their jurisdictions such as company, income and value added taxes. As a result they often develop new taxation instruments that target these sources, but also duplicate higher-level regulations and laws. This is particularly common in regions where there are economic activities that represent a significant proportion of the local economy, but pay little in local taxes. Mining and plantations are two such activities prone to multiple taxation regimes. In North Sumatra for example, SMERU (2001) reported a number of local governments imposing illegal exactions on palm oil and other plantation companies, which duplicate higher-level company and value added taxes. In some cases local taxes duplicate taxes from the same level of government, for example, road taxes duplicating vehicle and fuel taxes (as noted above) and a vehicle registration fees piggy-backing the vehicle tax (West Nusa Tenggara). Other sectors where local taxes duplicate central government taxes include ports, banking, tobacco production, pharmacies (West Nusa Tenggara Province), and air travel (Kabupaten Palu) and forestry (Jambi Province). Discrimination forms another problem. Governments in the outer regions are using tariff and non-tariff barriers to discriminate against outsiders. These discriminative measures take many forms. In some regions, local regulations are generating real disincentives to employing non-local labour. In Kota Pekanbaru, the government is charging companies a 500,000 Rupiah fee for every non-local employed. Moreover larger companies must meet a 75 per cent local labour content requirement within five years (4/2002). In West Nusa Tenggara the provincial government is charging car rental, tourism and contracting companies using cars with non-local plates ten times the vehicle registration costs of cars with local plates (10/2001). Another example is in North Sulawesi where a governor decree seriously discriminates against outsiders in the pharmacy sector (see Box 6.4). The proposed legislation allows the provinces to play a more active role in supervising lower level local regulations and in overseeing the development and standardization of the regulatory review process, and in using economic incentives to ensure local participation in the national regulatory reform effort. An alternative to using sanctions would be to develop positive incentives, whereby compliance would enable access to a special fund from the centre (similar to the incentive model developed in Australia). In this way a new fund would be developed, perhaps as part of the special grants from the centre (DAK), and allocations determined according to ratings of the regulatory 166

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Box 6.4: Discrimination against Outsiders in North Sulawesi According to a Surat Keputusan (Governor’s decree) No. 4dz/03/891, dated 13 September 2000, the following restrictions are placed upon pharmacies whose management and ownership are not domiciled in North Sulawesi: 1. 2. 3. 4. 5. 6.

All non-local pharmacies must own, and not rent premises used for retail outlets; Establishment of new pharmacies must be first recommended by the North Sulawesi Pharmacy Association; Only pharmacies whose management and ownership are domiciled in North Sulawesi can become members of the North Sulawesi Pharmacy Association; All positions within large non-local pharmacies (excluding top management) must be given first priority to citizens of North Sulawesi; Non-local pharmacies are expected to form partnerships with local pharmacies when distributing their products in North Sulawesi; All government procurement for pharmaceuticals up to four billion Rupiah in value will be given priority to local pharmacies. The main rationale behind the decree is to ensure that non-local pharmacies (which tend to outperform local pharmacies) do not repatriate their profits out of the region. By forcing the outsiders to purchase their outlets, the local government expects that these businesses will re-invest their profits locally. According to officials interviewed, the stipulations within the decree that discriminate in favour of locals will only be required until local pharmacies can better compete with outsiders. Another rationale commonly used in the decree’s defence is that it is consistent with the spirit of the Presidential Decree 18/2000 on government procurement that gives priority to local SMEs in small-scaled government procurement and contracts.

climate (much like that developed by the KPPOD 2002b), as well as compliance with new procedural and institutional arrangements for regulatory review as described above. The model is similar to — and could possibly be adapted from — a planned Ministry of Finance programme that seeks to rate regions according to their efforts to overcome poverty, and to reward successful regions through the use of DAK grants.11 The rationale for developing a new fund at the centre would be similar to that for the NCP payments system in Australia. Specifically, the elimination of distorting taxes and charges would generate financial benefits for the central government via increased receipts for corporate and income taxes flowing from greater economic activity.12 These funds transferred back to the regions (on some kind of formula basis) would constitute a “compliance 167

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dividend” that provides real incentives for local government to support, and take part in, the national regulatory reform effort. Exactions at the village level form a third problem. Most discussion and analyses on problem regulations typically focus at the municipal level, but give little attention to the distorting taxes and charges that are beginning to emerge at the village (lurah/desa) and camat level. According to SMERU (2001), more aggressive revenue raising efforts at the village level are closely associated with the cessation of the Village Development Assistance Programme (Bangdes) that on average provided ten million Rupiah per village in 1999/2000. Under decentralization, municipal level governments are also providing the necessary regulatory authority to develop new taxes and charges. In Simalungun, North Sumatra for example, the district government has regulated for the formation and taxing authority of the Nagori, defined by SMERU (2001) as the “legal community entity at the village level with the authority to arrange and organize the interests of the local community”. Throughout Sumatra, the Nagori have been aggressively raising village revenues, typically through exactions on agriculture such as output taxes for plantations and harvesting fees for rice farmers. Similar measures are being taken at the village level in other parts of Indonesia. Ahmad and Ali (2002) noted that dozens of desa-level governments in various kecamatan in Bogor, with the assistance of the Bogor based Asosiasi Badan Pemerintahan Desa (an association for local village-administrations) are developing and implementing identically worded revenue raising regulations, in some cases up to ten to twelve regulations per village. Villages are also actively imposing informal exactions upon producers. According to the REDI survey approximately 40 per cent of respondents identified village and camat level officials as the most common source of informal exactions. There is last but not least the issue of unnecessary compulsion. Many regulations compel local business to undertake certain activities. These are often well meaning but misguided attempts to generate particular outcomes for the community, such as a healthier workforce or more opportunities for SMEs, which at best represent unnecessary annoyances for local companies, and at worst, seriously distort the investment climate. An example of the former is a labour regulation (No. 19/2002) in Kota Bandung that compels companies to undertake frequent training and health checks for their employees. In each case fees are charged, but no real service provided. An example of the latter is a regulation in Jakarta (No. 2/2002) that compels large modern retailers with a floor space of 200–500 square metres to provide at no charge 10 per cent of total floor-space to small-scale/informal traders. 168

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For retailers in excess of 500 square metres the requirement is increased to 20 per cent of total floor space. There is now some concern in the retailing sector that similar regulations will be implemented in other provinces.13

DEVELOPING A NEW SUPERVISORY FRAMEWORK Concerned to raise own-source revenues within the new decentralized framework provisioned by the 1999 legislation on decentralization and regional autonomy, local governments have been quick to produce new taxes and charges and other types of exactions. Before decentralization, local governments were constrained to a prescribed list of local taxes and charges as determined by Law No. 18/1997. As noted by SMERU (1999) and others, this helped to reduce trade and other business costs, particularly in the regions. Under pressure from local governments, Law No. 18/1997 was amended in late 2000 to become Law No. 34/2000, and as a result local governments have greater flexibility to develop new taxes and charges beyond that previously prescribed by Law No. 18/1997 (albeit on the basis of some vaguely defined criteria).14 Many new local taxes and charges that have emerged since decentralization are valid and appropriately priced. Many others, however, are very inefficient and distorting and often have no legal basis. In most such cases they are either user-benefit charges (retribusi) that provide little or no service, or service fees, such as licences, permits, etc., that are priced well beyond that required for cost recovery. Under the decentralization laws the onus of determining the legality of local regulations on taxes and charges has been returned to the central government. The local government is required to submit the proposed regulation for review by the Ministry of Finance based inter-ministerial team on local taxes and charges within fifteen days of issuance. If a period of one month elapses and there is no objection from the central government (that is, the minister of home affairs), the local regulation becomes immediately effective. If, however, there is an objection — typically on public interest grounds or on grounds that the local regulation duplicates or violates higher level legislation — then the regional government has one week to rescind the regulation upon notification by the centre. There are a number of problems with this system: 1) Not all local regulations are being submitted to the centre. The system relies upon compliance with Article 113 of Law No. 22/1999 that all local regulations must be submitted to the centre for review within 169

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fifteen days of issuance. Yet, it provides no facility to impose sanctions for non-compliance. Lewis (2003) estimated the compliance rate to be around forty per cent. In reality, the inter-ministerial team receives input and information on local regulations from other sources, such newspapers, complaints from the business community, reports from donors, etc. Too much of the review burden is placed upon the central government. Given its limited resources the above-mentioned inter-ministerial team has performed credibly, providing recommendations on local regulations typically based upon sound public finance/public policy principles. Unfortunately, there are simply too many regulations to review (despite many not being submitted). In a typical weekly meeting up to twenty to thirty regulations will be reviewed in just a few hours. The weight of numbers effectively precludes any thorough and in-depth analysis of the regulatory impact of local taxes and charges. Delays in the review process. When a regulation is reviewed, it is typically not carried out within the stipulated timeframe. This complicates the rescission/revision process as the regulation in question has usually been implemented. Non-tariff barriers (tataniaga) are ignored. Historically, NTBs (such as forced monopsonies, price controls, regional allocation of markets, quotas, investment and export restrictions, etc.) have been very destructive for the domestic economy. Under decentralization, there are signs that some local governments will use their new authority to discriminate in favour of locals or certain business groups/sectors. Unfortunately, the interministerial team formed to review local regulations only has the authority to review and make recommendations on regulations involving taxes and charges. Hence, many discriminative local regulations and stipulations, such as the ban on investment in new pharmacies by outsiders in North Sulawesi, as noted earlier, remain active. Many local governments are ignoring rulings from the centre on problematic local regulations. Only twenty-two of the 173 regulations banned by the central government have been rescinded at the local level. All others remain active.

The above points suggest that the present institutional arrangements governing local regulations under decentralization are failing. Indonesia needs to develop a national regulatory framework, whereby the onus of reviewing and justifying local regulations is returned to regions. The review process could be based upon key legislative principles set by the central government (in consultation with lower level governments) and carried out 170

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according to established methodologies and procedures as developed in other countries, such as the “National Competition Policy” framework that has been so successful in improving the business environment in Australia, as described in the next section.

NATIONAL COMPETITION POLICY IN AUSTRALIA: A MODEL FOR INDONESIA? In the 1960s, Australia was ranked near the top of the OECD countries in terms of per capita income. By 1990, its ranking had fallen into the bottom third. An important factor contributing to this relative decline was the regulatory environment that inhibited the ability of private business to compete in both national and international markets. In the late 1980s and early 1990s, the central and state governments in Australia began a cooperative effort to establish a legislative and institutional framework to ensure that regulations at all levels of government do not undermine the domestic trade and competition environment. This effort has played a key role in Australia’s relatively strong economic performance in recent years. In April 1995, all Australian governments signed a number of agreements committing themselves to Australia’s “National Competition Policy” (NCP). Key elements of the agreement are as follows: 1. Establishment of the National Competition Council (NCC): The council was set up to advise the central government on progress by the state (and territory) governments toward fulfilling NCP agreements, and provide guidance on regulatory reviews. 2. Regulatory review: Australian governments have agreed to adopt a set of guiding principles when developing new legislation. Such principles ensure that a regulation that restricts competition, should be disallowed unless: • It can be demonstrated that there is a net benefit to the community (measured in cost-benefit terms); • The objectives of that regulation can only be achieved by restricting competition. Governments may, however, retain restrictions on competition if those restrictions are found, after a process of review, to be in the public interest. Similar principles are applied to reviews of existing legislation. According to the NCC, the objective of the legislation review programme is to remove restrictions on competition that are found not to be in the interests of the community, for 171

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example, legislation that restricts entry into markets or constrains competitive behaviour with markets. 3. Decentralized supervision: In each state, an office or department for regulatory reform has been established to oversee and to provide guidance on all regulatory review activities within state jurisdictions, including that done by all agencies and departments of state and local government (see Box 6.5). 4. Economic incentives to promote compliance: Fiscal incentives are used by the central government to ensure adherence to NCP agreements. Financial transfers from the centre can be withheld if local legislation is found to unduly inhibit competition. Those transfers, known as NCP payments, are sourced from a central fund comprising the “gains” from regulatory reform, that is, the benefits accruing to the central government via increases in corporate and income taxation that flows from greater economic activity following the removal of distorting state government taxes and charges. The NCP payments act as a kind of “compliance dividend” that allows lower level governments to share in the financial benefits of regulatory reform. In 2001–02, NCP payments totalled A$733 million (US$652 million) (or approximately 3 per cent of total payments to the state/local sector) providing sufficient incentive for NCP compliance.

Box 6.5: The Office of Regulation Reform, Government of the State of Victoria The Office of Regulation Reform is critical to efforts to improve the quality of Victoria’s regulatory environment and make Victoria a better place to do business. The government has systematically introduced reform proposals concentrating on removing unnecessary regulation, and ensuring that new regulatory proposals are best practice. The Government’s Regulation Reform strategy is focused on removing unnecessary or outmoded regulation, and ensuring that new regulatory proposals will deliver greater benefits to the community than any costs they impose .

A critical element of the regulatory review process described above is the production of a Regulatory Impact Statement (RIS). The role of the RIS is to provide an assessment of the costs and benefits of the regulatory proposal 172

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being undertaken and to identify all feasible alternatives and analyse the merits of those alternatives relative to the actual regulatory proposal. In addition, the RIS should be able to effectively communicate this information to the public and thus allow for a more informed process of consultation and participation. In general, the preparation of a RIS is required wherever proposed legislation imposes a material economic or social burden on a sector of the community. The responsibility of preparing a RIS is placed upon those proposing the legislation. Regulatory impact statements in Australia typically include: 1) A statement of regulatory objectives; 2) A statement of the nature and the extent of the problem to be addressed through regulation; 3) An outline of the proposed rules on the expected effect; 4) A statement of the costs and benefits of the proposed regulation; 5) A statement of alternatives to the regulation;

Box 6.6: Four Major Advantages of Undertaking Regulatory Reviews in Australia 1.

2. 3.

4.

The competition dividend — the benefits from lower prices, more innovation and efficiency. One US evaluation found that fifteen regulatory reviews resulted in changes worth US$10 billion. But the reviews cost only US$10 million to conduct — a payoff of 1000:1 Transparency of decisions and consultation to help affected groups accept change Cultural change among regulators by giving them a new mindset or framework within which to think about the costs of their decisions and how to achieve more efficient outcomes: – Provides a framework to systematically test the relevance of legislative objectives to the contemporary environment. – Provides a framework for assessing the relevance and value of new legislation. All new legislation that restricts competition must include a regulatory impact statement that is consistent with the principles of NCP. – Provides a requirement that any legislation that continues to restrict competition will be systematically reviewed at least once every ten years. Substantial payments to states and territories from the federal government for successfully undertaking and implementing NCP regulatory reviews.

(Guidelines for NCP Reviews, Centre for International Economics, Canberra Australia.) 173

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6) A statement of costs and benefits associated with the identified alternatives; 7) A statement as to why the identified alternatives are not preferred. (Regulatory Impact Statement Handbook: Office of Regulation Reform, State Government of Victoria, Australia.)

FOUNDATIONS FOR MORE EFFECTIVE REGULATORY SUPERVISION IN DECENTRALIZING INDONESIA Various elements can be drawn from Australia’s regulatory reform programme and applied in Indonesia. These include the use of fiscal incentives to ensure compliance, returning the burden of proof to those that propose legislation, as well as developing a hierarchical and standardized system of regulatory review. Other elements have less application. The underlying ideology is one example. Australia’s reform programme is grounded in the firm belief in the primacy of market forces, that is, the view that free rather than regulated markets provide the best outcomes for both consumers and producers (unless of course regulation that restricts competition can be shown to be in the public interest). Regulatory reform in Indonesia with the same or similar ideological basis would be politically difficult. Despite considerable progress toward economic liberalization over the past fifteen to twenty years, there remains within the community a lingering distrust, even aversion toward the market mechanism, particularly in the regions. Any programme to promote regulatory reform would need to be packaged in such a way to be more politically palatable to legislators and bureaucrats. For example addressing the problem of trade and competition distorting local regulations could be done under the banner of “eradicating the high cost economy” or even “promoting national economic unity”. Both of which are politically more acceptable than a programme that is seemingly designed to promote competition per se. Key elements of the regulatory reform programme would have to cover the following points.

1) Returning the “Burden of Proof” to the Regions Good regulatory practice requires that the burden of proof be firmly placed upon those proposing the legislation. That is, before legislation is passed it must be first shown that it carries a net-benefit for the community, that is, proposals for legislation are assumed “guilty until proven innocent”. Under present arrangements, it is left to the central government to determine ex-post the innocence or guilt of local regulations. This is not only inefficient, but

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also unnecessarily centralistic. A more efficient arrangement, and one that is perhaps more politically acceptable to the regions, is for much of the review process to be undertaken at the local level. To ensure uniform standards, local regulatory reviews would need to be carried out according to a set of established guidelines and procedures as determined by the central government, in consultation with the provinces (a successful model of such an arrangement in a decentralized setting can be found in Australia, see previous section).

2) Regulatory Review Teams at the Municipal Level At the local (municipal) level, a core policy review team is formed and is charged with the responsibility of producing regulatory impact statements for all proposed legislation that may impose economic costs on elements of the community. There are already various models, where such teams have been established in Indonesia. In North Sulawesi, for example, the provincial government has formed a small team comprising legal academies and retired senior public servants to review all proposals for non-fiscal regulations at the provincial level. Numerous reviews have been completed to date. Less formally, a group of legal academies at Sriwijaya University in Palembang, South Sumatra have established a “Legal Laboratory” (Laboratorium Hukum) at their university to review and analyse local regulations. The group has been commissioned by a number of municipal level governments to review their respective regulations. As yet, however, the group has been unable to develop similar relationships with the provincial government. This is a common problem in Indonesia. Local universities usually do not play an active role in the policy process despite having the greatest concentration of legal and economic expertise at the regional level. This can be rectified to a certain extent by formalizing their role within the core review team mentioned above. Other core members of the team could be drawn from the legal and economics section at the Office of the Regent/Mayor. Depending on the particular regulation to be reviewed, the core team would be appended with officers from relevant technical agencies (for example, transport officials, if the regulations concerns transport infrastructure matters) as well as stakeholders — those directly affected by the proposed regulation — such as consumers, farmers, small producers, civil society groups.

3) Regulatory Impact Statements Unaccustomed to justifying proposals for legislation, local governments are likely to be resistant to any new requirements to produce impact statements

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and to bring outsiders into the policy process. Objections are also likely to occur on the grounds that the regions do not have the requisite human, physical or financial resources. It is therefore important to demonstrate to the regions that producing impact statements does not need to be a complicated and expensive affair, and that undertaking even the most elementary of reviews can generate considerable benefits for the community (and government) by way of improved regulatory process and outcomes. As noted by the OECD (1995), many of the benefits of carrying out regulatory reviews come “(…) not from the precision of the calculations, but from the action of analysing, questioning, understanding real world impacts and exploring assumption”. Initially, impact statements should focus on three simple tasks: 1) establishing the objectives of the regulation; 2) consideration of possible alternatives (including those not involving regulation); and 3) identifying winners and losers. Over time as capacity develops, and governments become more accustomed to the regulatory review methodology, policy choices can be assessed increasingly in cost-benefit terms.

4) Supervisory Role for Provinces Provinces would be able to play two important roles. The first is to provide a second tier in the review process by evaluating regulations from municipal level governments within their jurisdiction. Those that fail the review are returned to the municipal level. Others are submitted to the central government.15 The second role is to work with the central government and other provincial governments to develop a standard approach to regulatory review, and to supervise and promote the regulatory review process at lower levels. In each case, there would be considerable political resistance, particularly from the municipal level governments that, since decentralization, disregard any formal vertical relationship with provincial governments.16 There are obvious benefits to an enhanced role for the provinces. Provincial governments (assuming adequate human resources) would be better positioned than the central government to collect information on, and to assess the relative merits of proposed legislation within their respective jurisdictions. Closer supervision of lower level governments would ensure better compliance. With the provincial governments filling this middle-level role in regulatory supervision, the centre would no longer be swamped with local regulations to review. Only those regulations that have passed regulatory reviews at both the provincial and municipal level will be submitted to the centre. This allows the 176

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central government more time and resources to undertake more thorough reviews, and more importantly to develop and better coordinate the regulatory review process at a national level.

5) Economic Incentives and Sanctions The missing element in the existing supervisory arrangements is the economic incentives to encourage regional governments to submit legislation for review within the time specified, and to follow rulings from the centre on problematic regulations. One approach would be to impose sanctions upon non-compliant regions, by reducing inter-government transfers from the centre (DAU). An alternative to using sanctions would be to develop positive incentives, whereby compliance would enable access to a special fund from the centre (similar to the incentive model developed in Australia). In this way, a new fund would be developed, perhaps as part of the special grants from the centre (DAK), and allocations determined according to ratings of the regulatory climate (much like that developed by the KPPOD 2002b), as well as compliance with new procedural and institutional arrangements for regulatory review as described above. The model is similar to — and could possibly be adapted from — a planned Ministry of Finance programme that seeks to rate regions according to their efforts to overcome poverty, and to reward successful regions through the use of DAK grants. The rationale for developing a new fund at the centre would be similar to that for the NCP payments system in Australia. Specifically, the elimination of distorting taxes and charges would generate financial benefits for the central government via increased receipts for corporate and income taxes flowing from greater economic activity. These funds transferred back to the regions (on some kind of formula basis) would constitute a “compliance dividend” that provides real incentives for local government to support, and take part in, the national regulatory reform effort.

CONCLUSION This chapter examined a broad cross-section of regulatory problems in local government and put forward key principles for regulatory reform. Regulatory problems were identified and discussed at two levels: the first level concerned the process stage where key problems include the inability to effectively identify regulatory objectives, the lack of consideration of non-regulatory alternatives, poor stakeholder participation and the general lack of awareness of the importance of internalizing cost-benefit analysis into policy process. 177

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The second level concerned the product of the policy process, namely the use of specific regulatory or fiscal instruments that negatively impact upon business, such inappropriately priced and targeted user-charges, trade and competition distorting taxes and charges, as well regulations that crowd out private sector participation and/or discriminate against outsiders. It was argued that decentralization is not the main cause of regulatory problems in the regions, but does present new problems and challenges, most notably those associated with the pressure to raise own-source revenues and the new, yet problematic institutional arrangements governing the supervision of local regulations. Equally, if not more important, is the opportunity that decentralization brings to improve economic governance through regulatory reform. Key principles for reform that emphasize a more decentralized supervisory framework were discussed in the final section of the chapter. These principles included reversing the burden of proof such that the regions assume greater responsibility in analysing and justifying the regulatory impact of proposed legislation, allowing the provinces to play a more active role in supervising lower level local regulations and in overseeing the development and standardization of the regulatory review process, and using economic incentives to ensure local participation in the national regulatory reform effort.

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APPENDIX, SURVEY ON DECENTRALIZATION AND THE BUSINESS CLIMATE17 Key points and conclusions from survey: • There has been no major degradation of the business climate under decentralization. At the same time no significant improvement was seen. The general response from business is that the regulatory environment remains as problematic as it was prior to decentralization. • The business-licensing environment has more or less remained the same. There appears to be an improvement in processing time required and to a lesser extent, in procedural and cost transparency. However, these improvements are offset by higher licensing costs as local governments seek to raise own-source revenues (PAD), most likely through the pricing of licences/permits (retribusi izin) beyond that required for cost recovery. One salient point regarding licensing is that almost half the respondents report that they are still paying informal facilitation or brokerage fees to officers in the licensing-issuing agency. • Most small and medium sized respondents perceive substantial increases in formal taxes and charges paid, but no change in the number of exactions, or the number of exacting agencies. This suggests local governments are extracting greater amounts of funds from existing revenue instruments as opposed to creating new ones (that is, intensification instead of extensification). Larger firms report increased amounts exacted formally, and also greater number of formal exactions and collecting agencies. • The burden of informal payments (pungli) appears to have slightly eased under decentralization, particularly in East Java, but worsening in North Sumatra and North Sulawesi. Increases in the burden of informal payments are positively correlated with firm size. Larger firms report greater amounts, frequency and number of exacting agencies/individuals. Informal exactions are most commonly imposed during transport and/or distribution. Most respondents prefer to absorb the cost of informal exactions rather than pass it on to suppliers or buyers. • Given the structure of the sample in favour of small businesses, most respondents report no impact from minimum wage increases or from severance pay stipulations. • The business climate has remained the same or shown a slight improvement for all sectors, except for transport. This result is consistent across a number of measures (for example, licensing, informal exactions, service delivery, impact of local regulations, etc.). • There appears to be a slight improvement, under decentralization, in business perceptions on the impact of local regulations upon the business climate.

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Notes 1

2

3

4

5

6

7

8

9

10

11

12

One of many examples is Local Regulation No. 6/2001 of Kab. Garut, West Java, regarding “Retribusi Pelayanan Izin Pengelolaan Kayu Milik Kabupaten Garut”. In one extreme, a proposed regulation on forestry management in Papua provided many pages detailing how fees and charges were to be extracted from forest users, but barely three lines on sustainability issues (see “Proposed legislation discussed at a joint IRIS-PEG legislative drafting course in Jayapura”, Papua, April 2002). Based upon interviews with officials from a range of DINAS officials from a variety of jurisdictions (see also BIGS 2002). See “Principles of Good Regulations”, Office of Regulation Reform, State Government of Victoria, Australia. See “Monitoring the Regional Implementation of Indonesia’s Structural Reforms and Deregulation Program: Lessons Learned to Date”. Jakarta: Report for the ASEM Trust Fund, SMERU, 1999. A report from the World Bank in 1994 estimates that retribusi charges and fees covered less than ten per cent of the outlay on public services at the municipal level at that time (see World Bank 1994). Protection of lower income groups, if required, should be achieved through targeting of price subsidies in such a way that not all users can get access to the service at the subsidized price. In some cases, efforts to raise own-source revenues through licensing activities often result in the proliferation of nuisance charges that generate a net loss for the government and (due to their typically distorting nature) generate substantial economic losses for the broader community. Sawala (2003) for example identified a number of local charges in Garut and Tasikmalaya that are net less than ten million Rupiah a year, and thus well below that required to cover administration, implementation and compliance costs. See for example, the various reports produced by Persepsi Daerah (1999), Juanita (1997), Andari, Hunga, and Sandee (1997), Rahma (1997), Ray and Darma (2000), Quizon, Rahma, and Tomayah (1997) and the various commodity studies produced by the TIP-USAID project at the Ministry of Industry and Trade in 1996. See “Gubernur SuSel Tolak 100,000 ton Beras Impor”, Bisnis Indonesia (31 July 2002); and “Membela Petani Degan Strategi Pengelolaan Impor”, Kompas (26 July 2002). The term “unduly” is used here to refer to a situation where the restriction to competition cannot be justified on the grounds of protecting the public interest. See “Insentif buat Daerah yang Memerangi Kemiskinan”, Kompas (20 June 2003): 13. The recent World Bank (2003) report on decentralization noted that due to the deductibility of local taxes in company tax reports the centre ultimately pays for up to a third of the regional tax burden through lower central tax revenues

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15

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(assuming a marginal corporate tax rate of 35 per cent). For some oil companies, where the central government’s take is 90 per cent of revenues after costs, this burden is significantly higher. See “Peritel Dukung Pencabutan Perda Perpasaran Swasta”, Bisnis Indonesia (11 June 2003): 4. It is interesting to note that according to analysis by the KPPOD (Regional Autonomy Watch — a body set up by the Indonesian Chamber of Commerce to monitor the impact of new local regulations upon the business climate), almost all problematic local regulations tend to be those not prescribed nor “listed” by Law No. 18/1997. Alternatively, provinces could be given final approval authority. However, this might be a little premature as provinces themselves are responsible for a number of problematic relations. Attempts have been made to restore the supervisory authority of the provinces. For example Decree No. 21/2001 of the Minister of Home Affairs (dated 28 November 2001) seemingly provides that authority, but excludes the authority to supervise districts/municipalities on regional taxes and charges. Survey was carried out by the Regional Economic Development Institute in cooperation with The Asia Foundation and the Partnership for Economic Growth.

References Ahmad, Ehtisham and Ali Mansoor. “Indonesia: Managing decentralization.” IMF Working Paper. Washington, D.C.: International Monetary Fund, Fiscal Affairs Department and Independent Evaluation Office, 2002. Andari, R., I. Hunga, dan H. Sandee. “Pungutan” dan “Sumbangan” Studi Kasus diJawa Tengah. Jakarta: CESS/Yayasan Asia, 1997. Bandung Institute of Government Studies (BIGS). Merancang Kebijakan Perijinan Yang Pro Pasar dan Semitif Kepentingan Publik. In cooperation with the Partnership for Economie Growth. Jakarta: BIGS, 2002. Juanita, I. Studi Regulasi Daerah di Propinsi Nusa Tenggara Barat. Jakarta: Pusat untuk Studi-studi Kebijaksanaan dan Implementasi, 1997. KPPOD. Laporan Kajian Peraturan Daerah, PEG-USAID, August 2002. Jakarta: KPPOD, 2002a. ———. Regional Investment Attractiveness: Ratings of 134 Regencies/Cities in Indonesia, in cooperation with The Asia Foundation. Jakarta: KPPOD, 2002b. Goodpaster and David Ray. Competition Policy and Decentralization. Jakarta: Partnership for Economic Growth Project, 2000. Lewis, B. “Tax and Charge Creation by Regional Governments under Fiscal Decentralisation: Estimates and Explanations”. Bulletin of Indonesian Economic Studies 39, no. l (August 2003): 41–56. LP3M Sawala. “Laporan: Hasil Penelitian dan Pengkajian Peraturan-Peraturan Daerah Tentang Retribusi (Studi Kasus di Tasikmalaya dan Garut)”, in cooperation with the Partnership for Economie Growth. Jakarta: 2003. 181

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OECD. Recommendations on Improving the Quality of Government Regulation, adopted by the Council of the OECD. Paris: 9 March 1995. Persepsi Daerah. Deregulasi Perdagangan Regional: Pengaruhnya Terhadap Perekonomian Daerah dan Pelajaran yang Diperoleh. Laporan Khusus. Jakarta: SMERU, Desember 1999. Quizon, J., H. Rahma, dan N. Tomayah. Peraturan Daerah dan Distorsi Harga Pertanian: Suatu Studi dari Empat Propinsi Indonesia. Jakarta: ECG (Economic Competitiveness Group), USAID, 1997. Rahma, H. Pungutan di Daerah dan Pengaruhnya Terhadap Usaha Kecil: Kasus Komoditas Sapi Potong di NTB. Jakarta: CESS/Yayasan Asia, 1997. Ray, D. dan R. Darma. Studi Tentang Hambatan-hambatan Pada Perdagangan dan Pesaingan Bebas di Propinsi Sulawesi Selatan. Jakarta: Kemitraan untuk Pertumbuhan Ekonomi, USAID, 2000. Regional Economic Development Institute (REDI). Final Report: Survei Persepsi Pelaku Usaha Tentang Otonomi Daerah dan Dampaknya Terhadap Iklim Usaha di Daerah. Jakarta: REDI, in cooperation with the Partnership for Economic Growth and The Asia Foundation, 2003. SMERU. Monitoring the Regional Implementation of Indonesia’s Structural Reforms and Deregulation Program: Lessons Learned to Date, September 1999. Jakarta: SMERU, 1999. Suhirman. Desentralisasi dan Ekonomi Politik Perijinan. Bandung: Policy Paper, Bandung Institute of Government Studies, 2001. World Bank. Intergovernmental Fiscal Relations in Indonesia: Issues and Reform Options. World Bank Discussion Paper no. 239. Washington D.C.: The World Bank, 1994. ———. Decentralizing Indonesia: A Regional Public Expenditure Review Overview Report. Jakarta: East Asia Poverty Reduction and Economic Management Unit, June 2003.

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7 SMALL ENTERPRISES AND DECENTRALIZATION Some Lessons from Java Henry Sandee

INTRODUCTION In Indonesia, decentralization means more responsibility for provincial and district (kabupaten/kota) authorities in the formulation and implementation of a wide range of services and programmes including small enterprise development. This chapter concentrates on small and medium-scale manufacturing enterprises (SMEs). The provincial and district governments are becoming much more influential in the coordination of technical and financial promotion activities for SMEs and in the provision of a business environment and climate that is conducive to SME development. The decentralization process asks for new views on local governance. The chapter discusses the issues at stake and reviews some experiences in simulating public-private partnerships as a tool to stimulate participatory development at the local level in promoting SME development. The chapter deals with SMEs in Java specifically. It is not about micro enterprises and it is important that this distinction is made right at the beginning. In Indonesia, the discussion on SME development is often blurred by the fact that micro enterprises are included in the analysis. Micro enterprises and SMEs have very different characteristics and need to be distinguished. This chapter refers to the classification of the Central Bureau of Statistics in 183

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Indonesia to make this distinction. Micro enterprises offer employment to one to four family and paid workers and play a main role in poverty alleviation by offering jobs to those that do not have access to better paid work elsewhere in the economy. During the economic crisis (Krismon), micro enterprises were important providers of jobs to those that lost their work in the formal sector. SMEs are different and have a stronger orientation towards growth and are participators in the process of economic development. The development of micro and SMEs in Indonesia will be discussed in more detail further below. Subsequently, the chapter will briefly look at a specific characteristic of SMEs, namely their tendency to cluster according to sub sector and location. In rural Java, there are a large number of villages which are specialized in the manufacturing of specific products only. It will then look at various programmes and projects of the Indonesian government to promote SME development at the national level which were executed throughout the country with little variation among provinces. The chapter will also discuss recent developments in SME promotion and review changes in programmes and projects now that provinces and districts play a bigger role. The final section of the chapter will illustrate the issues at stake for specific small-scale industrial activities in Central Java.

MICRO ENTERPRISES AND SMEs IN INDONESIA’S ECONOMIC DEVELOPMENT Liedholm and Mead (1999) have analysed the transformation of the micro and SMEs in several developing countries during economically good and bad times. Their findings are relevant when we want to assess what has happened to the manufacturing sector in Indonesia before and since the crisis. Their findings for several African and Latin American countries suggest that when the economy as a whole is growing, SMEs add more employees to their workforce. At the same time, micro enterprises tend to close down while there is less pressure to start new micro enterprises. In general, there is less interest to be involved in badly paid micro enterprise work because of the growing presence of better paid work elsewhere. By contrast, the opposite forces are at work in the SME sector during an economic crisis. Under these circumstances, many SMEs remain stable in terms of employment, shed some labour or close down. There are only a few small firms that grow during such a period. Simultaneously, a shortage of jobs in the overall economy increases the pressures on people to start their own (micro) enterprise even though these may generate only very low incomes. 184

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Table 7.1 presents an overview of the developments in the manufacturing sector in the period 1975–96. These estimates are based on the data recorded by the Economic Census. The census is executed every ten years and provides an in-depth insight into the structure and dynamics of the manufacturing sector. The table shows that during the New Order period, there has been a structural change in the structure of the manufacturing sector. During the economically “good times”, micro enterprises have become less important for overall employment generation in the manufacturing sector, although the micro sector remains the main providers of jobs. SME employment has grown substantially but the most significant increase was recorded by the big firms’ sector. It is important to note that in 1996 the number of Indonesians working in big firms was above 35 per cent of total manufacturing employment. Many of these workers found employment in large-scale labour-intensive textile, garments, and footwear, furniture and electronics sectors. What happened during the “bad times”? Has the SME sector lost jobs and has there been an increase in employment again in the micro sector as suggested by Liedholm and Mead (1999)? There is a lack of data on employment trends since the crisis to answer this question directly. Data from the National Labour Force Surveys are useful though to gain insight into the TABLE 7.1 Indonesian Manufacturing by Establishment Size (Employment-based Definition), Census Data, 1975–96 1975

Workers (in thousands) Micro (1–4) Small (5–19) Medium (20–99) Large (100+)

1986

1996

5,170 5,503 10,206 3,900 2,714 4,076 343 770 1,915 272 493 624 655 1,526 3,591

Percentage of Workers Micro (1–4) Small (5–19) Medium (20–99) Large (100+)

100.0% 100.0% 75.4% 49.3% 6.6% 14.0% 5.3% 9.0% 12.7% 27.7%

1975–86

1986–96

1975–96

Annual Rate

Average

Growth

0.5% –3.0% 7.0% 5.1% 7.3%

5.8% 3.8% 8.6% 2.2% 8.1%

3.1% 0.2% 8.1% 3.8% 8.0%

100.0% 39.9% 18.8% 6.1% 35.2%

Source: Rice and Abdullah 2000.1 185

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issues at stake. The survey was executed among a representative sample of the Indonesian households. One of the questions asked concerns the employment status of the working population aged fifteen years or more. A distinction was made between self-employed, self-employed with workers, employees, casual employees and unpaid workers. Table 7.2 presents an overview of the structure of employment in recent years. The table concerns employment in all sectors of the Indonesian economy including agriculture. Table 7.2 shows that during Krismon, self-employment gained importance while the number of employees declined. This suggests that during the bad times in Indonesia, the same changes indeed occurred as those noted by Liedholm and Mead (1999) for various developing countries. The table also shows that the importance of self-employment declined quickly already in 2001, once the economy picked up again. Data for 2001 are a bit difficult to interpret though because of the introduction of the new category of “casual workers”.

TABLE 7.2 Indonesian Employment by Main Employment Status of Population Aged 15 Years and above; 1997, 1999 and 2001) (Percentages) Main Employment Status

1997

1999

2001

Self employed Self employed with family help Employer with workers Employee Casual worker Unpaid worker

23.2 21.0 1.7 35.5

24.4 21.3 2.9 33.1

18.5

18.3

19.2 22.4 3.1 29.7 6.6 19.0

Total

100

100

100

Source: National Labour Force Surveys

A better insight into trends in the manufacturing sector can be obtained from the Annual Manufacturing Statistics. It should be noted though that these statistics are collected annually only for firms with more than twenty workers. Thus, the data set provides insight into medium-sized enterprises and big firms while it does not include micro enterprises and small firms. Table 7.3 summarizes data from the annual manufacturing surveys for the period of 1996–2000. 186

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TABLE 7.3 Employments in the Manufacturing Sector, 1996–2000 Size of the Job losses Job expansion Jobs at Total 1996 Change firm/number due to at remaining new firms loss/gain Employment (%) of employees firm closures firms 20–49 50–99 100–199 200–499 500–999 1,000< Total

–121,375 –51,988 –54,988 –93,716 –68,675 –118,745 –509,487

27,945 20,663 39,100 23,956 40,091 –74,705 77,050

391,227 297,797 3,363,463 59,493 28,168 260,363 75,677 59,789 365,710 121,367 51,607 711,553 91,061 62,477 706,252 144,956 –48,494 1,807,626 883,781 151,849 7,214,967

–8.9 10.8 16.4 7.2 8.8 –2.6 2.1

Source: Sandee and Van Diermen 2004, p. 110

Table 7.3 suggests that total manufacturing employment increased between 1996 and 2000, despite substantial job losses in all firm size categories. The table makes a distinction between new jobs arising from the expansion of existing firms and new jobs created by new start-up firms. It shows that new firms created a large number of new jobs. The table also shows that employment in medium-sized firms has grown substantially in the period of 1996–2000. There is evidence that specific medium-sized firms have not done well during the crisis years and went bankrupt. However, the overall picture is that this sector has been able to absorb more workers during the “bad years”. Although we have to be careful here in drawing conclusions on the basis of such scant evidence, it nonetheless suggests that employment trends in the Indonesian medium-sized firm sector during Krismon were somewhat different from those reported by Liedholm and Mead (1999). Explanations for this trend in Indonesia have been discussed by Berry, Rodriguez and Sandee (2001). Their article mentions that both small and medium-sized firms have been performing well since the mid 1980s, even though they often faced considerable discrimination, especially relative to the opportunities enjoyed by bigger firms. Being less reliant on formal markets and formal credit, they are able to respond more flexibly to sudden shocks than their larger counterparts. There is evidence that many SME clusters have been able to respond positively to the economic crisis. Sandee, Isdijoso and Sulandjari (2002) have presented findings for ten clusters in West and Central Java that have benefited from the crisis. Most of these examples concern clusters that were able to expand their exports substantially during the crisis. The cases include ceramics in Plered and rattan handicrafts in Tegalrejo, both 187

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located in West Java, as well as furniture in Jepara and metal casting in Ceper (Central Java).

SME CLUSTERS A substantial part of both micro and SMEs in Indonesia are clusters. There are villages which specialize in the food-processing of palm sugar, tahu, tempe, and so on. Other examples of clusters which process local resources include the production of bamboo mats, or tile and brick manufacturing. There are also clusters where the producers do not process local resources, but where resources are “imported” into the cluster. Traders or large-scale producers from urban areas may contract out orders to clusters in rural areas where wage costs are often lower. Furthermore, there are also many manufacturing clusters in urban areas concentrated in specific neighbourhoods. For example, there are many garment and wood furniture clusters in Jakarta. These clusters experienced rapid growth in the early 1990s due to several factors such as flexible production structures, and so-called agglomeration economies derived from various forms of collaboration among producers. Is clustering important for SME development in Indonesia? Access to a complete data set was unavailable to estimate the percentage of SMEs that are located in clusters. However, scattered information makes it possible to argue that SME clusters matter. The Ministry of Industry and Trade provides a listing of SME employment in so-called sentra industri. The Ministry defines sentra industri as geographical groupings of at least twenty similar enterprises. Data were available for the province of Central Java in 1990 (Sandee 1995). The data suggest that more than 60 per cent of all micro and SME enterprises are located in sentra industri. Clustering is especially important for smaller enterprises in food processing, textiles and garments, roof and tile products, and metal casting. Additional information is available from Kabupaten Klaten in Central Java. The district office of Klaten in 1995 was visited to gain insight into the importance of clustering. Klaten is a strategically located regency along the main road that connects the big cities of Solo and Yogyakarta. Work in agriculture is not sufficient to cope with the rising demand for jobs. Consequently, many workers have found employment in non-agricultural activities in the country side and surrounding cities. Clusters are of interest because small producers have opportunities to pool resources and aim their production at markets in the big cities of Solo and Yogyakarta. The Indonesian government has recognized the importance of SME clusters in Indonesia for many years. Back in the 1980s, the Ministry of Industry was involved in the execution of the BIPIK programme focusing on sentra industri. The programme was carried out nationwide and concentrated 188

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on technical training for small producers in clusters. The project employed extension workers, who provided brief training courses to selected clusters in provinces. Stimulating innovation had high priority in the strategy of BIPIK. It was envisaged that, without process and product innovations, the majority of small-scale producers would not be able to survive in the process of structural transformation of the Indonesian economy discussed above. Budgets of the project were limited and, consequently, the aim was to identify a number of pioneers or agents of change in clusters that would take the lead in change processes (Sandee 1995, pp. 158–61). SME clusters received a lot of attention in the literature on economic development in the early 1990s (Schmitz 1999). Inspired by the successful development of so-called industrial districts in various Western countries, both researchers and policymakers were interested to assess whether clustered small enterprises could contribute more to economic development than their dispersed counterparts. Given the fact that clusters were important in Indonesia, recent discussions on clustered small enterprises have received ample attention in Indonesia (Tambunan 1999). The Indonesian government has furthermore revitalised and modernized the BIPIK programme in recent years.

NATIONAL PROGRAMMES FOR SME DEVELOPMENT In Indonesia, many ministries and departments have their own programmes and projects for the development of small enterprises. In fact, initiatives for small-firm development are everywhere. In Indonesia, the small enterprise sector is recognized as a weak economic group that needs and deserves special protection. It is widely agreed that small enterprises are not able to compete with larger firms and therefore need protection. Small enterprises are considered to be important as they provide jobs for those that do not have access to other work in the economy due to insufficient schooling, skills, etc. Recently, VicePresident Kalla argued that the new government is aware of the fragile position of small firms in the Indonesian economy and will aim at protecting these firms against any negative impact of globalization. In Indonesia, the government has tried almost all known types of intervention for small enterprises at one time or another: subsidized credit, training programmes (in technical skills and entrepreneurship), advisory extension workers, subsidized inputs, provision of infrastructure, common facilities, and so on. The general view is that most interventions have had little impact on small enterprise development. To some extent, this does not come as a surprise, given the limited budgets of most programmes. In practice, such direct assistance frequently concerns brief training sessions of one or two days for a selected group of producers. It is unlikely that such 189

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interventions will have a significant influence on small producers that have been embedded in long-standing production and trade networks. Throughout the years, there has been more awareness of the limited impact of direct government support. Therefore, more attention is given to the role that the private sector can play. Accordingly, the government would concentrate on facilitating private provision of support to small firms. A key element of this new strategy is that private providers will charge for the services that they provide while government support is normally provided free of charge. Recent evidence suggests that private provision has not yet been very successful for two reasons. In the first place, small firms are hesitant to pay for support as they find it difficult to estimate what the benefits will be. In the second place, many private providers of business development services deliver some very general support only, such as bookkeeping, entrepreneurship, etc. These services are not tailored to the needs and preferences of specific small producers and, consequently, are not very popular. Attention is now shifting towards the establishment of public-private partnerships that should lead to more effective programmes for small enterprise development in Indonesia. Decentralization has offered scope for provinces and districts to establish their own new public-private partnership programmes without having to wait for guidelines and directives from Jakarta. The following section looks at some recent experiences in Central Java to develop more effective support for SME clusters in the wake of decentralization initiatives in Indonesia.

DECENTRALIZATION, PUBLIC-PRIVATE PARTNERSHIPS AND SME DEVELOPMENT For a start, this section highlights recent initiatives in the Sragen district in Central Java. Supported by technical assistance from the Asian Development Bank (ADB TA 3829-INO 2004) the local government and parliament have introduced new policies to support local economic development with particular reference to small enterprises. Some of the main initiatives are highlighted below: a. The local government has introduced a special business development zone, where businesses are exempted from a number of licences. As of July 2004, there were a total of 54 exporters and 200 small enterprises operating in this zone. b. The local government has introduced a so-called one stop service facility. In the past, small firms spent considerable time on collecting all licences

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needed for the execution of their business. In the past, business formalization (which is necessary to be eligible for bank credit) required several months while it is now reduced to twelve days. c. The issuance of some sixteen official documents and licences has been delegated to the village level in order to avoid unnecessary travelling for citizens from outside Sragen city. d. A special programme for accelerating land certification was introduced, which has resulted in a strong increase of land certificates. These examples show how the local government of Sragen has benefited from decentralization policies which offered the district more scope to formulate its own policy priorities. Moreover, there was virtually no incentive to do so. Local economic development might lead to higher incomes. However, higher incomes so far had not led to higher local tax incomes because tax systems were still centralized, which implies that the central government still had the main authority over tax collection and subsequent expenditure allocation. One of the key problems remains that local governments are often unsure about how to profit from decentralization. Many local governments appear to lack the capacity to reap the benefits from decentralization policies which require formulation of innovative initiatives and the ability to think through the costs and benefits of new policies. In the case of Sragen, the technical support provided through the Asian Development Bank (ADB) has essential been triggering changes. The new policies stress that there is an essential role to play for local governments by facilitating small enterprise development rather than through the provision of direct support. This ADB project was also executed in other districts of Central Java but results were disappointing. In those cases, the authorities and local parliament were not convinced that the proposed changes would be beneficial for the local economic development. In addition, the proposed changes were considered to be not directly beneficial for those in power. This brings us to one of the key issues in determining the potential impact of decentralization policies. It offers ample scope for districts to address local development and take new initiatives. However, in the end it depends on the willingness of those in power whether structural changes will be made or not. Decentralization aims at a better matching of the public services offered and the needs of the community. This should stimulate greater engagement and ownership by the community. Consequently, accountability and governance will be better as decisions are taken closer to the scrutiny of the community. To achieve this, the control of funds for local development is transferred from the central line agencies to mainly district authorities. Special 191

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grants with strings attached have been largely replaced by block grants giving local authorities more possibilities in how to use them (National Development Planning Agency, Bappenas 2001). At the national level, the State Ministry of Cooperatives and Small Enterprise Development has the authority to coordinate small enterprise policies and programmes. However, the decentralization process has resulted in more scope for district governments to formulate and execute development efforts for SME’s. Pilot experiences in Sragen show that districts are illequipped to undertake new initiatives and, consequently, most continue with the same types of policies and programmes that were so unsuccessful in the past: there is no expertise and capacity to address the issues in another way. One of the possible strategies to address lack of expertise among local public agencies in the era of decentralization is the establishment of partnerships. In particular, public-private partnerships are proposed as a tool in so-called participatory development that is effective in translating local needs into more effective local policies. Private partners include NGOs, universities with a strong interest in SME development, associations, chambers of commerce and industry, entrepreneurs and other representatives of the SME sector. In general, private partners will be aware of identification of market opportunities, specific training needs, capital needed, etc. The National Development Planning Agency acknowledges that there will be substantial differences among districts and provinces that require the formulation of very flexible guidelines to support the strengthening of public-private partnerships. The National Development Planning Agency promotes the establishment of so-called forums at the district level. The plans are based partly on the experiences in the Sragen district in Central Java. In addition, the proposals are based on experiences in various countries where SME clusters have benefited from active local forums which work together closely with local government agencies. For example, in Sri Lanka, local government agencies have weekly meetings with various representatives from the local business community to discuss a range of issues. Consequently, agro-processing industries were able to express their need for credit timely now that the harvest season was approaching fast. Subsequently, government agencies called on local banks to give priority to farmers in their handling of loan proposals. There are plenty of examples from other countries where publicprivate partnerships have been beneficial to SME development. A forum brings together a range of public and private actors who take an interest in SME development. Bringing together the actors enables them to share their knowledge of the local environment. Subsequently, through 192

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meetings and study a process of consensus-building needs to be started that leads to the identification of key issues to be addressed to foster local SME development. Local stakeholders support the local development agencies with plan implementation. Puspasari (2001) studied recent Indonesian experiences in strengthening good governance through public-private partnerships in the wake of decentralization. She explains that the establishment of local forums and partnerships was difficult in an environment that remains dominated by topdown politics. The experiences refer to a pilot project in West Java that aimed at the formation of forums at the district and the sub-district levels. Puspasari’s research shows that the public-private forums have not been successful at the district level but functioned better at the sub-district level. She explains that most private partners feel that their needs are fulfilled best at the sub-district level and are of the opinion that there are too many conflicting issues and partners operating at the district level. Reference to the positive experiences in the Sragen district is made due to the technical support provided by the ADB. Yet, there is no detailed information from Sragen to show how such processes work for specific smallscale enterprises. Recent developments in a tile cluster in Central Java that show that effective communication between public and private partners is not always easy to establish,2 as explained below. The tile cluster has been in existence for many decades. It is located on the outskirts of a district town very close to the trunk road that connects the cities of Semarang and Solo. Its location is very strategic but also problematic. Further expansion of the district town may have impact on the tile cluster. In addition, there is concern about the existence of deep clay pits in the direct vicinity of the district town. Till the late 1980s, all 150 producers used traditional technology. In fact, technology had remained virtually unchanged for a long period. Most firms in the tile cluster used primarily family labour. The process starts with preparing clay through feet-pounding while simple moulds are used for printing tiles. Tiles are fired in a simple kiln. A major change occurred in the late 1980s, when pioneers introduced a new technology by introducing clay mixers and hand presses. This resulted in a better product that could be sold at a higher price to a new group of consumers. Gradually, over a period of some seven years, all producers adopted this new technology. The new technology package required more collaboration among small producers. The clay mixer could be used efficiently only when several producers share the costs. In addition, hand presses are expensive and many producers needed financial support from their neighbours to make the investments. 193

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Consequently, technological change in this tile cluster has contributed to strengthening of inter-firm linkages. Producers have also joined forces in other ways. The change to new technology required more coordination in clay collection and standardization of products. Furthermore, wage workers entered the tile cluster in large amounts calling for coordination with respect to wages and labour standards. Likewise, many individual producers could not gain access to formal credit when they applied individually but group applications were more successful. Considerable investments were made by the producers while adopting new technology. Consequently, the stakes were high and a group was formed to pressure the local government to ensure that clay pits remained open and expansion of the city would not take place at the expense of the tile cluster. This group became active before the decentralization era. On the one hand, it functioned as a peer group for local producers to share experiences; on the other hand, it became a pressure group in discussions with representatives of government agencies and NGOs. Its contact concentrated on the district level. Most relevant government agencies, like the local office of the Department of Industry, do not have representatives at the sub-district level. Likewise, most NGOs are active at the district level only. Since 1999, the local government offices (at the district level) received considerable opportunities to formulate their own programmes as was discussed above. Pressure groups that were already in contact with local government offices profited from the new situation now that these offices could do much more to accommodate their concerns. An increased lobby of the pressure group requesting more support was noticed. In recent years, the position of this tile cluster has been strengthened substantially and its access to credit has improved while it has a guaranteed access to clay pits in the years to come.

CONCLUSIONS This chapter discussed SME development in Indonesia since the monetary crisis. It highlighted the fact that the small firms sector has been through turbulent times but there is plenty evidence that many small firms were able to remain dynamic during the crisis years. Decentralization policies offered new opportunities to local governments to formulate new policies and strategies. Some regions, like Sragen, have benefited from decentralization though it is unlike that this would also be the case without substantial technical support. Most districts simply did not have many ideas how to react to the new policy environment. The National Development Planning Agency has tried to offer guidance but pilot studies show mixed results. Small 194

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enterprises have been most successful in forming effective pressure groups when they are located in clusters. This facilitates communication and collaboration. The case of a tile cluster in which technological change has called for small entrepreneurs to work together more closely and also form a group was discussed. This group has been important in the wake of decentralization to voice the concerns of the tile producers. The existence of such a pressure group was crucial in stimulating local policymakers to make use of the new mandate provided to them in the decentralization process.

Notes 1

2

Estimates from backcasted manufacturing census come from Tables 7 to 9 in Ministry of Cooperatives and SMEs (MOCSME) by Rice and Abdullah (2000). Annual growth rates are my estimates. This case study is based mainly on Sandee and Sulandjari 2002.

References Berry, A., E. Rodriguez and H. Sandee. “Small and Medium Enterprise Dynamics in Indonesia”. Bulletin of Indonesian Economic Studies 37, no. 3 (2001): 363–84. Liedholm, C. and D.C. Mead. Small Enterprise Development and Economic Development. London and New York: Routledge, 1999. Puspasari, L. Partnership for Local Economic Development: Case Study of Indonesian Local Economic Development Pilot Projects. Master’s thesis. The Hague: Institute of Social Studies, 2001. Rice, R. and I. Abdullah. A Comparison of Small, Medium and Large Enterprises from 1986 to 1996. Mimeograph. Jakarta: USAID, 2000. Sandee, H. Innovation and Adoption in Rural Industry: Technological Change in Roof Tile Clusters in Central Java, Indonesia. Ph.D. thesis. Amsterdam: Vrije Universiteit, 1995. Sandee, H., B. Isdijoso and S. Sulandjari. SME Clusters in Indonesia: An Analysis of Growth Dynamics and Employment Conditions. Jakarta: International Labour Office, 2002. Sandee, H. and P. van Diermen. “Exports by Small and Medium-Sized Enterprises in Indonesia”. In Business in Indonesia: New Challenges, Old Problems, edited by M. Chatib Basri and P. van der Eng. Singapore: Institute of Southeast Asian Studies, Indonesia Update Series, 2004. Tambunan, T. The Performance of Small Enterprise during the Economic Crisis. Mimeo. Jakarta, 1999.

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8 FISCAL DECENTRALIZATION AND ITS IMPACT ON REGIONAL ECONOMIC DEVELOPMENT AND FISCAL SUSTAINABILITY Bambang Brodjonegoro

INTRODUCTION During the time leading up to the second general elections of 2004, the issue of decentralization and regional autonomy had not been widely considered as a critical issue in nation-building, and hence failed to become a major issue in platform-building by the major political parties. There could be many causes for this development. First, the process might have been considered as quite successful. At least, there was no real chaos occurring as a result of the decentralization process. Second, regardless of the effects of the process itself, Indonesians have adjusted well to the new situation and therefore, everything related to decentralization becomes routine activity. Third, for electoral reasons the political parties could have been more attracted to other more popular issues than the decentralization issues, like corruption, law enforcement, and the economic recovery process. In the absence of media attention, decentralization was not yet very visible to many Indonesians. Fourth, and most importantly, there might be a tendency that central government and political elites at the centre and in the regions have either slowed down the decentralization process or, which would be even more extreme, have gone back to the centralization system of the past. There might be many causes to 196

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explain the relative inconspicuousness of the decentralization process, but the fact remains that only a few parties were interested to raise the decentralization issues as one of their campaign themes. After three years of decentralization, it was still difficult to judge if the process was successful or not. The international community deemed the process as “still on the right track”, asserting that the Indonesians were able to manage the massive and drastic decentralization, and minimize the negative effects. The central government felt that it had managed the drastic change quite well but at the same time admitted that it still worried about the future and that much would have to be done in order to keep the decentralization on the right path, including the revision of Law No. 22/1999 and Law No. 25/1999. The local governments, however, were less satisfied than the central one. They were still suspicious that the central government was not fully supporting the process and should the process be considered a failure, there would be a recentralization process. On the other hand, they admitted that they had experienced a “freedom” that had not existed during the previous centralist era. And gradually, the learning process of managing and administering local governance was making progress, which is confirmed by all the survey reports in this book. The ordinary Indonesians, especially the local residents, might be the only ones who keep questioning the effects of the decentralization process. Some have claimed that they do not feel any impact of the process, while some others felt only the negative impacts. They still tend to believe that the current process focuses more on the technical, top-down decentralization between central and local government than on the empowerment of the local people and community. Among all types of impacts generated by the decentralization process, the economic (and fiscal) impacts are still considered to be the most crucial ones since Indonesia has been on the recovery process after the 1998 financial and economic crisis. In 1998, the start of the political reformation (Reformasi) process for most Indonesians raised the expectation that the decentralization process would contribute to the economic reformation, and especially that it would help reduce economic and fiscal disparity between Java and the islands outside Java as well as that between the western and the eastern parts of the country. Giving more economic policy decision-making power to the local governments was considered to be the most needed output of a successful decentralization process. It is from this perspective that this chapter intends to evaluate the first three years of the Indonesian decentralization process, placing emphasis on its economic and fiscal impacts. The discussion will start from the political and administrative point of view, since that is where the 197

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policy-making had started. The discussion on fiscal sustainability in relation to decentralization will be provided in the last part of this chapter, as the issue definitely has implications for the prognosis of Indonesia’s future economic development patterns.

DEVOLUTION OF POWER AND POLITICAL APPROACH After three years of decentralization, it is not surprising that problems appeared due to the multi-interpretability or lack of clarity of Law No. 22/1999. In 1999, the law was drafted without a blueprint or general design of the decentralization scheme, and lacked also a white paper. According to standard practice, the decentralization process should have begun with the blueprint, followed by a white paper. The white paper should have then be the foundation for the legal drafting. Due to the political conditions at the time and the limited availability of time, the decentralization process in Indonesia jumped directly to the law drafting. As a result, no valid reference was available whenever there was confusion about the law. Various groups, each with its own argument, were competing to be the “true” interpreter of the law, especially of Law No. 22/1999. If one group was on the verge of having enough power over the implementation and revision of the law, other groups would try very hard to undermine it through frequent and sometimes unfair critical attacks. Ironically, this conflict or rivalry sometimes took place between groups in the Ministry of Home Affairs (MOHA) itself. This ministry was the final authority for drafting and implementing the decentralization laws. Among the many confusing and debatable issues or concepts in Law No. 22/1999, there are three crucial ones: devolution of government authorities, formation and amalgamation of new local governments, and the local executivelegislative relationship. Regarding the first, that is, the devolution of government authorities, the central government may have claimed that it had managed the devolution process quite well as after three years, the influence of the central government in the local government activities had indeed significantly declined. However, the local governments might not have shared that opinion. Some of them have indeed claimed that the devolution of authorities was far from clear, and where it was clear, the line ministries at central government were obviously still interested in retaining their authorities. Lack of clarity in the devolution process might come from two different extremes in the legislation. On the one hand, the law states that in the end the central government will remain responsible for only five strategic functions plus planning and standardization (Article 7). On the other hand, the law also states that each local government has to be responsible 198

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for eleven obligatory sectors (Article 10 and 11). The problem lies in the “gap” between the central government’s obligatory functions and the local government ones, in particular in the inconsistency between what should be functions for the central government and what are for the local governments. The Government Regulation No. 25/2000 was supposed to close the “gap” by giving more detailed direction to the local government, but unfortunately the regulation used the residual approach that listed only the detailed functions of the central and provincial government, leaving the rest to the local government. As a result, the local governments could define their functions at will which could result in a broad definition of the range of functions but also in a narrow definition, leading to a modest, small range of functions. There are two predicted outcomes generated from this condition: first, conflicts of interests between central and local governments, and second, the lower quality of basic public services delivery for the local residents resulting from them. The second conceptual issue mentioned above, that is, the formation and amalgamation of new local governments, is usually treated as a political concern. Whenever a new local government is being created, the political flavour of the efforts and interests is much more dominant than other considerations. It is no secret that local elites jockey for a position in the local executive through the forwarding of proposals on the building process which are attractive to their electorate. As the interpretation of Law No. 22/1999 seems to support unrestricted local autonomy, lack of political willingness to manage and control the formation of new and the abandoning of nonrentable old local governments on the part of the central government might have caused the high rate of establishing new districts and municipalities at an annual growth rate of more than 10 per cent. In 2004, in view of more than 410 districts and municipalities existing at the time, it was not yet clear if the number would grow at the same rate after 2004, and how the already high number would contribute to economic efficiency. Many argue that the formation of new local governments in Indonesia has nothing to do with economic efficiency and is more a matter of entertaining local political interests. With the slow economic recovery process and acute corruption, it is quite ironic that Indonesians still give the opportunity for wasting economic resources and for creating more corruption through local empowerment. There are two obviously ignored economic resources relating to local government formation, namely the relatively huge initial investment to set up a local administration system, and the higher dependency of local governments on inter-governmental transfer, especially the general purpose grant (DAU). Brodjonegoro and Mahi noted in 2003 that at the time many 199

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new local governments had relatively insignificant local revenue (PAD) and thus relied heavily on DAU. The third conceptual issue, the local executive-legislative relationship, is one of the major obstacles in the promoting of good governance and effective local administration. Law No. 22/1999 somehow implied that the local parliament (DPRD) is the most powerful body at the local level. They basically have the authority to hire, evaluate, and fire the head of local executives. Their authority to determine the local budget also seems to be very powerful (Article 18–21). Therefore, from the point of view of the local citizens, the relationship between the local executive and legislative is not necessarily a productive and conducive one. There is a high likelihood that they would either collaborate or fight continuously. Each of these options would not be beneficial for local residents. In the Karanganyar District in Central Java, for example, the legislative even installed two bupati (that is, heads of district). Collusion between the local executive and legislative tends to promote corrupt behaviour, and the local legislative tends to be the major player. However, the fact that criminal cases were issued against DPRD members suspected of corruption or collusion, with some of them even having been imprisoned, have raised citizens’ hopes for the future. Any type of disruption in the local government’s political and administrative system eventually leads to the disruption of basic public service delivery. Many Indonesians today are quite sceptical about the decentralization process simply because they have not seen what they expected to see when the decentralization started in 2001, that is, a better local basic public service delivery. The World Bank report of 2003 suggested that most of the Indonesians interviewed felt that, since the start of the decentralization cycle in 1999, the quality of public services was better than before, or at least the same. However, the coverage of the survey and sampling procedure may not reflect the reality, whereas national newspapers have been publishing negative news on the deterioration of infrastructure all over Indonesia, and the lack of attention of local governments to improve the quality of public service delivery. To ensure that every Indonesian will enjoy the minimum basic standard of public services, the central government has been trying to promote the implementation of the minimum service standard (MSS) through the improved coordination of the Ministry of Home Affairs (MOHA). While the MSS idea might be a good one from a theoretical point of view, the possibility of it becoming a real success is highly debatable for two reasons. First, due to its complexity, MSS cannot be fully implemented even in the developed decentralized regions. Second, there seems to be no budget constraint when the line ministries design the MSS for their own sectors. 200

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Current developments show that the MSS design in Indonesia is rather inferior, due to miscommunication on the word “minimum” itself, which some ministries interpret as “without budget constraint”. Furthermore, without proper preparation, the MSS implementation could lead to disaster when the local government budget cannot fulfill the MSS, and if local governments were to eventually ask for more transfer from central government. To overcome or at least minimize the problems during decentralization, the central government has tried to amend Law No. 22/1999 and Law No. 25/1999. The Amendment Law No. 32/2004 is so far the last product in this effort. The basic substance of the amendment is the introduction of direct elections for both the local executive and the legislative. Direct elections might bring better accountability at the local level and reduce the absolute power of the regional representative parliament (DPRD). Better accountability could lead to more responsive local government where fulfilling the local residents’ needs is concerned. In terms of formation and amalgamation of new local governments, the amendment is trying to impose the evaluation of autonomous regions which could lead to status withdrawal by the central government in cases where, after a certain period of time, local governments have not been able to fulfil certain criteria. It is still doubtful if this mechanism can work in the current period of uncertainty where the central government is still considered weak (Article 6 and 7). The proposed amendment is also trying to give significant contribution to better devolution of authorities by listing more detailed functions that have to be carried out by local governments (Article 13 and 14). Instead of just saying, for example, that the local government is responsible for education, the amendment proposes that the local government is responsible for providing basic or elementary school education to the residents. Although many local governments still suspect that the amendment could lead to recentralization, it has to be admitted that the central government is seriously trying to make the decentralization process a success story. The impression of recentralization held by some local governments might be due to the redefinition and refining of the role of the provincial government in the decentralization process (Article 13). This especially concerns the fact that, in the amendment legislation, the provincial government has the authority to monitor and evaluate the districts and municipalities in their area. Some argue that with the amendment, the provincial government and the governor will become powerful again in the near future, which in turn may explain why the election for governor is still such a tense and interesting issue. By giving more power to the provincial government, the central government is trying to break the tense relationship 201

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between the provincial and local governments, which has sometimes led the latter to completely ignore the former. However, the amendment process of Law No. 22/1999 and Law No. 25/1999 revealed an old and continuous problem at the central level, namely the lack of coordination among the ministries and especially the rivalry between MOHA (Ministry of Home Affairs) and the Ministry of Finance (MOF). Although the central government is trying very hard to create the impression that decentralization has a national agenda that has to be contributed to by everybody in government, the perception that Law No. 22/1999 was just a sectoral law that concerned only MOHA is still there. As a result, the conflict with other sectoral legislation such as that on mining and forestry made it far from easy to adjust these other laws to the content of Law No. 22/1999 (World Bank, 2003). The rivalry between MOHA and MOF seems to be endless when it comes to the question of who should be the authority on decentralization. Each one of them proposed amendments to the 1999 legislation. Yet, each one of them was working on overlapping issues differently. One example is the issue on how local governments should spend their budget. MOHA claimed that it should be the authority on this issue since it had dealt with local expenditure issues for a long time; in the eyes of MOHA, MOF should concentrate on the revenue side of the local budget (APBD). MOF, on the other hand, claimed that it should have authority over the expenditure side of APBD since being the Treasury, and also in accordance with the reform legislation, it is responsible for the accounting and financial reporting standard. Compared with the Philippines which has only one comprehensive Local Government Act (Asanuma et al. 2003), the rivalry between the two Indonesian ministries looks odd and counter-productive. For the media, both ministries seem to prefer to maintain the status quo of having one law under their combined responsibility, with MOHA preferring to have primacy in this arrangement. That could lead to MOHA’s domination in drafting the future of decentralization, while the decentralization process should in fact be multi-faceted as it touches on other ministries’ interests too. So far, MOHA is winning the game, while MOF is weakening. And currently, MOHA also seems to be trying to take over some further power concerning inter-governmental transfer and other local finance issues.

FISCAL DECENTRALIZATION AND REGIONAL DEVELOPMENT The slow economic recovery process is another circumstance that had an impact on the implementation of the decentralization legislation since 202

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2001. While the national budget (APBN) policy focused on overcoming the crisis and maintaining economic stability, at the same time APBN had to allocate some funds to the new scheme of fiscal decentralization as mandated by Law No. 25/1999. Fortunately, there were no significant negative effects on the APBN created by this new development scheme, and most of the local governments could understand that the relatively low amount of transfer was mostly due to APBN’s heavy burden rather than the lack of central government commitment to fiscal decentralization. The inter-governmental transfer scheme itself was still far from optimal due to heavy political interference in DAU on the one hand, and in the natural resources revenue sharing (through the special autonomy of Aceh and Papua) and tax revenue sharing, on the other. The central issue of Indonesian fiscal decentralization is the General Purpose Grant (DAU) that gives autonomy to local governments in spending and managing the grant. Instead of working on an ad-hoc basis, the DAU uses a formula to allocate the grant to all provincial and local governments in Indonesia. In most local governments, in the absence of significant local revenue (PAD), DAU has actually been their local budget (see Table 8.1). This heavy dependence on DAU has created disincentive for local governments to raise or intensify the collection of local revenue (PAD). Excessive local tax collection and illegal charges could harm the local investment climate, yet local governments have a duty to intensify the collection of legal local taxes and revenue up to the optimal level through better local tax administration system and law enforcement. Brodjonegoro and Martinez (2002) revealed the significant negative correlation between the size of DAU and PAD. As for equity and equalization, the following problems with DAU have occurred. The allocation of DAU itself is still of vital political influence as indicated by the “indemnity” provision. This provision guarantees that every local government will receive a grant not less than the previous allocation. It clearly hurts the fiscal capacity equalization purpose of DAU. Amendment Law No. 33/2004 on regional finance and inter-government transfer stipulates in Article 21 that DAU is to bring equality in the financial capacity of the regions to finance their needs to implement decentralization and local autonomy. Equal treatment of regions with no exceptions is the main aim of the stipulation The equalization problem, for now, is resolved gradually by keeping the “rich” regions at the same level as in 2001 and at the same time, giving more to “poor” regions through the inflation effect of DAU or by increasing the domestic revenue at APBN. Table 8.2 indicates that the ratio between the lowest and highest DAU per capita increased from 15 in 2002 to 20 in 2003. The gradual attempt is still far from fiscal capacity equalization 203

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100.0%

TOTAL

Source: APBD 2002.

83.7% 11.5% 4.0% 0.9% 0.0% 0.0% 0.0% 0.0% 0.0%

share < 10% 10% ≤ share < 20% 20% ≤ share < 30% 30% ≤ share < 40% 40% ≤ share < 50% 50% ≤ share < 60% 60% ≤ share < 70% 70% ≤ share < 80% share ≥ 80%

Last Year Budget Surplus

100.0%

87.1% 10.9% 1.4% 0.3% 0.0% 0.3% 0.0% 0.0% 0.0%

Original Local Revenue

100.0%

89.4% 9.7% 0.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Tax SharedRevenue

100.0%

86.0% 4.9% 2.6% 3.4% 2.0% 1.1% 0.0% 0.0% 0.0%

Non-Tax SharedRevenue

100.0%

3.7% 0.9% 2.6% 4.0% 2.3% 3.7% 12.3% 24.9% 45.6%

General Allocation Fund

100.0%

4.9% 0.0% 0.9% 2.3% 6.3% 9.5% 22.1% 31.5% 22.6%

Routine Expenditure

100.0%

10.9% 16.6% 31.5% 22.1% 9.5% 6.3% 2.3% 0.9% 0.0%

Development Expenditure

TABLE 8.1 Percentage of Prefectures/Municipalities Distribution Based on Elements of Budget Shares to Total Local Budget (APBD), 2002

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TABLE 8.2 DAU per Capita, 2002–03 Province (including districts and municipalities)

DAU/population (million Rp) 2002

2003

484.05 315.03 460.24 468.96 508.31 295.03 485.02 284.38

489.74 344.16 520.29 382.45 564.91 316.88 569.81 318.25

77.68 191.58 266.82 418.84 251.64 490.67

73.00 563.05 339.63 458.65 273.19 525.01

355.16 527.84

389.23 640.07

437.97 650.19 443.59 449.21

512.48 807.68 545.31 457.65

571.87 600.38 426.35 593.67 584.84 1,192.27

585.33 655.29 483.77 755.03 806.62 1,490.65

Sumatra Sumatra: Dista Aceh Sumatra: North Sumatra: West Sumatra: Riau Sumatra: Jambi Sumatra: South Sumatra: Bengkulu Sumatra: Lampung Java Java: DKI Jakarta Java: West Java: Central Java: DI Yogyakarta Java: East Bali Nusa Tenggara Nusa Tenggara: West Nusa Tenggara: East Kalimantan Kalimantan: West Kalimantan: Central Kalimantan: South Kalimantan: East Sulawesi Sulawesi: North Sulawesi: Central Sulawesi: South Sulawesi: South East Maluku Irian Jaya 2002: Highest Lowest Ratio

: Rp 1,192.27 : Rp 77.68 : 15.3

: Irian Jaya : DKI Jakarta : Highest/Lowest

2003: Highest : Irian Jaya : Rp 1,490.65 Lowest : DKI Jakarta : Rp 73 Ratio : Highest/Lowest : 20.4 Source: LPEM-FEUI (Lembaga Penyelidikan Ekonomi dan Masyarakat, Fakultas Ekonomi Universitas Indonesia [The Institute of Economics and Social Research, Faculty of Economics, University of Indonesia]). 205

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given that in 2002, the ratio between the highest and lowest total local revenue per capita was still 7, a considerably high ratio. Another problem of the DAU allocation formula is the existence of a lump-sum component (a certain amount of support money available to all local governments). It eventually triggered the formation of new local rqvernments, as even a small lump-sum amount is still considered to be a significant amount for the proponents of new local governments. MOF is planning to abolish this component and incorporate it into a component that facilitates the indemnity provision. Another alternative way to pursue the equalization purpose of DAU is by setting up an independent commission of grant allocation. The existence of such an independent commission should be effective in minimizing the political influence of the line ministries and in promoting the full formula approach. However, the central government elites seem to have a different opinion on the mechanism of grant allocation. In the proposed amendment of Law No. 25/1999, MOF tried to introduce the idea of an independent grant commission that reports directly to the president. However, MOF did not give enough political power to the commission since the main responsibility of the commission was only to propose the allocation formula to the minister of finance and the national parliament (DPR) without providing any guarantee that only the two will consider the proposal in the discussion. There was room for both parties to select proposals coming from other parties. MOHA, on the other hand, tried to keep the role of the Regional Autonomy Advisory Council (DPOD) in the amendment of Law No. 22/1999. Furthermore, MOHA proposed to have only one secretariat in the DPOD. The institution handled both regional autonomy and fiscal decentralization matters. This proposal implied that only MOHA would be the authority on inter-governmental transfer issues including the DAU allocation formula. The national parliament had yet another idea in their amendment of Law No. 22/1999, which bestowed the authority in determining the DAU allocation formula to the DPR budget committee. These conflicting ideas revealed that there was not yet a consensus on the division of labour between the ministries involved, and between them and parliament. Moreover, the power game indicated that in Indonesia, money and politics were still mixed up. Turning to the issue of DAU and local taxing power, while DAU has become the centre of attention for most of local governments, another serious issue in the local finance, that is the local own-revenue, seems to be neglected. Law No. 25/1999 and Law No. 34/2000 obviously do not give significant local taxing power to the local governments as the Indonesian decentralization 206

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operation was designed to be an expenditure-led decentralization financed by fund transfer. However, after three years of decentralization, aspiration for higher local taxing power emerged. One important indicator of regional autonomy should be the ability of the local governments to find their own sources of revenue and to reduce their dependence on the fund transfers. However, that has not been the case in Indonesia. Most of the local governments have been spoiled by the existence of DAU and have not paid enough attention to optimizing the local own-revenue. Comparison between the annual growth rate of local own-revenue during the periods 1994–96 and 2001–02 indicates that prior to decentralization, the local own-revenue growth rate (20 per cent) was much higher than during decentralization, with a growth rate of only 5 per cent. Yet, the central government has been highly reluctant to give more local taxing power to the regions by transferring one or more of their taxes to local government. The latest failure to transfer the authority of property tax to local government is a good example on how difficult it is to shift an old paradigm to a new one. It is true that many local governments might not have the capability to collect the property tax optimally and it is also true that the local governments might be reluctant to impose direct taxes on their residents. However, the new paradigm of decentralization will move towards a more accountable local government and push local parliament to the local residents. The introduction of property tax as a local tax forms part of the creation of accountability instruments. If the local governments are deemed incapable of collecting the property tax revenue, then they could focus on the tax rate setting and let the more capable central government handle the collection and administration. The weak local taxing power has another, negative implication for the local investment climate. Since most local governments realized that the amount of transfer is far from enough to fulfil their needs as a result of slow economic recovery, and at the same time did not have an alternative of existing local taxes and charges, they began to look for other sources that are unfortunately illegal and disruptive. The imposition of new charges, levies or fees has become a favourite tool of local governments to generate additional revenue and ensure a stable cash-flow management. The easiest targets for these new additional revenues are unfortunately the local businesses that seem to be powerless against this challenge. It is hence not surprising, for instance, to find plantation companies in Sumatra complaining about the extra fees and levies. Given the fact that Indonesia is not considered to be an attractive place for foreign investment, the decentralization process itself has become one of the major factors discouraging new investment in Indonesia. Not only are 207

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the illegal and excessive new charges, levies, or fees resulting from it major negative factors. The local governments in Indonesia are altogether not business friendly yet. The KPPOD survey (KPPOD 2003) revealed that at the time the major concern for investors to conduct their activities in certain localities were institutional factors such as certainty, law enforcement, licensing process, as well as local regulation. However, in those fields the local governments have created disincentives rather than incentives for incoming investment. The lack of incentives is caused by a combination of factors like political structure, economic structure and the relationship between central and local governments. In the current relationship between local executives and legislatives, the latter has become the more powerful party. Local executives have to follow the guidance from the legislative. However, due to their weak capabilities, the evaluation of executive performance is mostly based on what happens to the APBD budget, especially the total amount and its allocation. It is very rare to hear the local legislatives (DPRD) go beyond the APBD duties itself and evaluate the executive performance on how the APBD stimulates the local economic development and growth, and subsequently generates jobs and reduces local unemployment. In other words, it is merely APBD that matters for both local legislatives and executives, while the GRDP is seen as a factor that will follow automatically the national economic conditions (Brodjonegoro 2003a). The lack of accountability of locally elected officials to their voters is another reason why local economic growth and local unemployment are not perceived to be as important as increasing the revenue in the APBD. The lack of focus of local government in promoting local output and employment growth leads to lower economic development activities in the regions. It should be noted, however, that the impact of the ongoing economic crisis could have a significant role in the slow economic growth both at national and local levels. At this stage, it is hard to separate the effects of the economic crisis and of decentralization on regional economic growth. Comparing the decentralization period with the preceding crisis period, it is obvious that economic growth has improved (as indicated by GRDP, investment, and export growth by province in Tables 8.4, 8.5, 8.6 and 8.7). However, economic growth in the decentralization era is still far below that of the economic boom of the centralist era. The difference for all provinces is quite significant. The data in Tables 8.4–8.7 should also alert the central government to the possibility that the less impressive performance of export and investment at the national level could be due to problems at the regional level. This 208

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may require more locally oriented actions from the central government rather than a uniform macro-economic policy. Decentralization will of course play a role in such a locally oriented economic policy. Another alarming finding is the current de-industrialization throughout Indonesia (see Table 8.7). The minus growth in some regions and almost zero growth in others indicate slow or even declining manufacturing growth, which has to be anticipated as early as possible by both local and national policymakers. The KPPOD survey (KPPOD 2003) indicated that manufacturing is the main victim of illegal and excessive charges or levies. This could have a considerable effect on the manufacturing activities in the regions and eventually, at the national level. An integrated national economic development policy that incorporates the local specifics has to be the first priority together with the orientation to GRDP, rather than APBD, on the part of local governments.

FISCAL SUSTAINABILITY One major complaint of most of Indonesian local governments was insufficient DAU and other types of transfer to support the regional development, especially in relation to new infrastructure provision. As Table 8.1 indicates, most of the local governments spent their budget on routine expenditure, especially government employees’ salary, and only set aside a little for development expenditure. With that limited amount, it is hard to imagine that the local governments would be able to initiate major new projects that will really improve the local condition, such as the quality of infrastructure in the region. Maintenance of existing infrastructures may be the most they can do, but in reality infrastructures are deteriorating throughout Indonesia. It means that the local budget is simply not enough to stimulate efforts to promote local economic growth and improvement of public service delivery. There are several causes behind this condition. First, just like the local governments, the Indonesian government too, still suffers from the burden of slow economic progress and thus focuses the national budget policy (APBN) on the payment of debts and routine expenses. This leaves only little money for development. Second, most local governments with limited sources of revenue have not been able to manage their wealth efficiently due to the current political situation which makes any efficiency programme unpopular and not politically acceptable. Third, most of the line ministries at the central level still have significant power over the projects located in the regions while according to Law No. 22/1999, the authority should have been transferred to the regions. 209

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TABLE 8.3 Local Revenue per Capita, 2002 Province (including districts and municipalities)

APBD revenue/population (in million Rp)

Sumatra Sumatra: Dista Aceh Sumatra: North Sumatra Sumatra: West Sumatra Sumatra: Riau Sumatra: Jambi Sumatra: South Sumatra: Bengkulu Sumatra: Lampung Java Java: DKI Jakarta Java: West Java: Central Java: DI Yogyakarta Java: East Bali Nusa Tenggara Nusa Tenggara: West Nusa Tenggara: East Kalimantan Kalimantan: West Kalimantan: Central Kalimantan: South Kalimantan: East Sulawesi Sulawesi: North Sulawesi: Central Sulawesi: South Sulawesi: South East Maluku Irian Jaya

1,219.62 474.85 640.08 2,027.54 685.82 461.95 575.56 383.41 939.45 320.48 356.13 582.50 378.99 952.42 476.61 622.16 574.02 1,065.17 663.27 1,746.75 674.91 714.20 569.51 705.99 734.41 2,260.10

Highest : Irian Jaya : Rp 2,260.10 Lowest : DKI Jakarta : Rp 320.48 Ratio : highest/lowest : 7.05 Source: BPS (Badan Pusat Statistik [Central Bureau of Statistic]).

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TABLE 8.4 Average Annual GRDP Growth by Province Province Nanggroe Aceh Darussalam Sumatra: North Sumatra: West Riau Jambi Sumatra: South Kep. Bangka Balitung Bengkulu Lampung DKI Jakarta Java: West Banten Java: Central DI Yogyakarta Java East Bali Nusa Tenggara: West Nusa Tenggara: East Kalimantan: West Kalimantan: Central Kalimantan: South Kalimantan: East Sulawesi: North Gorontalo Sulawesi: Central Sulawesi: South Sulawesi South East Maluku Maluku: North Papua

Average Annual Growth 1994–1996 1999–2000 2001–2002 0.02 0.09 0.08 0.05 0.09 0.08 – 0.07 0.09 0.09 0.09 – 0.07 0.08 0.08 0.08 0.08 0.09 0.10 0.10 0.10 0.07 0.09 – 0.08 0.08 0.07 0.07 – 0.17

–0.04 0.02 0.02 0.03 0.03 0.02 – 0.02 0.02 0.02 –0.04 – 0.02 0.02 0.02 0.02 0.14 0.02 0.01 0.01 0.02 0.02 0.03 – 0.02 0.02 0.03 –0.01 – 0.01

0.00 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.03 0.02 0.02 0.03 0.02 0.02 0.02 0.02 0.02 0.03 0.01 0.02 0.02 0.02 0.02 0.03 0.03 0.02 0.03 0.01 0.01 0.04

Source: LPEM FEUI.

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TABLE 8.5 Average Annual Investment Growth by Province Province Nanggroe Aceh Darussalam Sumatra: North Sumatra: West Riau Jambi Sumatra: South Kep. Bangka Balitung Bengkulu Lampung DKI Jakarta Java: West Banten Java: Central DI Yogyakarta Java East Bali Nusa Tenggara: West Nusa Tenggara: East Kalimantan: West Kalimantan: Central Kalimantan: South Kalimantan: East Sulawesi: North Gorontalo Sulawesi: Central Sulawesi: South Sulawesi South East Maluku Maluku: North Papua

Average Annual Growth 1994–1996 1999–2000 2001–2002 0.02 0.13 0.10 0.08 0.07 0.13 – 0.02 0.21 0.11 0.21 – 0.08 0.08 0.11 0.09 0.12 0.08 0.20 0.07 0.10 0.02 0.17 – 0.06 0.18 0.05 0.16 – 0.15

–0.04 0.02 0.01 0.01 0.04 0.02 – 0.02 0.05 0.01 0.00 – 0.03 0.03 –0.03 0.01 –0.02 0.04 0.02 –0.02 0.08 0.00 0.27 – 0.02 –0.03 0.03 0.00 – 0.07

0.03 0.01 0.01 0.01 0.01 0.02 0.03 0.02 0.01 0.01 0.03 0.03 –0.08 0.08 0.00 0.01 0.01 0.02 –0.02 0.13 –0.03 0.07 0.20 0.01 0.02 0.02 0.04 0.14 0.03 0.05

Source: LPEM FEUI.

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TABLE 8.6 Average Annual Export Growth by Province Province Nanggroe Aceh Darussalam Sumatra: North Sumatra: West Riau Jambi Sumatra: South Kep. Bangka Balitung Bengkulu Lampung DKI Jakarta Java: West Banten Java: Central DI Yogyakarta Java East Bali Nusa Tenggara: West Nusa Tenggara: East Kalimantan: West Kalimantan: Central Kalimantan: South Kalimantan: East Sulawesi: North Gorontalo Sulawesi: Central Sulawesi: South Sulawesi South East Maluku Maluku: North Papua

Average Annual Growth 1994–1996 1999–2000 2001–2002 0.00 0.11 0.07 0.07 0.10 0.16 – 0.17 0.07 0.12 0.12 – 0.08 0.07 0.09 0.09 0.12 0.11 0.04 0.10 0.01 0.11 0.12 – 0.03 0.01 0.19 0.01 – 0.25

0.00 0.02 –0.05 0.10 0.01 0.08 – 0.02 0.06 0.02 –0.06 – 0.07 0.01 0.06 0.01 1.02 –0.13 0.01 0.00 0.01 0.05 0.01 – 0.02 0.01 0.35 –0.16 – 0.00

–0.10 0.07 0.00 0.04 0.00 0.00 –0.01 0.02 –0.27 0.09 0.00 0.02 –0.09 0.03 –0.05 0.01 0.04 0.10 –0.12 –0.10 –0.05 0.01 0.05 0.07 0.02 0.04 0.01 0.02 0.05 –0.11

Source: LPEM FEUI.

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TABLE 8.7 Average Annual Manufacturing Growth by Province Province Nanggroe Aceh Darussalam Sumatra: North Sumatra: West Riau Jambi Sumatra: South Kep. Bangka Balitung Bengkulu Lampung DKI Jakarta Java: West Banten Java: Central DI Yogyakarta Java East Bali Nusa Tenggara: West Nusa Tenggara: East Kalimantan: West Kalimantan: Central Kalimantan: South Kalimantan: East Sulawesi: North Gorontalo Sulawesi: Central Sulawesi: South Sulawesi South East Maluku Maluku: North Papua

Average Annual Growth 1994–1996 1999–2000 2001–2002 0.01 0.09 0.12 0.12 0.15 0.10 – 0.12 0.09 0.09 0.15 – 0.08 0.07 0.12 0.11 0.09 0.05 0.08 0.03 0.11 0.03 0.10 – 0.08 0.08 0.21 0.06 – 0.14

–0.15 0.02 0.03 0.05 0.01 0.02 – 0.03 0.01 0.02 0.02 – 0.02 –0.01 0.01 –0.01 0.03 0.02 0.02 –0.06 –0.03 0.03 0.03 – 0.01 0.04 0.03 –0.16 – –0.04

–0.01 0.04 0.01 0.02 0.02 0.01 0.02 0.03 0.01 0.01 0.02 0.02 0.02 0.02 –0.01 0.03 0.03 0.02 0.01 0.01 –0.01 –0.01 0.03 0.01 0.02 0.01 –0.01 0.00 0.00 0.04

Source: LPEM-FEUI.

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The last cause has actually enhanced the suspicion of local governments towards the central government which is seemingly reluctant to devolve power to the regions. In other words, the long-standing issue of deconcentration versus decentralization still colours relations between central and local governments in Indonesia. Although the period since 2001 has been characterized by clear decentralization policies and measures, it has apparently not been easy to change from the past paradigm of top-down deconcentration to the new one of bottom-up decentralization. Most of the line ministries were the main power holders in their field of operation during the deconcentration period. It is they who stand to lose the most under decentralization. Using any type of argument like national priority programmes, national interest, people interests and others, the line ministries are still trying to justify their authority over the execution of programmes and projects at the local level. Despite the ministries’ effort to involve local government units in their activities, their attitude that the projects would still be controlled by the centre rather than by the local governments, has created the impression in the regions that the central government does not really want to devolve authority. There have been some discussions about this issue but whenever it comes to real action, initiatives lose momentum due to the fact that questions from a line ministry as to “who should initiate the policy?” or “will other ministries follow the policy?” tend to remain unanswered. Other ministries would argue that they do not trust the capacity of local governments to deliver even the minimum basic services they used to do in the past. Some also proposed that part of DAU should be “earmarked” for certain activities related to basic service delivery such as education, health, and basic infrastructure. A proposal is made as follows. While the debate of deconcentration versus decentralization could be endless, there is in fact one strategy to gradually shift the central government paradigm and minimize deconcentration activities. The specific purpose grant (DAK) that theoretically should be devoted to covering the jurisdictional spillover effects as well as to ensure minimum service standard and to pursue the national interest, is the best instrument to gradually devolve the line ministries’ power. With DAK arrangements that still involve the central government ministries and agencies, the local government will own the projects and programmes but these will be monitored and evaluated by the relevant central ministries which will thus still have decision-making power over the financing of these programmes and projects. The shift from DIP (central government programmes and projects) to DAK could be designed with a medium-term perspective to enable smooth adjustment at both the central and local levels. With more DAK funding, the 215

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local governments will have more opportunities to develop the regions based on their own plans and assessment. Indeed, local governments know better the local needs than the central ministries. From the point of view fiscal sustainability, this kind of shift will not affect the APBN much, as the transaction is basically a transfer from the Development Expenditure Account to the Inter-governmental Transfer Account, in this case the DAK. Such a move will also ensure the fiscal sustainability at the national level. At the end of 2003, however, there were requests from local governments to central government to allocate more than 25 per cent net domestic revenue for the DAU. During the first three years of decentralization, the government had always imposed the minimum amount of 25 per cent net domestic revenue, but in response to the mentioned request, the central government allocated 25.5 per cent for the 2004 DAU. Article 27 of the Amendment Law No. 33/ 2004 on the fiscal balance between regions and government stipulates even 26 per cent. This slight increase will not affect the national fiscal sustainability as much as the idea of one influential ministry to increase the DAU to 30 per cent of net domestic revenue. This threat will become even more significant if there is no shift from DIP to DAK, since the central government will be forced to either find additional revenue or to cut other types of expenditure. The move to increase the DAU up to 30 per cent of net domestic revenue will, however, not affect the sustainability if it is accompanied by a shift from DIP to DAK and by defining the devolution of authorities better. Without proper management of this matter, the central government is likely to run out of money while still being responsible for many government authorities. Another potential disruption of fiscal sustainability that relates to fiscal decentralization is the disbursement of Natural Resources Revenue Sharing. The central government has committed itself to avoid the former disbursement programme which, in the past, caused the large budget surplus of the natural resources-rich regions due to the inability to absorb budget close to the end of the budget year. This late disbursement also caused uncertainty in the local government’s cash flow management, with a few regions having to borrow from external sources in anticipation of the “in-coming” revenue. Beginning in 2004, the government will allocate the budgeted amount rather than the actual amount that caused the delay. With the budgeted amount based on the last year’s actual transfer, the central government runs the risk of transferring more money to the regions than they are supposed to receive. The fluctuation of both production and price of the natural resource commodities could increase the risk of over-budgeting that may eventually affect the fiscal sustainability at the central level. 216

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Sustainability becomes an even more significant issue in view of the fact that the APBN has the obligation to pay the national debt that was about 17.5 per cent of the total budget in 2003 (see Table 8.8). This proportion was lower than in 2001 and 2002. Quite interestingly, the debt payment proportion in 2003 was lower than the DAU proportion and the inter-governmental transfer proportion. In 2001–02, the debt proportion was higher than the DAU but lower than the inter-governmental transfer. Any proportion increase of debt payment together with the DAU proportion pattern (and other transfer instruments) will certainly put the national budget in danger.

TABLE 8.8 Inter-governmental Transfer, Debt Payment, and National Budget

Year

DAU/Total Expenditure (%)

Transfer/Total Expenditure (%)

Interest + Principal Debt Payment/Total Expenditure (%)

2001 2002 2003

17.67 20.00 20.77

23.73 27.21 29.01

20.86 22.71 17.46

Source: Ministry of Finance.

In order to be able to finance development under decentralization, both the central government and the local governments will in all likelihood be forced to look for external sources. Internal sources should come from tax revenue intensification and higher economic growth that leads to higher tax revenue. Due to the current difficulties to expand the tax base, and of having to promote economic growth without investment, external sources should be prioritized, albeit with caution. The central government already issues government bonds for sources of funding which will be reflected in the debt payment burden of the budget in the near future. Foreign loans are still available, but their importance could decline a little due to their unpopularity among Indonesians. Yet, local governments are still not allowed to borrow from external sources, especially foreign sources. There have been discussions that this prohibition might be lifted in the near future, and the central government has already amended Law No. 25/1999 by introducing the on-lending concept for local governments. With this on-lending concept, international 217

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agencies will have to negotiate and make an agreement with the central government on behalf of local governments that need foreign borrowing. The central government will lend the money to the local governments and, supported by an agreement, can then charge the local governments through the inter-governmental transfer if the local governments are in default position. There is a chance that this could indeed minimize the risk to fiscal sustainability. Another possibility is the issuance of local government bonds. It might take some years though, before the local governments can really issue the bonds and get the financial sources they need. However, a risk to fiscal sustainability remains if the local governments are allowed to issue the bonds, especially when the central government might have to bail them out. To minimize the risk, the local government bankruptcy law has to be ready and in place together with the secondary bond market. But first of all, local government management has to earn the trust of the market through good governance practices and the proven ability to manage the local economic development process.

CONCLUDING REMARKS The decentralization process between 2001 and 2004 can be viewed as a “mild” success. It lies, above all, in the fact that after only one year (2000) of preparing the implementation of Law No. 22, Indonesians quickly adjusted to the massive and drastic change from a highly centralized to a decentralized system of regional governance, prescribed by the 1999 legislation. The relatively smooth transfer of two million civil servants from the regional branches of the central administration to the regional executives can justly be considered as the mark of a smooth devolution process that neither created significant social unrest nor political disorder. However, the central government — especially some line ministries — is still trying to remain involved in local activities, which is perhaps understandable given its almost absolute power in the past. The local governments for their part might also still be in an important learning trajectory towards self-reliance. Yet, they are learning quickly and, given the limited budget, have demonstrated that they can manage the government administration relatively well. The amendment of both Law No. 22/1999 and Law No. 25/1999 leading to the Laws No. 32/2004 and No. 33/2004 should be seen as a significant improvement of the decentralization process. More emphasis is now placed on better monitoring by the central government on the one hand, and greater accountability at the local level on the other. On the fiscal side, there is a bond problem in case of less-than-equal DAU. This, however, is 218

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improving, albeit gradually. Some recent efforts to eliminate political manipulation of DAU allocation should give hope for more equal allocation, based on independent judgement. The central government is also improving the natural resources revenue sharing disbursement that could neutralize the restless search for extra fiscal income by local governments. As for fiscal sustainability, the central government has handled the debt management relatively well, so that the proportion in APBN available for the intergovernmental transfers is higher than before. A prudent and cautious national budget management is the key to success but the requests to increase the DAU portion may have to be observed carefully. Aside from these positive developments, the decentralization process could still fail if the local governments and the central government do not adhere to the proper behaviour in the new paradigm of local autonomy, prescribed by law. With regard to local government, the tendency to prioritize the local budget rather than the local GRDP will still discourage potential investors who will want to stay away from illegal and excessive charges or levies. The local budget (APBD) policy should not just focus on covering local expenses alone, but should also develop efforts to stimulate local economic development, and separate the funds for that. Local parliament (DPRD) should share the same view. In order to support that view, accountability of both local legislative and executive to the local voters should be promoted. Accountability of local governments to voters should ensure a better basic public service delivery, and local government should begin to formulate how to build an effective local government administration that will not spend too much on routine activities. On the borrowing issue, the local governments have to convince the central government and potential lenders that they are capable of managing the borrowing without jeopardizing the current fiscal sustainability. As it is commonly agreed, local borrowing might be a useful local revenue collection instrument since it will create a win-win condition for both borrower and lender. In the end, the success of the decentralization process depends on the central government that designs the process and commits itself to the implementation. Apparently though, decentralization is not quite a primary priority of the central government. The decentralization activities are already being considered as routine activities which are generally appreciated if the process is running perfectly and smoothly, but mistrusted if not everything is in place yet. Experience has shown that when not everything is in place yet, the electorate is likely to get the impression that the central government is not serious anymore in promoting decentralization and prefers to return to the old centralist paradigm. Lack of coordination and intense rivalry among 219

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central ministries does not help to improve the government’s image in this respect. Rivalry among central ministries not only indicates that the decentralization process is no longer a national but a parochial interest of the ministries. It also reveals the fact that the president has lost hold of the cabinet and its ministers. Strong national leadership should help to overcome this problem. A good start was made by the amendment process of Law No. 22/1999 and Law No. 25/1999 leading to the Amendment Laws No. 32/2004 and No. 33/2004. However, the situation could also deteriorate into open warfare between the Ministry of Home Affairs and the Ministry of Finance rather than providing a revised positive perspective on the decentralization process itself. On the fiscal side, the central government still has to manage the fiscal sustainability that has effects on the decentralization process. Most importantly, Indonesians should avoid relapsing into a new large-scale economic crisis due to errant local government behaviour in borrowing and managing local budgets, as in the case of Brazil.

References Asanuma, Shinji and Bambang Brodjonegoro. “Indonesia’s Decentralization Policy: Origins, Issues, and Prospects”. Paper presented at the International Symposium on Indonesia’s Decentralization Policy: Problems and Policy Directions, Hitotsubashi University, Tokyo, 2003. Brodjonegoro, Bambang. “Fiscal Decentralization in Indonesia”. In Governance in Indonesia: Challenges Facing the Megawati Presidency, edited by Hadi Soesastro, Anthony L. Smith, and Han Mui Ling. Singapore: The Institute of Southeast Asian Studies, 2003. ———. “Decentralization and Business”. Paper presented at the Indonesian Update Conference, Research School of Asian Pacific Studies, Australian National University, Canberra, 2003a. ———. “Decentralization and Urbanization in Indonesia: The Concept of Metropolitan Area”. Paper presented at the Asian Development Conference, Kitakyushu, 2003b. Brodjonegoro, Bambang and Jorge Martinez. “An Analysis of Indonesia’s Transfer System: Recent Performance and Future Prospects”. Paper presented at the Andrew Young School of Policy Studies sponsored conference on Can Decentralization Help Rebuild Indonesia? Georgia State University, Atlanta, 2002. Brodjonegoro, Bambang and Shinji Asanuma. “The Regional Autonomy and Fiscal Decentralization in Democratic Indonesia”. Hitotsubashi Journal of Economics 41, no. 2 (2000): 111–22. Ford, J. Fitz G. and Bambang Brodjonegoro. “Inter-Governmental Fiscal Relations and State Building: The Case of Indonesia”. In Asymmetric Fiscal Decentralization: Glue or Solvent?, edited by R.M. Bird. Washington D.C.: World Bank, 2004. KPPOD. Regional Investment Attractiveness: Business Perception. Jakarta: Komite 220

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Pemantauan Pelaksanaan Otonomi Daerah (KPPOD) and Asia Foundation, 2003. Mahi, Raksaka and Bambang Brodjonegoro. “The Indonesian Political Economy of Decentralization”. Paper presented at the International Symposium on Indonesia’s Decentralization Policy: Problems and Policy Directions, Hitotsubashi University, Tokyo, 2003. Matsui, Kazuhisa and Mudrajad Kuncoro. “The Role of Local Governments in Indonesia: A Survey of Recent Development”. Paper presented at the International Symposium on Indonesia’s Decentralization Policy: Problems and Policy Directions, Hitotsubashi University, Tokyo, 2003. Sato, Motohiro, Bambang Brodjonegoro and Hamid Paddu .“Intergovernmental Transfer and Tax Sharing in Indonesia: Theories, Practices, and Political Recommendation”. Paper presented at the International Symposium on Indonesia’s Decentralization Policy: Problems and Policy Directions, Hitotsubashi University, Tokyo, 2003. Suwandi, Made. “The Implementation of Regional Autonomy: The Indonesian Experience”. Paper presented at the Andrew Young School of Policy Studies sponsored conference on Can Decentralization Help Rebuild Indonesia? Georgia State University, Atlanta, 2002. Usui, Norio and Armida Alisjahbana. “Local Development Planning and Budgeting in Decentralized Indonesia”. Paper presented at the International Symposium on Indonesia’s Decentralization Policy: Problems and Policy Directions, Hitotsubashi University, Tokyo, 2003. World Bank. “Decentralizing Indonesia: A Regional Public Expenditure Review Overview Report”. Jakarta: East Asia Poverty Reduction and Economic Management Unit, 2003.

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9 ORIGIN AND DEVELOPMENT OF THE URBAN MUNICIPALITY IN INDONESIA Peter J.M. Nas

INTRODUCTION The meaning attached to the city is placed centrally in the works of Castells. According to him, cities are liable to change because all sorts of parties are permanently struggling over the meaning the city should have. He defines “urban meaning” as “the structural performance assigned as a goal to cities in general (and to a particular city in the inter-urban division of labor) by the conflictive process between historical actors in a given society”. This article about the origin and development of the Indonesian municipality deals precisely with the meaning of urban attached to the Indonesian town by various categories of people at different levels over the years. This concerns a long-term process in which a lot of interests and goals have been at stake, such as financial cuts, administrative decentralization, the promotion of local interests, nation-building, security, repression, and the promotion of self-interests. The Law of Decentralization was passed on 23 July 1903. It consisted of three articles, added to the governmental regulations of the Netherlands Indies, which empowered the establishment of local authorities.1 From 1905 onwards, urban municipalities (gemeenten) were created with Batavia, Meester Cornelis, and Buitenzorg taking the lead, followed soon by many others.2 222

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Until then, the Netherlands Indies government had been dominated by the strongly centralized power of the governor-general. After the passing of the law, local interests could be represented at the local level.3 The origin of this law could be characterized as a long Way of the Cross ending up with a jump into freedom.4 For more than half a century, local authority had been a topic of more or less intense contention between various persons, groups, and governmental bodies in which the discretion of the citizenry was at stake. It led to heated debate in parliament and other places as well as in the press, where not only were the pros and cons of the arguments fully explored, but also the modalities local authority might take. The socio-political and administrative process which led to the passing of the Law of Decentralization or, in other words, the origin of urban municipalities in Indonesia, is sufficiently well documented by some of the persons and groups involved and also by some Dutch historians5 so that it seems eminently worthwhile to attempt not only an analysis of the ways various actors at various levels tried to pursue their goals, but also of the interaction established between these levels. That is why the linkages perspective is considered a very adequate tool for analysis of this important development process and, vice versa, the issue of decentralization, for the study of linkages.6 In this framework of linkages, the parties involved in the origin of the urban municipalities and the relationships among them are considered as a system consisting of chains of linkages between various levels. The three main levels involved were: (1) In the Netherlands: the king, parliament, minister of colonial affairs with his departmental staff and the Council of State (Raad van State); (2) In the Netherlands Indies: the administration dominated by the governor-general and his subordinates, among them the residents of the residencies (residenties) and the directors of departments; at this level the Raad van Indië also had a role to play; (3) Another level in the Netherlands Indies, of course, consisted of the citizens and their formal and informal leaders; the Dutch, the Chinese and the Arabs (Vreemde Oosterlingen), and the indigenous population (inlanders) have to be distinguished at this third level. It will be clear that these “levels” differ in character in various respects, such as in scale, power, and degree of organization. The linkages between them also vary with respect to functionalism, directness, formality, and other such characteristics. We are, for example, dealing with strong hierarchical governmental bodies, loose networks of citizens, power relations, informal direct personal interaction, formal committees and meetings, and indirect communication by means of the mass media. 223

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CITIZENRY AND OFFICIALDOM The main proposition of this study is that it was particularly the European citizenry in the Netherlands Indies which was the driving force behind the introduction of urban municipalities. This class, under the pressure of growing numbers, particularly towards the end of the nineteenth century, tried to pursue its interests by fostering local autonomy. Thus, in the first instance, the direction of the research for this chapter was determined by a focus on this class and its activities related to city government. However, the introduction of the linkages perspective immediately broadened the framework of research to include all the levels and linkages connected with the social process under scrutiny. This approach revealed that the basic assumption is not so much false as incomplete. Other actors at various levels played crucial roles, as the chapter hopes to show, without whom no adequate understanding of the process can be obtained. From the very beginning the discretion of the burghers of Batavia was very restricted and their relations to the Civil Service were effected by stereotypes. During the period of the Dutch East India Company (Vereenigde Oost-Indische Compagnie or VOC), the citizenry was small in number and without leadership, representation, influence, money, or prestige, as de Haan (1922, vol. II, p. 1) bluntly puts it in his magnum opus on Old Batavia. According to him, they were subordinate to the VOC officials and held in low esteem by them. Yet, they were represented in all sorts of official bodies and even constituted a majority among the aldermen (schepenen). The aldermen were nominated and paid by the VOC, however, and no real representation of the interests of the burghers actually took place, in the opinion of de Haan. This became particularly clear during the period of burgher discontent from 1647 to 1652 (de Haan 1922, vol. I, pp. 113–14). The attempts to redress issues of trade restriction and taxes were not successful. A request made in 1650 for the installation of a city corporation or vroedschap implying real representation was not honoured. A petition to the Dutch states-general (staten-generaal) bore no fruit. And in 1652, in a letter the Heeren XVII, the central board of the VOC, stressed that burghers and civil servants alike were required to show obedience to the government.7 This attempt by the Batavian citizenry to recover its position deserves scholarly attention, for it was a sign of a vitality which was to vanish for many years, only to reappear again two centuries later. True, burghers still participated in the Court of the Aldermen (Schepenen) and the Court of the Dike Reeve (Heemraad) and they fulfilled many other official positions such as weighmaster (weegmeester), church warden (kerkmeester), assayer (keurmeester), and so forth, 224

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but the city remained dominated by officialdom. Daendels dissolved the Court of the Dike Reeve in 1809 and its duties were taken over by a regenerated Court of Aldermen consisting of a president and eight aldermen, half of whom came from the citizenry. The Court of Aldermen, however, was abolished under English rule in 1811. In the second half of the nineteenth century corporate life gathered strength again and, according to de Waal (1882), who presents a list of associations installed during that period, public life particularly, gained momentum in the last quarter of the century. This brief sketch of the position of the citizenry in Batavia and the Netherlands Indies, and of their unfortunate relationship with the official authorities, will serve as the point of departure of the analysis in this chapter. In addition, it forms the background for one of the arguments in the debate on decentralization which, in a rather peculiar way used history in its defence. It was the liberals who, imbued as they were with a romanticized picture of history, based their arguments in favour of local authority on the claim that real local authority had already existed in VOC times.

THE KING, THE ANONYMOUS, AND THE IN-BETWEEN The main function of the system under consideration was the generation of profit. It was a chain of linkages making possible the transfer of huge amounts of money to the Dutch government in a direct way by the credit balance and its famous “batig slot”. This direct profit was realized from 1840 to 1897 when this extraction system was changed into a delivery system because more money was being put into it than came out, not counting the indirect profits via private entrepreneurship of course (cf. Milone 1966, p. 12). The direct extraction function of the system, however, was not undisputed, for many people in the Netherlands Indies were convinced that money raised by the government should be for the profit of the colony. In this context, it is not at all surprising that the first incentive for local authority was given not by a private citizen but by the king in the Netherlands. In 1829, Willem I instructed Governor-General van den Bosch to consider whether the government of a few local communities in the Netherlands Indies could not be organized in a less expensive way by the assignment of local governmental activities to particular persons, who would have to raise the funds for these activities exclusively from local earnings.8 This instruction set a trend in what could be called the financial argument or the geldkwestie. Local expenditure should be covered by local earnings and thus be detached from the general budget. This argument in favour of local authority was in the interest of the Dutch government and caused suspicion among the urban 225

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citizenry later on. Understandably, this citizenry did not like the combination of a “batig slot” and local autonomy, because it might prove to be disadvantageous, leading to higher financial loads in favour of the “batig slot” (T.C.L. Wijnmalen and G.H. van Soest, see Indisch Genootschap 1877, pp. 19–20, 26). In 1867/68, the fiscal argument also continued to play a role in the Dutch Parliament, where the street lighting of Batavia as a purely local affair was questioned as part of the central budget (de Waal 1882, pp. 30– 31). The connection between local expenditure and the need for the constitution of local authorities was further loosened between 1874 and 1880 by Dutch parliamentarians who fostered the idea that local works also could be paid from local earnings and taxes without any municipal corporation taking charge (de Waal 1882, pp. 47–48). This was one of the main inputs into the system by the top. At the bottom level, the burghers, the most important contribution was based on complaints about local circumstances in urban areas. In 1858, these complaints were published in a short article by an anonymous author signing himself as “N.A.” (probably van Hoëvell). He pointed out that Batavia’s problems involved the absence of clean drinking- and bath-water, the lack of street lighting at night, the haphazard settlement by the Chinese among the Dutch, and the lack of supervision of indigenous servants. N.A. stressed that Batavia did not even have its own local authority and that everything, including minor affairs, had to be arranged by the Netherlands Indies government, which led to administrative and financial chaos. Moreover, he doubted whether the government would have the common sense to use his critical comments because It is too infirm for that, too much a prey to narrow-mindedness, pettiness, stubbornness and such evils, from which it will not easily recover (translation of Zij is daartoe te ziekelijk, te zeer aan bekrompenheid, kleingeestigheid, halsstarrigheid en diergelijke kwalen, onderhevig, waarvan zij niet genezen zal in N.A. 1858, p. 49).

This kind of sharp criticism continued to play a role during the years that followed. In 1902 Hooijer managed to write an article in which he paraphrased the anonymous article written more than forty years earlier, implicitly showing that little had happened. In several places mention is made of the complaints of the Dutch society in the Netherlands Indies, particularly the tax reforms in 1878 (Fock 1900, pp. 158, 169). In fact, both the king and the burghers directed severe criticism at the Netherlands Indies government. The top and the bottom of the system both tried to reach the same goal, that is, local authority, but for completely different 226

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reasons: the former, for financial profit and the latter, for better management of local affairs. And, of course, the goal pursued by the Dutch government made the burghers suspicious. Later on the Dutch government began to recognize that local taxes could probably also be raised without municipal back-up. So both the top and the bottom levels had second thoughts. What was the attitude of the middle level, the governors-general and their staff, towards these proposals and complaints, which, if accepted, would involve a reduction of their power? What was the reaction of the middle level to the pressures of the upper and lower levels in the system? The response was a brilliant manipulation of linkages based on a completely different perception of the issue which resulted in almost half a century of respite.

LINKAGES: NATURE The instruction of 1829 by the king had no direct consequences. From de Waal (1882, p. 24) and Kleymans (1948, p. 15) we learn that it was only in 1854 that the issue was raised again by the Netherlands Indies government in the Raad van Indië in connection with the establishment of a more permanent, well-to-do Christian European community in the Netherlands Indies. According to the Raad van Indië, such a permanent community could only be stimulated by some sort of local autonomy. The issue was brought to the attention of the Minister of Colonial Affairs, Meijer, by a member of the Raad van Indië, Visscher, in a most peculiar way. He established a direct linkage with the minister by asserting in his request for a pension, that his reason for leaving the Netherlands Indies was that life in the Netherlands Indies was unbearable for retired officials because there was no permanent European community and no constituted local authority. As a consequence, the minister contacted the governor-general for information about this state of affairs in the Netherlands Indies. In the meantime, officials had been consulted. The general opinion was that local authority would not promote the permanent settlement of the Dutch in the Netherlands Indies. Moreover, unrestricted admission of Europeans was by no means the intention of the Dutch government. The main reason for considering the introduction of local authority was refuted by these arguments and the first phase of the discussion in the Netherlands Indies, which Kleymans called the “Meijer Initiative”, was closed. Many other initiatives were to follow. Kleymans presents ample descriptions of the initiatives of concerned officials such as Cornets de Groot, de Waal, van Bosse (I), Fransen van de Putte, van Bosse (II), Sprenger van Eyk, Keuchenius, and van Dedem. It would be attractive to present this chronological historical overview of the process in some 227

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abbreviated way here, but it is more expedient to refer readers to Kleymans’ work and also to other supplementary publications mentioned in the list of literature in the references to this chapter for this intriguing story of political strategy, administrative procedure, and intellectual debate. Instead of undertaking an elaborate historical reconstruction, an analytical approach is adopted by, amongst other things, classifying the main types of linkage established in the process. This is quite a difficult task because it is almost impossible to isolate the nature of linkages from their content, or to separate them from their context without loss of information on their probable efficacy. But, firstly, let us trace the main types of linkage found in the descriptions of the process leading to decentralization. Because the very nature of this process was mainly enacted within the context of governmental bodies, it is not surprising that the administrative type of linkage was dominant. It included, for example, instructions, official letters (missives and dispatches), an explanatory memorandum (memorie van toelichting), opinions of official bodies (that is, the Raad van Indië, and the Raad van State), formal opinions of officials or other persons, advisory boards and committees, discussions in parliament, a board of enquiry (enquêtecommissie),9 appointments of persons to crucial jobs, an official public letter to a newspaper, and much other paperwork of that ilk. These official linkages had varying degrees of efficacy. There were informative connections which were quite neutral in character. Often consultative linkages by committees or persons with a specific advisory task were a little bit more forceful because the arguments had at least to be considered and they were even more forceful when the relationship was juridical obligatory. Instructive and supervisory connections were clearly topheavy in character and, therefore, the most forceful of these three types. Because of these characteristics and their role in the organization of the state, official linkages displayed a fixed structure. This meant, on the one hand, that certain types of linkages were restricted to particular positions and requirements. For example, an official under normal conditions would contact persons in higher levels in the organization via his superior, and the procedure of the Enquêtecommissie could only be taken up when the issue was found valid by parliament. On the other hand, given this fixed structure of linkages, many connections were either virtually impossible or strictly bounded. This particularly strengthened the middle level of the system, which took a crucial position in the management of the connections from top to bottom and bottom to top. This strong position was manifested in the stress placed on the need for consultation and information by lower levels and the 228

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manipulation of this information when it was reported to the top. Coverup policy was not unknown in the Indies and the Netherlands. The report of the 1878 Committee was, for example, only sent confidentially to parliament after a lapse of two years and after recurrent questions and protests. It was published in a journal only in 1899 (Gemeentebesturen 1899). However, probably the most interesting questions relate not to the structure itself and how it worked, but to what was not possible within the system. What was not possible is difficult to extricate; clues, however, may be obtained by examining deviant linkages, that is, connections realized in a “peculiar” manner. A few such cases will be presented later. A second type of linkage was very important but also difficult to research. A complete branch of informal linkages had to be added to the formal ones including, for example, personal letters, private talks and meetings, and so forth. Above all many actors involved had informal connections with one another because of family relationships and former leisure and work relationships. A third type of linkage of a more general character was the mass media. Publications in scholarly journals and newspapers were very influential during certain phases of the process.

LINKAGES: CONTENT AND CONTEXT Up to now, the analysis would have raised the impression that both the top and bottom levels were in favour of local authority and that the middle level — resisting this by manipulating linkages — was against it. This view is basically true when the interests of these levels are taken into account. However, when the concrete choices and activities of the bodies and persons at the various levels are analysed, reality appears to be much more capricious. The causes for this lay firstly, in the development of the argumentative discourse on the issue and, secondly, in the fact that changes in political and administrative contexts played an important role in blurring the picture. It becomes clear then, that the nature and the content of linkages cannot meaningfully be disentangled, not even from the context. The discussion began with the financial issue raised by the king and the demands to further the continuity of the European community in the Netherlands Indies by the promotion of local interests of the burghers and by installation of local authorities in which the burghers could fill honourable positions. The conclusion was that the continuity of the Dutch community could not be realized by this means, because the Dutch would return to the Netherlands anyway after having made money. Moreover, the unlimited 229

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admission of Europeans was not the aim of the Indies government. One important secondary argument was related to the historical issue and was used to imply that local authority had already existed earlier. This argument was rejected, however, because the situation during the VOC period was not considered relevant and the situation during the seventeenth and eighteenth centuries did not reflect the contemporary position. Another argument was related to the centralized structure of the Netherlands Indies government into which local autonomy supposedly could not be conveniently fitted without conflict. The argument of local interest was exemplified in the second initiative — that of Cornets de Groot, and the installation of urban committees was considered advisable to relieve the burden of the resident. The financial issue was raised as a secondary argument. This suggests that the three main arguments in favour of local authority had already been formulated in this quite early phase of the discussions. However, the representation of the Chinese and Arabs (Vreemde Oosterlingen) and Indonesians (inlanders) formed a stumbling block in the Raad van Indië, which blocked the progress of the process completely. The Raad did not want to see large parts of the population excluded from representation. De Waal attempted to avoid the problem of representation by proposing advisory committees whose first members were to be appointed by the governor-general nominated by a resident, while later on vacancies would be filled after nomination by the committee itself. In this way, de Waal hoped — and with hindsight, this might perhaps be considered a historical irony — that the seed for more extensive local authorities would be sown. His initiative was rejected as being harmfully irresolute. “One either has municipal councils or one does not”, was the opinion of the Dutch parliament. Van Bosse completely separated local authority from the financing of local public works which, according to him, could be arranged on the basis of local taxes, as was the case with the citizen militia (schutterij) contributions. These contributions were not listed in the Netherlands Indies budget, nor were the expenses covered by it. In the Netherlands Indies the letters of van Bosse on this matter led to the discontinuation of this type of local funds in various cities, which were considered illegal by the Netherlands Indies government. Incomes and expenditures had to be entered into the Indies central budget. In fact, this linkage between The Hague and Buitenzorg was very efficient, but the result was the reverse of what was aimed for. In the context of the centralization issue, this was an unexpectedly good example of efficiency in governmental action. Consultations in the Raad van State during what is called the Initiative Fransen van de Putte led to a distinction between Java which was considered 230

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better suited, and the other islands (Buitengewesten) which were considered less well suited for the possible introduction of local authorities in some form. Finally, consultation in the Raad van Indië marked the end of this round of conflicting views, in which in addition to the historical argument, the comparative argument (regarding the situation in India) was also discussed. Van Bosse in his second initiative made a fresh start by taking up a procedural stand. The burghers had not been consulted and this error had to be rectified. He wrote to the governor-general that he had to invite the resident of Batavia by means of an official public letter to install a committee (see de Waal 1882, p. 35). This again set the whole administrative machine into motion and focusing on financial issues, the advisory committee wrote a report (1878) based on the suspicion that municipalities would be used to have the burghers pay more, a suspicion that has to be judged against the background of proposed new tax regulations in that period. After the lapse of a number of years, the issue was taken up again. The new idea was that decentralization of governmental activities need not be the same as local authority. Decentralization should start from the top and some sort of different administrative structure covering each island was discussed, but with no other immediate result than a new round of consultation and the collection of further information. This metamorphosis of decentralization from bottom-up urban autonomy into top-down district autonomy took place during the Sprenger van Eyk Initiative and continued to play a role afterwards (Initiative Keuchenius and Initiative van Dedem). Van Dedem tried to regulate this form of decentralization by adding it to other changes in the Accountability Law (Comptabiliteitswet), but the Raad van State reprimanded him on the grounds that the Accountability Law should not be used for other purposes, such as decentralization. After this setback and consultations in the Netherlands Indies, van Dedem proposed the addition of an article (No. 68a) to the governmental regulations to make decentralization possible. This was the first time the liberals had produced a proposal for the decentralization law and it was basically this law that was passed later on by Minister Idenburg. This rough overview, based on Kleymans’ very detailed historical research, indicates that the Netherlands Indies bureaucracy managed to transform local representational ideas and Dutch financial interests into what at first sight appears to be quite a harmless process of bureaucratic decentralization. This is the fundamental characterization of the content of the process as this author sees it, leaving aside many details, secondary arguments, and intermediate stages. The power of the middle level was at stake, as becomes clear by various hints in the relevant literature (Kleymans 1948, p. 131; 231

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Gemeentebesturen 1899, p. 1349; van der Zee 1928, p. 10; Schrieke 1918, p. 54 and 1929, p. 77; Rückert 1929, p. 321). This was discerned as such and adequately tackled by forcing ample delays. History took its own course, however, and the law when applied turned out to be a real Trojan horse.10 It became quite a success in the towns, on the one hand, and played a role in the education of the indigenous population, on the other. The development of the content of the issue explains the changes in opinion of the parties involved. The struggle between the liberals who were in favour of decentralization and an ethical policy, and the conservatives who were not in favour of such policy, coupled with the frequent changes of cabinets, ministers, governors-general, and other administrators, makes the blurring of the picture understandable. In relation to the study of linkages, this means that nature, content, and context are difficult to disentangle and that the efficacy of linkages always has to be judged by taking into account (1) formal linkage, (2) informal linkage, (3) content of linkage, and (4) context of linkage. A few examples of “deviant” linkages may serve to illustrate the inter-connectedness of these aspects of the process.

SOME ILLUSTRATIVE CASES The intermingling of formal and informal linkages is probably best illustrated by two cases, namely that of van der Linden and Visscher (Kleymans 1948, pp. 14, 73). In 1873 H.O. van der Linden published a leaflet about Banda and its population. Besides a light-hearted description of Bandanese life, he also expressed some thoughts about the desire for local authority and representation among the inhabitants for reducing the more harmful consequences of a centralized government. This in itself is not extraordinary. He, however, attracted the attention of Minister Fransen van de Putte and according to Kleymans, strongly influenced his ideas because he purposely dedicated his writing to Fransen van de Putte. Moreover, van der Linden sent Fransen van de Putte a proposal for the regulations of municipalities with an explanatory note. This combination of the formal and informal did not miss its mark. The Visscher case from 1856 has been mentioned earlier. Visscher made an important connection with Meijer in 1856 by stipulating the lack of permanent European local authorities as a reason for his intention to repatriate after his pension. This formed the beginning of the Meijer Initiative. The striking thing in this connection, however, was that Meijer already personally knew Visscher to be a conservative person. The fact that his argument did not at all fit this pattern attracted his attention. 232

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Besides these occasional connections, more permanent influence was exerted by appointments of particular persons to particular positions. This, of course, was a regular pattern and the case of the conservative Minister Bergsma, who had been saddled by his predecessor van Dedem with a liberal governor-general, is illustrative of politico-bureaucratic management, to use a modern term. This was unstable because of the frequent change of cabinets. In such a context, so-called package deals may play a role, in which all parties get their share, but the reverse — that is, in order to reach one goal, another one will not be fostered — may also be possible. These formal, informal, and contextual factors influence the efficacy of connections, but their content plays a crucial role. It is astonishing that the instruction of Willem I had no immediate consequences of any kind, while the official letters of van Bosse led to the immediate termination of local funds. Power does not appear to be distributed throughout the system as might be expected. The middle level apparently was able to set the tone by dominating the nature, content, and context of the linkages in the system.

THE MUNICIPALITIES This article set out to test whether the Law of Decentralization was mainly a result of the burghers striving for local authority and representation. A linkage perspective was used to analyse the system and three levels were distinguished. Historical data appears to be abundant. The study by Kleymans is particularly important, but there is no equivalent study involving a structural sociological analysis. Three levels, a top level (consisting of king, ministers, and parliament), a middle level (consisting of the governor-general, his officials, and the Raad van Indië), and a low level (the burghers) appears to be important. Each of these levels had its own approach. The lower level, the burghers, strove for local management of local affairs; the top level tried to restrict the costs of local affairs on the central budget; the middle level aimed at bureaucratic decentralization in order not to lose power. The consequences of the struggle led to a definition of local authority set by the middle level. In the end, bureaucratic decentralization was aimed at in order to reduce the burden of the governmental apparatus. The goals fostered by the other two levels, namely local representation and local finance, were made subordinate to this principle. Reality, however, turned the goals of the middle level down, and the effects of the law form quite a different story in its own right. This, for example, is made clear by Schrieke (1929, p. 74), who stresses the fact that the urban municipalities did not come into existence in opposition to the law, 233

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but rather, outside the law. After twenty-five years, decentralization was evaluated very positively by the Dutch. The memorial volume edited by Kerchman in 1930 gives ample evidence of this. According to Rückert (1929) the cooperation of the citizenry had been good and officials tended to stay longer and this fostered adequate consideration of local problems and needs. Many improvements in roads, markets, drainage, settlement, and education were achieved. The municipality appeared to be a most successful result of decentralization. According to Cohen Stuart (1931), municipalities were considered a prerequisite for adequate urban development by Karsten, a wellknown city planner of the Netherlands Indies. So decentralization turned out to be more than just administrative reorganization. The municipalities imposed several taxes and proved very active in local affairs. This justifies the conclusion that the Netherlands Indies officialdom had rightly feared the consequences of the Law of Decentralization. Its power was curtailed by the burghers, when they finally had their chance. In the beginning the municipalities merely carried out higher-level administrative tasks at the local level (Logemann 1955). However, while political meetings were still forbidden, the municipal councils and local election associations offered the possibility of discussing local affairs officially and trying to realize fruitful ideas (Cohen Stuart 1931). The domination of the Netherlands Indies government became restricted in the course of time. In 1908 the requirement that officials should constitute the majority of the appointed Europeans in the municipal council was abolished; after 1916 the place of the assistant resident heading the municipality was taken over by the more independent — council-nominated though government-appointed — mayor; after 1917 all the members of the council were elected; and after 1926 collegial executive councils (colleges van wethouders) were introduced (Milone 1966). So, step-by-step the concept of administrative decentralization was redefined as the strengthening of the local autonomy of the European citizenry. These citizens also widened their sphere of influence. They increasingly became conscious of the danger to their own health caused by unsanitary conditions in the Indonesian villages (inlandse gemeenten) which were situated within the limits of their municipality, but which remained outside municipal jurisdiction. Their concern led to intervention in these areas and the complete abolition of the Indonesian village as a separate administrative unity in 1925. Meanwhile further decentralization by means of the Reform Law of 1922 diversified the administrative structure. The urban municipalities in Java and Madura were placed under the jurisdiction of provinces, which formed a new level between the Netherlands Indies government and the municipalities. A small Indonesian elite served in the municipal councils, using the opportunity 234

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offered by the strengthened power base of the lower level. From the 1920s onwards the “Indonesianization” of the civil service took place and even a few Indonesian mayors were appointed (Milone 1966). As a result, the room to manoeuvre enforced by the European citizenry was also utilized by the Indonesian elite strengthening their emancipation and nationalism. The Japanese Occupation accelerated this process. The Indonesian elite replaced the European citizenry and took responsibility for the functions left vacant by the Dutch. The Indonesian language (Bahasa Indonesia) became obligatory. The municipalities lost the power base of the burghers at the lower level and national interests became dominant. State-building became more important than the construction of cities, which were neglected for more than two decades. Many changes in the administrative structure were implemented during the Japanese Occupation and the trouble-filled years thereafter. These have been extensively described by Milone (1966) and need not be repeated, but only some of them will be presented here to illustrate the main trend formulated above. The introduction in 1944 of neighbourhood associations (tonari gumi) by the Japanese and the position of the city of Jakarta directly under the Japanese instead of under the province, as was the case with other municipalities, has strongly influenced the contemporary administrative structure. The rukun tetangga (RT), incorporating ten to twenty households, is derived from this Japanese example and complements the rukun kampung (RK) of Indonesian origin. Later they were implemented throughout the whole of Indonesia. Jakarta again became a special region at the provincial level directly under the national government, but for nationalist reasons. It was required to serve the whole nation as a capital. The need for nation-building implied that simple and uniform structures for the whole of Indonesia and conformity of law had to be striven for. The main intention of the 1948 legislation was to realize such uniformity for the whole of Indonesia, something which was achieved only in 1956. Moreover, it tried to eliminate the dualism in the administrative structure caused by the coalescence of local municipal institutions and the local branches of central Indonesian governmental responsibilities. The Decentralization Law of 1957 (Undang-Undang 1957/1) aimed at a greater administrative conformity among various enactments passed before, during, and after the years of occupation. Three administrative levels were distinguished: Jakarta, Yogyakarta, and the provinces at the first level, as well as municipalities and districts (kabupaten) at the second level. The third level still had to be filled in. According to MacAndrews (1986, pp. 13–15) in 1974 a more definitive and comprehensive system was realized in which sub-districts (kecamatan) formed the third 235

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level. A few years later the villages (kelurahan) were integrated into the administrative system. In 1956 the municipalities were reconstituted, but in 1960 the municipal councils were changed into advisory bodies made up of appointed, instead of elected, members. In combination with the RK and RT system implemented throughout Indonesia on military insistence it becomes clear that a new definition of “urban meaning” was institutionalized by a specific group, the military. They took the lead and the predominant place in the urban arena of the ousted Dutch middle class, as was shown by the emerging practice of appointing military personnel to the position of mayor. Besides such particularistic interests, nation-building and national security became central concerns. Local authority was subjected to this, although the military was sufficiently technocratic to recognize the importance of modernization in urban areas and strive for its achievement. Of late, the interest in decentralization has been renewed because of declining oil revenues. The intention is to grant lower authorities more financial independence by letting them generate their own income. This new phase in the process of decentralization is, of course, also attended by a reconsideration of the competence of lower authorities. Just as one-and-a-half centuries ago, the top level has turned the wheel of decentralization with the same motive in mind.

THE FOURTH LEVEL Until now the citizenry has been considered as the lowest level in the system. This mainly concerned the Europeans in the Netherlands Indies and was adequate until the implementation of the Decentralization Law of 1903, because the other categories of people in the Netherlands Indies were hardly involved in the debate on decentralization. After the installation of municipalities, however, both the Indonesians and Chinese also had a role to play, for they were represented in the municipal councils. Moreover, the Indo-Europeans of mixed Indonesian and European blood have to be taken into consideration too. In this context it should be noted that most Indonesians did not fall under the jurisdiction of the municipalities, being either inhabitants of the privately owned estates (particuliere landerijen) or Indonesian village communities (inlandse gemeenten), but still it is necessary to introduce a fourth level — of Indonesians, Chinese, and Indo-Europeans, and to trace their perception of the municipality. This is difficult, however, because relatively little systematic research has been done on municipalities and municipal 236

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councils in which they played a part. Nonetheless, an interesting field of research is revealed here. However, the studies of Frederick (1978) and Abeyasekere (1987), on Surabaya and Batavia/Jakarta respectively, are exceptions which present many valuable details. According to Frederick (1978, p. 33) the installation of the municipality of Surabaya was placed in the context of the uprising in the Gedangan area. This uprising, which was suppressed by force, took place in 1940 as a reaction to the conditions on the sugar plantations. The installation of the municipality not long thereafter was considered — notwithstanding the long preparation — by some Indonesian inhabitants of the town as a reaction to the uprising and as a means for the Dutch to maintain their supremacy. The Indonesians began to see the city as a focus of interests inimical to their own: At worst alien and at best somewhat mysterious to many of its Indonesian inhabitants, the urban environment now appeared to become hostile as well. It is hardly surprising that Indonesians, those who felt relatively comfortable in the city as well as those who did not, viewed it warily. (Frederick 1978, p. 35)

The interventions of the municipality and, more generally, of the Dutch in the city which often led to concentration and expulsion of Indonesians, confirmed and strengthened this negative attitude. Valuable initiatives such as the introduction of clean water led to mixed reactions as well. In the case of this drinking-water system, resistance was experienced among the affected local water distributors. Also the fact that the water had to be paid for, whereas before it had been available free-of-charge from wells and rivers, was not always appreciated. Municipal taxes, for example, on bicycles and markets, reinforced this negative attitude towards the local authorities. The policy of the municipal government was often executed by Indo-Europeans, whom the Indonesian people considered representatives of the Dutch and who were viewed with distrust and even fear. In the 1920s the antagonism between the Dutch and the Indonesians caused several incidents (Frederick 1978, pp. 48–58). The Indonesians, on their side, were represented in the municipality by elite which was estranged from the masses. The chief actors on the urban stage in the 1930s, however, were not the kampung folk themselves, but members of Indonesian elite with an interest in, but little in common with, “the masses”, and a predisposition to bargain for their survival by agreeing to work within limits set by the colonial government. (Frederick 1978, p. 67)

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These Indonesian elite did indeed bring the effects of the policies to the fore, but generally without many results. In 1925 Dr Soetomo resigned from the municipal council for this reason. In Jakarta Thamrin and Muis were important council members, who also became members of the Volksraad later on. The municipality functioned as a sort of training school also in relation to nationalist politics, which, during the 1930s, according to Abeyasekere (1987, p. 108), took the shape of bargaining rather than of confrontation politics. Moreover, municipal politics to a certain extent were a reflection of national politics. Abeyasekere correctly stresses that the opposition in municipal policy between the Dutch and the Indonesians was not strictly a colonial affair, because the same sort of conflicts still exist today. Rather it is a question of differing views and interests in the city: the image of Batavia as a modern capital which could be proudly exhibited to the world, set against the reality of a poor and burgeoning urban population desperately trying to make a living. (Abeyasekere 1987, p. 124)

Nowadays, too, for example, in Jakarta antagonism between the municipality and sections of the city population exist. Though a general desire for governmental intervention and help can be discerned and several parts of policy are highly valued, the concrete interventions of the authorities by which the income disparities among them are increased appear to work out very unequally for the various segments of the poor. Government policy in the kampung creates instability and insecurity. The fear of losing hearth and home or of being expelled from the city as a consequence of kampung improvement, regulations concerning becak and street-vending, transmigration, and so on, lies at the root of this fear. Many people still harbour feelings of frustration towards the urban authorities (Nas 1982, pp. 18–20).

CONCLUSION The meaning attached to the city is placed centrally in the works of Castells. According to him, cities are liable to change because all sorts of parties are permanently struggling over the meaning the city should have. He defines urban meaning as “the structural performance assigned as a goal to cities in general (and to a particular city in the inter-urban division of labor) by the conflictive process between historical actors in a given society” (Castells 1983, p. 303). This chapter about the origin and development of the Indonesian municipality deals precisely with the meaning of urban attached to the 238

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Indonesian town by various categories of people at different levels over the years. This concerns a long-term process in which many interests and goals have been at stake, such as financial cuts, administrative decentralization, the promotion of local interests, nation-building, security, repression, and the promotion of self-interests. Three main levels were related to the origin of the municipality, but after its installation, the vision of the Indonesian population and its leaders as a fourth level are considered of utmost importance. After independence the levels changed in character because the Netherlands and the Dutch no longer played a role. The international level, though, remains involved as a consequence of the influence of foreign experiences with decentralization and of particular international organizations and their representatives. Besides, the military became an interested party in the municipality. Recent initiatives in the field of decentralization in Indonesia are sometimes presented as a new phenomenon mainly directed towards the creation of local autonomy in favour of larger interests. This historical-sociological analysis shows that many more, and often contradictory, interests are involved, which, also with regard to the contemporary situation, require a penetrating analysis of the conflicts in and meanings of the urban arena in Indonesia.

Notes “The Origin and Development of the Urban Municipality in Indonesia” by Peter J.M. Nas first appeared in SOJOURN: Journal of Social Issues in Southeast Asia Vol. 5, No. 1 (February 1990) pp. 86–112. Reproduced here with the kind permission of the publisher, Institute of Southeast Asian Studies, Singapore, . 1 The articles numbered 68a, 68b, and 68c can be found in Schrieke (1918, pp. 6–7). Article 58 was also amended (Kleintjes 1933, p. 4). 2 For a list of municipalities including year of founding, see Milone (1966, pp. 108–13). 3 Besides municipalities (gemeenten) in urban areas, larger districts (gewesten) in rural areas were created, which are not included in this study. 4 Stuart Cohen (1931, p. 203) calls it “de sprong in de vrijheid”. Fock (1900, p. 154) speaks of a “lijdensgeschiedenis”. 5 The historical research on decentralization in urban areas is entirely written in Dutch and quite complete. The thesis of Kleymans (1948) is of particular interest and marks the end of these studies. They concern empirical research which is mainly descriptive and event-specific in nature without general conclusions about the role of the main social groups involved in the process. 6 For a general introduction to the linkages perspective, see Nas (1989). 239

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This petition is reprinted in de Haan (1922, Platen Album, J.9). Article 2 of the King Willem I instruction to van den Bosch is: “De G.G. van den Bosch zal zijne aandacht vestigen op de plaatselijke besturen in N.I, en overwegen of sommige derzelve niet op eenen minder kostbaren voet kunnen worden ingerigt, door aan bijzondere personen het beheer der plaatselijke lasten op te dragen, en de plaatselijke lasten uitsluitend te vinden uit plaatselijke inkomsten, van de algemeene onderscheiden” (Gemeentebesturen 1899, p. 1348). The enquêtecommissie was just mentioned in parliament but nothing came of it (Kleymans 1948, p. 112). This concept of Trojan horse was first used by Resident Jansen in Manado and Kleymans used it as the title of his dissertation (see Kleymans 1948, p. 34).

References Abeyasekere, S. Jakarta: A History. Singapore: Oxford University Press, 1987. Bergsma, E.H. Plaatselijke en Gewestelijke Raden in Nederlandsch Indië. Amsterdam: De Bussy, 1895. Bosse, J.P., van. “Decentralisatie in Nederlandsch-Indië”. De Gids 29, no. 4 (1895): 417–52. Castells, M. The City and the Grassroots: A Cross-Cultural Theory of Urban Social Movements. Berkeley: University of California Press, 1983. Cohen, Stuart A.B. “Hedendaagsch Decentralisatiewerk in Nederlandsch Indië”. Reprint ed. Leiding n.v., 1931. Decentralisatie. “Decentralisatie en Instelling van Koloniale Raden”. In De Volksraad en de Staatkundige Ontwikkeling van Nederlandsch-Indië: Een Bronnenpublicatie. Eerste Stuk 1891–1926, edited by S.L. van der Wal. Groningen: Wolters, 1964. Deventer, C.Th., van. “Indische Decentralisatie-plannen”. De Gids 65, no. 1 (1901): 287–330. Eschauzier, O.C. Bijdragen tot Toelichting van het Vraagstuk der Decentralisatie van het Bestuur op Java. ’s-Gravenhage: van der Beek, 1892. Fock, D. “Decentralisatie in Nederlandsch-Indië”. Indische Gids 22, no. 1 (1900): 153–73. Fokkens, F. Het Ontwerp van Wet tot Decentralisatie van het Bestuur in NederlandschIndië en wat Daarmede in Verband Staat. N.p.: Swart, 1903. Frederick, W. Indonesian Urban Society in Transition: Surabaya 1926–1946. Ph.D. thesis. N.p.: University of Hawaii, 1978. Gemeentebesturen. “Gemeentebesturen in Indië. Een Rapport van 1878 dat Nimmer het Licht Zag (Met een voorwoord door R.A. van Sandick en vier bijlagen)”. Indische Gids 21, no. 2 (1899): 1309–61. Gemeente-instellingen. “Gemeente-instellingen in Nederlandsch Indië”. Tijdschrift voor Nederlandsch-Indië 2, no. 1 (1862): 341–59. 240

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Haan, F., de. Oud Batavia, 2 vols. and Platen Album. Batavia: Kolff, 1922. Haga, B.J. “Enige Opmerkingen over de Decentralisatie-wetgeving 1903 en hare Toepassing”. Koloniaal Tijdschrift 14 (1925): 18–43. Hooijer, D.A. “Gemeenteinstellingen in Ned.-Indië”. Indische Gids 24, no. 1 (1902): 808–10. Indisch Genootschap. “Algemeene Vergadering van 23 Januari 1877 (De Invoering van Gemeente-instellingen in Nederlandsch-Indië)”. In Indisch Genootschap, Verslagen der Algmeene Vergaderingen van 1876–1878. ’s-Gravenhage: Nijhoff, 1877. Kemp, P.H., van der. “Gewestelijke Decentralisatie in Ned.-Indië”. Vragen des Tijds 27, no. 1 (1901): 1–31. Kerchman, F.W.M., ed. 25 Jaren Decentralisatie in Nederlandsch-Indië 1905–1930. Weltevfreden: Kolff, 1930. Ketjen, J.H. Decentralisatiepolitiek in Ned.-Indië. Amsterdam: De Bussy, 1903. Kleintjes, Ph. Staatsinstellingen van Nederlandsch-Indië, Deel 2. Amsterdam: De Bussy, 1933. Kleymans, D.J.M. Het Trojaanse Paard: Voorgeschiedenis der Gemeentelijke en Gewestelijke Raden in Nederlands-Indië 1856–1879. Rotterdam: Hartog, 1948. Kuyper, J. “Vijf Jaar Decentralisatie in een kleine Gemeente”. Koloniale Studiën 8, no. 1 (1924): 83–125. Linden, H.O., van der. Banda en zijne Bewoners. Dordrecht: Blussé en van Broom, 1873. Loggemann, J.H.A. Het Staatsrecht van Indonesië. ’s-Gravenhage: van Hoeve, 1955. MacAndrews, C. “Central Government and Local Development in Indonesia: An Overview”. In Central Government and Local Government in Indonesia, edited by C. MacAndrews. Singapore: Oxford University Press, 1986. Margadant, L. De Raad van Nederlandsch-Indië in verband met het Vraagstuk der Reorganisatie van het Indisch Bestuur gedurende de Jaren 1854–1893. Wageningen: Veenman, 1935. Milone, P. Dublin. Urban Areas in Indonesia: Administrative and Census Concepts, Research series no. 10. Berkeley: Institute of International Studies, University of California, 1966. N.A. “Varia”. Tijdschrift voor Nederlandsch-Indië 20, no. 1 (1858): 49–50. Nas, P.J.M. “De Armen van Jakarta”. Verre Naasten Naderbij 16, no. 1 (1982): 12–23. ———. “Het Schakelingen-perspectief ”. In Aanzetten tot een Schakelingen-perspectief in de Ontwikkelingssociologie, Leiden Development Studies no. 9, edited by P.J.M. Nas, J.W. Schoorl, and B.F. Galjait. Leiden: Institute of Cultural and Social Studies, 1989. Rückert, J.J.G.E. “De Betekenis der Decentralisatie voor Nederlandsch-Indië”. Koloniale Studiën 13, no. 1 (1929): 307–22. Schrieke, J.J. De Voornaamste Wettelijke Bepalingen betreffende de Decentralisatie van 1903 en de Inlandsche Gemeenten en hare Grondbeginselen. Batavia: Landsdrukkerij, 1917. 241

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———. Ontstaan en Groei der Stads- en Landgemeenten in Nederlands-Indië. Amsterdam: De Bussy, 1918. ———. De Indische Politiek. Amsterdam: De Bussy, 1929. Waal, E., de. Onze Indische Financiën, Nieuwe Reeks Aanteekeningen V, Burgerlijk Algemeen Bestuur, Eerste Gedeelte. ’s-Gravenhage: Martinus Nijhoff, 1882. Woesthoff, P.F. De Indische Decentralisatiewetgeving. Leiden: Brill, 1915. Zee, D., van der. Het Indische Gemeentewezen. ’s-Gravenhage: Martinus Nijhoff, 1928.

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PART TWO Anthropological Analyses of Regional Cases

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10 REGIONAL AUTONOMY AND THE ISSUE OF LAND RIGHTS The Case of the PT CPM Mine in Central Sulawesi Dibyo Prabowo

INTRODUCTION The issuance of Law No. 22/1999 and Law No. 25/1999 resulted in the opening of more forests for mining activities. Since 2001, there are intense complaints by local communities about their land — mostly forest land — having been taken away from them. This has frequently generated conflict. The state, however, has not recognized the customary rights of the indigenous communities who live in this area. In the past, the opening of forest lands for mining took place with usually little or no consultation with the local communities. The process of land acquisition sometimes involved forced evictions, intimidation and oppression, including use of the security forces. Unlicensed medium-scale operations have become a major issue in the mining sector since the fall of Suharto in 1998. These operations are often controlled by the military and backed by corrupt local government officials, taking advantage of the legal vacuum by taking over parts of licensed company concessions.

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LEGAL CERTAINTY FOR COMPANIES OR COMMUNITIES? One of the industry’s main arguments is that the contracts signed before the introduction of the 1999 legislation should be honoured and that the law should not be retroactive. Some NGOs denied the argument, as the argument fails to take into account the fact that those contracts were issued by the old regime, that is, a regime which swept aside community rights and environmental considerations. During those years, investors’ interests were allowed to take priority over livelihoods. They were handed vast tracts of land for exploration, with the result that the industry now controls 66.9 million hectares of land or more than 35 per cent of Indonesia’s land surface (see Table 10.1 and Table 10.2 for further details by islands). Much of this land is forested and belongs to Indonesia’s millions of indigenous people who are now seeking legal recognition of their territories. They want legal certainty for communities, not companies. The local communities are also concerned that many of the areas classified as protected forests will be degraded due to “open-pit” mining. Indonesian NGOs have pointed to the increase in flood disasters as a clear sign that more, not less, protection is needed. A total of sixteen provinces have been identified as prone to flooding and landslides. NGOs have estimated that the impact of mining amounts to a substantial 10 per cent of forest destruction in the country. The mining industry, on the other hand, has been quick to point the finger at the logging industry as responsible for most forest destruction in Indonesia, while claiming that mining brings prosperity and development to remote regions. The Indonesian Mining Association (IMA) has claimed that only 135,000 hectares of forest areas would have actually been disturbed for mining operations.

SULAWESI COMMUNITIES REJECT THE PT CPM MINE Indigenous communities living in Central Sulawesi had already for along time been campaigning against the takeover of their forest lands by UK-based mining multinational Rio Tinto. The forested Kambuno Mountains are the adat (customary) lands of the indigenous Poboya peoples and provide the basis for their livelihoods. Since Citra Palu Mineral (CPM) — a firm which was 90 per cent owned by Rio Tinto, who recently sold its share to the Australian company Newcrest — had started exploration activities in the area in 1973, the communities were opposing the opening of a large gold mine, fearing damaging environmental and social impacts. 246

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11,400,000 ha (8,680,000 ha in protected forests) (2,800,000 in conservation forests) 6 million hectares 135,000 ha 47,059,000 ha 66,000,000 ha+ 66,900,000 ha

105, CoWs (foreign companies); 893 KPs Kontan 22/Apr/02 (Indonesian companies); 110 coal mining Jakarta Post 5/Jun/02 concessions. 2,138 permits have been issued by local governments since Jakarta Post 5/Jun/02 regional autonomy legislation was implemented 2001.

Mining concessions in protected and conservation forests affected by 1999 forestry law

Total forest area covered by mining concessions

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Total forest area covered by active mines

Total area of mining concessions:

Total number of mining contracts (to 2001)

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continued on next page

Kerebok 3/20 Mar 2002 Kerebok 3/21 Mar 2002 Kontan 22/Apr/02

IMA in Kontan 22/Apr/02

Indonesian Mining Association (IMA) in Kontan 22/Apr/02

Walhi, Telapak in Kontan 22/Apr 2002

Kerebok 3/20 Mar 2002

17,699,000 ha = 35% of 47,059,000 ha of total areas of mining concessions

Mining concessions in protected forests:

Media Indonesia 23/Mar/02 in Kerebok 3/20 Mar 2002

84,757,000 ha

Total forest area with potential for mining

Source

TABLE 10.1 Mining in the Forests (note that statistics differ according to source) The Issue of Land Rights in Central Sulawesi 247

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$888 million (1999) $738 million (2001) $1.6 billion (2000) $160 million (1996) $67 million (2000) $22 million (est 2001) 10%

Revenue from mining

Mining’s contribution to economy:

Spending on exploration

Forest destruction attributable to mining:

Source: Down To Earth.

$915 million (2000) $413 million (2001)

Total investment in mining industry

TABLE 10.1 — cont’d

NGOs quoted in Kontan 22/Apr/02

PricewaterhouseCoopers quoted in FEER 18/Jul/02

FEER 18/Jul/02

FEER 18/Jul/02 FEER 18/Jul/02

Far Eastern Economic Review (FEER) 18/Jul/02

Source

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TABLE 10.2 Mining in Protected and Conservation Forest (Hectares) Protected forest

Islands

Conservation forest

Total

Mining

Total

Mining

Sumatra Java Sulaswesi Nusa Tenggara Maluku Kalimantan Papua

7.391.502 728,651 4,821,237 651,257 1,809,634 6,858,792 11,452,990

2.141.950 – 996,445 44,200 359.640 1,767,580 3,319,000

4.878.520 468,233 4,821,237 567,714 443,345 4,458,887 7,539,300

689.120 273,300 184,617 – 159,000 – 1,507,000

TOTAL

33,938,350

8,628,815

20,579,347

2,813,037

Source: Kontan, 22 April 2002, quoting Department for Energy and Mineral Resources.

The forests, parts of which have “Forest Park” status (called the PoboyaPaneki Forest Park) under Indonesian forest classification, are an important water catchment area, providing water supplies for the city of Palu. The forests are also rich in rare fauna like the dwarf buffalo (Bubalus), cockatoo (Cacarua suiphurea) and brown eagle (Elanus hypolaneus). CPM has a 561,050 hectare concession, part of which overlaps with the Poboya-Paneki Forest Park. It has the support of parts of the local and national government for developing a gold-mine in its concession, but has not yet secured the legally required approval of the forestry minister.

REASONS FOR REJECTING THE CPM MINE •

It is almost certain that PT CPM would be an open-pit mine. Open-pit mines, however, are prohibited in protected forest areas under the Forestry Act No. 41/1999. Open-pit mines use an extensive area and disrupt the local environment through the mine site, processing plant, waste rock and infrastructure. Hills become holes, and dust is generated by the mining and heavy trucks. Mine waste in turn contaminates local water sources. Poverty and cultural erosion are caused by local people being deprived of their land, as their local knowledge and the indigenous economy are 249

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destroyed in the process. In anticipation of this argument, PT CPM has held a meeting with the Poboya people, promising them compensation for their land, clean water supplies, housing, and employment opportunities. Rio Tinto has made similar promises to the Kelian people for the PT KEM mine. Yet, there are further negative socio-economic aspects: •

The mine will generate conflict within the community by dividing it into pro and contra factions. Local knowledge and skills will be lost. And when less manual labour is needed and when the mine closes, there will be no employment for the indigenous population as well as incomers who worked at the mine. The local economy generated by the mine will collapse. Meanwhile, the mining company will have left the country with its profits, leaving the local people with all the problems and no possibility for them to fall back on older skills and knowledge.







There will be water shortages, because the forest park is a water catchment area for Tondo and the Palu valley, which is a dry area. The R. Poboya, Vatutela/Tondo and Kawatuna which flow from it, supply the local population and Palu city. The Poboya forests may also be important in maintaining the groundwater levels in the area which supply people’s wells in the city. Forest destruction for the mine plus associated waste ponds, roads and housing will disrupt the hydrology. The mine itself will use a lot of water. This could all make Palu’s critical water situation even worse. The people of Poboya will be worst affected by water shortages. There are risks of water pollution from mine waste, regardless whether tailings are discharged into the river, collected in settling ponds or piped to the sea. Acid rock drainage from the mine site releases heavy metals into local water sources and groundwater. This will cause serious ecological destruction which will be all the more damaging because Poboya has been recognized for its conservation value. The local flora and fauna include endemic and endangered species. Forest destruction due to mining could also increase soil erosion and the silting up of local rivers, which is already a serious problem. Much of the hillsides around the Palu valley are dry and bare. There is a danger of flooding and landslides if the remaining forest is destroyed. Another reason is geological instability. The island of Sulawesi lies at the intersection of three tectonic plates. The whole island is subject to

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earthquakes, tremors, tsunamis and volcanic eruptions. A major fault (the Palu-Koro) runs north-south through Palu. Donggala, which is a one-hour drive from Palu, was the epicentre of a major earthquake in 1927, and part of the former coast lies now on the bottom of the sea. Any seismic activity could damage a mine’s waste ponds, waste tips and processing plants with huge potential pollution risks for the surrounding population.

OPPOSITION OF LOCAL PEOPLE Local people have expressed their opposition to the mine several times. NGOs have formed an alliance (Alliansi Advokasi Tambang Suiteng) to support local people in fighting the mine plan. Vatutela villagers wrote to the Minister of Mining and Energy, the Central Sulawesi governor and the Palu municipal government on 12 March 2001. On 16 April 2001, a delegation accompanied by a local NGO protested to the provincial assembly that the mine would destroy their agro forestry plots and take the land used for grazing and rice fields. Several hundred local people protested on 22 April 2001 (Earth Day), yet the company was still carrying out activities in Poboya without organizing any public meeting to explain the mine plans and its impact on the community and environment. No documents were made public, not even the Environmental Impact Assessment (Analisa Dampak Lingkungan) on which any licence should be based. Central Sulawesi governor Aminuddin Ponulele said that he would never give his approval to the mine because of the potential impact on the population of Palu, and because he wanted to safeguard the ecological interests of future generations. The Local Nature Conservation Office (Kantor Konservasi Alam Daerah) was strongly opposed to mining within the forest park. It was concerned about the fact that the company had not consulted it about the test bores it had done, or the changes to the park’s territorial boundary it endeavoured to make. The Local Environmental Impact Agency Office (Badan Pengendalian Dampak Lingkungan Daerah) was also opposed to mining in the park and was concerned that exploration had gone ahead before any Environmental Impact Assessment (EIA) had been delivered or local approval had been granted. In fact the Local Nature Conservation Office had already refused PT CPM permission to do test bores within the forest park in 1997 (Letter No. 682/DJ-V’i/Biprog/1997), but the company had still gone ahead with its plans. Exploratory boring had started in 1998. Officially, explorations were only carried out at three sites within the park, but a local NGO has found 251

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over twenty bore sites. In response to the findings of the local NGO, PT CPM applied to the governor to get the borders of the park moved.1

CLAIMS OF REPRESENTATIVES OF CIVIL SOCIETY AT AN INTERNATIONAL MINING WORKSHOP IN BALI Seventy-four representatives of communities affected by mining, NGOs and activists from fifteen countries gathered in Bali in May 2002 to highlight the industry’s abysmal record on human rights and the environment. The meeting, which preceded the preparatory meeting for the 2002 World Summit on Sustainable Development in Johannesburg (see PrepCom IV-WSSD) countered the extra active industries’ attempt to present their activities as “sustainable”. A statement issued by the workshop participants asserted that “mining as we know it today is unsustainable and runs counter to peopleoriented development”. The group demanded the following: • • •

• •



• •



A moratorium on all new mines; An immediate shutdown of all existing mines where communities demand it; A ban on mining, oil and gas activities in sensitive ecological and cultural areas including protected areas, small islands, mountaintops, oceans, and in conflict zones; The promotion of reduced minerals usage and the development and strengthening of metals substitution, recycling, and re-use; An end to financial support for projects related to the mining sector by the World Bank, regional development banks, export credit agencies, and other financial institutions whether it be in the form of loans, guarantees, and/or insurance; An immediate ban on destructive mining technologies, specifically openpit mining, block-caving, cyanide heap-leaching, riverside tailing dumping, and submarine tailings disposal; A stop to uranium mining; The scrapping of all existing mining laws which promote and protect the interests of mining TNCs in line with the neo-liberal policies imposed by international Financial Institutions; That governments hold mining TNCs legally responsible to affected communities for all past, present and future activities; respect for the rights of indigenous peoples to ancestral domains, the rights of communities to local resources, and the precedence of all laws protecting these rights as opposed to those protecting the rights of TNCs.

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The “women and mining group” at the workshop condemned mining as “completely unsustainable” and opposed the entry of any new mining projects or expansion of existing projects, especially in indigenous regions. Participants rallied around the following statement: “We want to practise our traditional livelihood systems based on land and forests. We want economic and social progress which enhances the conservation of these resources as opposed to making for their destruction. As mining destroys our lands and forests, we demand the continuation of our traditional livelihoods, and the creative pursuit for alternatives to mining”. The group also demanded: •



• •

Legitimate entitlements for women with regard to land and natural resources; where mining exists or must continue, equal opportunities for women in the mining sector; Wages and working conditions for women miners which strictly follow international standards and agreements and ensure equality and equity without discrimination based on gender; The abolition of child labour in all mines; A gender audit of all mining projects.

The ensuing preparatory meeting for the UN World Summit on Sustainable Development in Johannesburg (PrepCom IV-WSSD) in Bali, which took place in June 2002, however, ended in a deadlock, with a draft Plan of Action still full of disputed text. Among the most contentious issues were trade and finance. A group of countries led by the United States refused to include text that committed them to concrete action on debt, financial contributions and fair trade. NGOs attending the meeting expressed concern about the disproportionate influence of powerful private corporations who, for example, successfully promoted such concepts as “sustainable mining”. They also warned against the IMF’s emphasis on private sector finance in such crucial sectors as water, energy, health, agriculture and biodiversity (that is, the five priority areas of the Plan of Action). A group of mining-affected community representatives, environmentalists and sustainable development activists decided, after several days, to boycott the rest of the Bali PrepCom. In a press release the group said the PrepCom was “a sham whereby people’s organizations are drawn into meetings in which they have very little official recognition and clearly no influence as to the outcome of the Chairman’s text”. The involvement of these organizations, said the group, “becomes an instrument for the G-8 and TNCs to cover their crimes and plunder and legitimise their destructive operations in developing countries”.2 253

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CENTRAL SULAWESI GOVERNOR REJECTS PT CPM MINE PLANS IN POBOYA FOREST The final decision of the Central Sulawesi Governor to reject the PT CPM’s plan to open a gold mine in Tahura Poboya, Palu, has been very encouraging indeed. Not only has it contradicted the myth that regional government has to follow whatever the central government stipulates. It has also shown that there are still government officials who care about the interests of the community, and the value of the Tahura Poboya Forest Park in Palu, Central Sulawesi, in particular. As reported in the media, the Central Sulawesi governor, a former dean at Tadulako University of Palu, had rejected the gold mining plans of the Rio Tinto/Newcrest-owned PT CPM from the very beginning. To strengthen his decision, the governor issued a decree stating his rejection. It was remarkable that he took such a firm stand especially since the project had originally been approved by the minister of energy and mineral resources. The governor, however, reasoned that a gold mine is very dangerous to the people and surrounding environment because of the generated wastes, like mercury and other chemical substances. He further added that it was true that regional government would to a certain extent benefit by the little percentage of profit that the mine would generate. Meanwhile, the effects of the projected fifteen years of mining would surely cause fatal damages. Then, the mine would be depleted, which means, it would have to be abandoned: “Fifteen years of mining, then abandonment. Who will take responsibility for the sand left behind? We do not want our grandchildren to suffer for that.” Under Suharto’s New Order regime, it would have been almost impossible to find a regional official willing to take a stand against a decision made by the central government. Rejecting central government policies was considered unruly, and the person was judged to be impeding development. Most regional government officials were threatened with loss of their job or worse, and these bleak prospects prevented them from protesting against any policies handed down from the central government. What was locally perceived as the governor’s act of insubordination has made people proud, especially after the Minister of Energy and Mineral Resources, Purnomo Yusgiantoro, had approved the gold mining activities in 500 hectares of land in Tahura Poboya, despite the fact that the community had already protested against the plans for the Rio Tinto/Newcrest mine.

CONCLUDING NOTE Apparently, the issuance of Laws No. 22/1999 and No. 25/1999 has conveyed a new notion of freedom upon “the small people”, which had been 254

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unimaginable during the previous centralist era. Mining is just a case. The most urgent issue here for the local communities is a review of the status and value of community land used for the project. The outcome is still far from happening, because the process has just begun. More patience and hard work are needed, and learning by doing may be the best recipe to proceed.

Notes 1

2

See 17 May 2002 via Joyo Indonesian News; Koran 22 April 2002; Koran Tempo 14 June 2002; Kerebok 3/21 April 2002; JATAM/WALHI press release 4 April 2002; Bloomberg News 25 June 2002 via Joyo Indonesia News. See TWN Alert on WSSD process, 4 July 2002; A/o “Tears for the WSSD”, News Release 4 June 2002; JATAM 28 June 2002.

References Down To Earth Bulletin. London: 2002. Far Eastern Economic Review (2002). PrepCom-VI WSSD (World Summit on Sustainable Development). Demands of the Women and Mining Group. Bali: 24–27 May 2002. ———. Statement of the International Mining Workshop. Bali: 24–27 May 2002. Yayasan Indonesia Forum. Aspek Finansial Otonomi Daerah: Laporan Kajian di Delapan Propinsi, in collaboration with USAID-Office of Transitional Initiatives. Jakarta: Yayasan Indonesia Forum, 2000.

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11 RESHAPING TANA TORAJA A Century of Decentralization and Power Politics in the Highlands of South Sulawesi Edwin de Jong

The political field in Tana Toraja embraces the traditional village as well as contemporary urban life and includes both ritual performance and regency-level development strategy. In a region where the colonial era spanned merely four decades, where indigenous religion continues to be predominant, and where the prestige and authority of the nobility endure to the present, traditional religious rituals and status relationships color all aspects of contemporary society (Crystal 1974, p. 121).

This quotation of an American anthropologist is referring to the political situation that prevailed at the beginning of the 1970s in Tana Toraja, a regency or district (kabupaten) in the province of South Sulawesi. After a long period of depoliticizing local customs and tradition by the New Order regime,1 it is not surprising that the Indonesian decentralization laws of 1999 induced a general resurgence of customs and tradition in Tana Toraja. In fact, adat (denoting customs and tradition) became a major factor by the time the national decentralization laws had to be implemented in the Tana Toraja district in 2001. At a village level, the regional parliament of Tana Toraja passed a regulation into law that prescribed the reorganization of territories and government structures, aimed at the re-establishment of the lembang. 256

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The lembang is a political and administrative unit which is larger than the New Order village (desa) and supposedly existed before the Dutch colonial administration re-designed the region. The lembang covers a geographical area of a group of people that since generations have common ancestral origins and share a socio-cultural set of laws and values as well as a traditional form of government organization.2 The implementation of this far-reaching autonomous unit stirred the traditional elites — who had been marginalized by Law No. 5/1974 and Law No. 5/1979 — into action, as they started to compete for lembang leadership. In line with the “return to boundaries defined by customs and tradition”, at a higher level, a particular group of Torajans have been striving for the subdivision of the district of Tana Toraja in a northern, southern and western district.3 Again, this division supposedly corresponded to traditional sociopolitical organization that existed before the arrival of the Dutch colonial administration. The political and administrative decentralization policy launched in Tana Toraja by the Indonesian Government in 2001 unfolded into two apparently opposite processes: amalgamation on a village (lembang) level and fragmentation on a district level (Donzelli 2002/2003, p. 35). It is not in fact the first time in Tana Toraja’s history that local customs and tradition form the rationale for the revision of territories and government structures. Since the Dutch had delineated the Tana Toraja region into administrative territories and introduced a modern government organization in early 1900, most revisions of territories and government structures that followed upon national and regional changes of power were infused by local adat. Even though the extent of adat integration into the political field might have been changing throughout the last century, the two domains were never completely separated from each other (see Table 11.1). However, a satisfying synthesis between modern government organization and the traditional form of government was never achieved in Tana Toraja. Efforts to introduce autonomous local governments with democratically elected parliaments within a traditionally hierarchical and socially stratified society invariably failed. These efforts were succeeded by more centralist and authoritarian policies. As a matter of fact, there continued to be a kind of administrative dualism: on the one hand, a government system directed by laws and principles provided by the central government, and on the other hand, a traditional government system based on customary rules and regulations. Accordingly, in the political arena of the district, Torajan adat leaders and their followers have been competing with “newly born” elites who obtained power as representatives of nationalism, socialism/communism or ideological conservatism, or through the church, the military, or simply with 257

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1 Sub-division Makale-Rantepao Self-governing Division of Tanah Toraja Daerah Pemerintah Negeri Makale/Rantepao; Daerah Swatantra (1957); and Kabupaten Tana Toraja (1959) Kabupaten Tana Toraja Kabupaten Tana Toraja Kabupaten Tana Toraja

1927–45 Dutch/Japanese administration

1946–50 Dutch control

1950–65 Sukarno’s Old Order

1965–79 Suharto’s New Order (phase 1)

1979–98 Suharto’s New Order (phase 2)

2002–04 Reformation period

Source: Edwin de Jong.

2 Sub-divisions Makale and Rantepao

Tallu Lembangna

Before 1906 Traditional forms of sociopolitical organizations

1906–26 Dutch administration

Administrative Units

Transitional Period

15 kecamatan

15 kecamatan

9 kecamatan

15 lembang

32 lembang

32 districts

31 districts

lembang

116 lembang 27 kelurahan

290 desa/ kelurahan

65 new style villages

17 complex

4 sub-districts 28 complex

bua’/penanian

TABLE 11.1 Historical Overview of the Changes of Administrative Divisions in Tana Toraja

485 kampung/ lingkungan

900 dusun/ lingkungan

132 kampung; 113 kampung (1957)

410 kampung

400 kampung

400 kampung

tondok

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the support of money. Just like the revisions of territories and government, the widening and narrowing political manoeuvring space for each party depended upon power and policy changes at a national level. For a thorough understanding of contemporary administrative and government changes in Tana Toraja, it is not only necessary to elaborate on the general lines and details of history but also on the systematic dynamics of the various transitional periods and local processes, such as the formation of inter-elite coalitions and the local cycles of elite change. The extensive description of the social and political history of Tana Toraja in this chapter will be divided into six parts, corresponding to the transitional periods and local processes that have had a major impact on the political situation of the region. As stated earlier, these local transitions do not stand alone but are inter-related with power and policy changes on a national and regional level and will, therefore, be presented in such a light. Reviewing Tana Toraja’s political history from the beginning of the twentieth century onwards reveals at least two major cycles: (1) a cycle of decentralization and local autonomy, both in a territorial and administrative sense; and (2) cycles of Torajan adat leaders’ involvement in the political field. The way in which the national decentralization laws of 1999 are modified into concrete government policies for the Tana Toraja district will be expounded from a historical perspective.4 The discussion of the contemporary political field in Tana Toraja in this chapter will be guided by five questions. First, to what extent is the newly formed lembang in conformance with traditional socio-cultural territories and organization? In other words, is it an exact replica of the socio-cultural unit that had existed before the Dutch claimed power over Tana Toraja, or is it a newly designed administrative unit with some traditional characteristics? Secondly, how are democratic village councils and processes to be integrated — as prescribed by the recent decentralization laws — into a government form, which is traditionally based on hierarchy and social strata, as prescribed by the national decentralization laws? Has a satisfying synthesis between modern and traditional forms of government been achieved this time? The third question relates to the former, to what extent did the national and regional decentralization laws lead to more democratic and autonomous governments in Tana Toraja? Fourthly, what parties are behind the endeavour to split Tana Toraja up into three regencies, and what are their objectives? Do they just have a predilection for the past? Do they want to create a Greater “Christian” Toraja province as bulwark against a Muslim South Sulawesi province, where the introduction of the Shari’a is pending? Or can the endeavour to split up the district of Tana Toraja be attributed to an attempt to shift the current constellation of power? 259

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Finally, who are the people who would be capable of entering the newly created political arenas? Is it again the Torajan adat leaders and their followers, or the “new” elites who recently wielded power (irrespective of traditional social status), or a mixture of both? In sum, the purpose of this chapter is to put the present seemingly “revolutionary” tendency for local decentralization and autonomy into perspective by taking the history of Tana Toraja’s political field into account. The main argument here is that the recent local administrative and territorial changes in Tana Toraja do not just herald a new era of reshaping boundaries and reshuffling powerful positions, but are part of a long-term cycle of decentralization and concomitant power politics.

INTRODUCING TANA TORAJA The island of Sulawesi is marked by a variety of agro-ecological landscapes, which is matched by the great ethnic, cultural and religious diversity of its people. The various groups inhabiting the highlands of South and Central Sulawesi are generally labelled as Toraja. The name “Toraja” was originally a Bugis term5 which referred to the “people from above” or “highlanders” in contrast to the coastal people “below” (Nooy-Palm 1976; 1979). At the end of the nineteenth century, the Dutch missionary cum ethnographer, A.C. Kruyt, and his compatriot, fellow missionary and linguist, N. Adriani, adopted the term Toraja to classify the ethnic and linguistic diversity of the mountain people who inhabited the central and southern highlands of Sulawesi (Schrauwers 1998). Kruyt drew a sharp line between the Islamic lowlanders and animistic highlanders — who could still be converted to Christianity — and named the latter “Toraja” (Adriani and Kruyt 1914; Kruyt 1938). Other scholars have cast doubts on Kruyt’s demarcation and have emphasized the religious and political agenda of the mission that prevailed over ethnological and linguistic reality (for example, Kaudern 1925; Schrauwers 1995). Kruyt further sub-divided the Toraja “ethnic” group into three smaller ones: East, West, and South Toraja (see Map 11.1). Adriani preferred to use the term Sa’dan to refer to the South Torajans which originated from the name of the river that flows through this region. Partly inspired by these divisions, Dutch officials had drawn neat administrative boundaries around the valleys of the Sa’dan River and its branches by the beginning of the twentieth century. They hereby laid the administrative foundations for the contemporary district “Tana Toraja” — the focus area of this chapter. Nowadays, Tana Toraja — also known as “Torajaland” — is one of the administrative districts (kabupaten) in the province of South Sulawesi (see 260

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MAP 11.1 Kruyt’s Threefold Division of the Highlands and the Modern District of Tana Toraja (by Edwin de Jong) Tomini Bay

Makassar Strait

Gulf of Bone

Source: Edwin de Jong (on the basis of Kruyt 1938).

Map 11.1). Tana Toraja is a mountainous area of about 3,178 square kilometres and is situated approximately 350 kilometres north of Makassar, the capital of the province of South Sulawesi. According to official statistics (BPS Tana Toraja 2004), Tana Toraja has over 400,000 inhabitants. Toraja people have a strong cultural consciousness and are known for their strong attachment to their homeland. Nevertheless, many Torajans have left the highlands since the 261

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end of the nineteenth century. In the beginning, the transfer of people from the densely populated highlands to the sparsely populated lowlands was small-scale and closely connected to networks of trade in arms, coffee, and slaves between the ruling elites of the Bugis lowlands and Sa’dan highlands (Bigalke 1981). From the 1920s — and especially the 1930s — onwards, migration to the lowlands of Sulawesi (Luwu, Enrekang) gradually increased in response to the fact that the Dutch had imposed taxes for which cash needed to be earned. And in the highlands, the expansion of agriculture had reached its limits. However, the bulk of the Torajan migrants left in the 1960s, after President Suharto had opened Indonesia to foreign investment (Volkman 1985, p. 135). Multinational corporations established themselves in Kalimantan, Irian Jaya, Central Sulawesi and elsewhere to exploit the natural resources of the archipelago, providing ample job opportunities in the process. The relatively highly educated Torajans6 were attracted by the good jobs and money abroad and left behind a homeland suffering from overpopulation and the resultant land shortage, insufficient employment in agriculture, a constraining social stratification system, and a desperate need for cash (mainly for the organization of and participation in funeral- and house-building ceremonies). It is estimated that currently around 400,000 to one million Toraja people live outside the region.7 Since the Dutch missionaries made contact with the Toraja in the nineteenth century, some 87 per cent of the population has become Christian.8 The remaining part of the Toraja population is Muslim or still follows aluk to dolo, the traditional religion. Before the Torajans came into contact with Dutch missionaries and colonial administrators, they had not had any concept of a separation between the profane and the spirit world. Aluk to dolo referred to the way in which both sacred ritual and daily life routine are to be conducted (Volkman and Caldwell 1991). Presently, it seems that aluk, as an all-embracing way of life and thought, is fading away, but it has been revived as an idea and given the Toraja a firm sense of identity.9 A plethora of rituals, which is profoundly linked to agricultural cycles and to death and rebirth, has remained the centre of Toraja life. These rituals also seem to have remained the locus of Toraja identity for Toraja migrants in a multi-ethnic and religious Indonesian state. While migrants might have left their actual kinship networks behind, “paradoxically they have done so partly in order to provide for their ancestors (and more immediate family) at times of death” (Waterson and Volkman 2000, p. 114). In fact, almost all migrants return to the highlands for a parent’s funeral, to which they contribute great amounts of their wealth earned elsewhere. 262

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EARLY SA’DAN10 TORAJA SOCIETY: FISSION AND DIVERSITY The recent re-introduction of the lembang and the proposed fragmentation of the Tana Toraja district are allegedly grounded on the forms of authority and associated territories that existed before the Dutch intervention. Hence, for a critical examination of the similarities and differences between the “old” and “new” forms, a profound understanding of the socio-political situation of the pre-colonial period is needed. It should be emphasized that when employing the concept of “tradition” in this chapter, it refers to the socio-political characteristics and conditions that originate from the pre-colonial era. It does, however, not deny the influence of the Dutch government and Mission, the Old and New Order rhetoric, Western tourism, emigration or the media. According to colonial reports and more recent literature, Tana Toraja was once sub-divided into a number of polities of various sizes that were sometimes unified under external pressure (against the threat of war). Yet, they usually led largely independent existences and even fought among each other (NooyPalm 1979, p. 58). Before the region of what is nowadays called Tana Toraja came under Dutch control in 1905, it had never been a unified state (KisJovak et al. 1988).11 Sa’dan Toraja consisted of complex networks of smallscale, localized kin alliances, linked through agricultural, social and ritual activity. These kin alliances centred on family houses (tongkonan) established by the ancestor of that group (Morrell 2001, p. 6). After a kinship group became too large, it eventually underwent segmentation, and the separating branch built a new tongkonan. The descendents who had moved away remained conscious of their origin and retained ceremonial responsibilities to the mother tongkonan (Bigalke 1981, p. 22). Along these tongkonan lines the first higher forms of socio-political organization began to emerge. To divide the burden of the complete ceremonial cycles, tongkonans started to form federations under the leadership of the mother tongkonan (Lanting 1926, p. 6). A shared genealogy and a culture that turned into customary norms and rules, distinguished the various tongkonan federations in the Sa’dan highlands from each other. Although social organization above the tongkonan and the concomitant taxonomy varied widely throughout the Sa’dan highlands, similar levels of social organization started to emerge (Lanting 1926, p. 7). In this respect, it is necessary to discuss the three most important levels in more detail, namely: bua’, lembang and tondok. The bua’ or penanian12 is a federation of tongkonan that celebrate rice ceremonies together. The bua’ is, thus, a ritual community on a territorial basis which is headed by a leader. The lembang is a federation 263

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of different bua’-circles which celebrate a ritual of superior rank.13 The lembang is the largest genealogical and ceremonial community in Sa’dan Toraja which is usually led by one head. Three of these lembang in the southern Sa’dan highlands, Sangalla’, Ma’kale and Mengkendek formed a federation called Tallu Lembangna (the “Three Vessels”). The Tallu Lembangna are small kingdoms which are each ruled by a headman (puang) who are genealogically, politically and ritually related (Nooy-Palm 1975, p. 64). The unification of the Tallu Lembangna in the south of the Sa’dan highlands developed in the late thirteenth century (Liku Ada’ 1986, p. 33). In this period, the so-called Tomanuruns and their descendents, who possibly came from East Java, introduced a three-tiered social stratification based on blood ties in the southern region of Tana Toraja.14 Together with this status system, a higher political organization emerged in which a number of ritually-based communities were united and ruled by a so-called puang from the highest class. This model of political organization and social stratification took hold only in the southern region of the Sa’dan Toraja. Puangs obtained a strong authority because blood ties became the determinant factor of status, and mobility between the different classes did rarely occur. Conversely, people in the northern region of the Sa’dan highlands tended to hold on rather firmly to the original, loosely structured social organization. They highly valued their more democratic style in opposition to what they held as oppressive domination by the southern puang (Liku Ada’ 1986, p. 230). It was not until the fifteenth century that a four-tiered class system infiltrated the northern area of Tana Toraja, brought in by Javanese traders. The class system in the north was more dynamic, and inhabitants had the possibility to acquire status by creating wealth, which made the northern elite politically more vulnerable (Bigalke 1981, p. 20). Considering the above description, we see that Sa’dan forms of social organization were shifting from a kinship towards a territorial basis, a process which seemed most advanced in the places with the oldest tongkonan, the Tallu Lembangna (Lanting 1926). As a consequence, socio-political organization in the south of Sa’dan Toraja is more complex and sophisticated than in the north. The further you move south, the more complex local societies you find. The western part of the Sa’dan highlands was also composed of tongkonans with long histories that eventuated into another federation of three lembangs (Aadatstaatsrecht Loewoe 1947, p. 39). However, due to Bugis attacks at the turn of the seventeenth century this federation disintegrated, and the western region of the Sa’dan highlands became largely subjected to the Tallu Lembanga in the south and the neighbouring region, Mamasa 264

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further west (Bigalke 1981, p. 25). With regard to social structure, ceremonial activities, house construction and other cultural aspects, people in the west of Sa’dan Toraja are closely related to the Mamasa people or Toraja-Mamasa (Van der Veen 1929, p. 61).15 The shift from descent-based to territory-based social organizations throughout the Sa’dan highlands was in essence a wider projection of the tondok (Bigalke 1981, p. 28). Although the tondok is also a form of social organization above the tongkonan level, it differs from the bua’ and lembang to some extent. Whereas the latter are forms of social organization based on ritual cycles that possibly (but not necessary) develop into territorial organizations, a tondok is a territorial unit in its most elementary form. The tondok can roughly be translated into village but comes closer to the Indonesian usage of kampung (Bigalke 1981, p. 28). The tondok is hence composed of a cluster of houses (including tongkonan), representing one or various kinship groups with an acknowledged headman with authority over both the religious and political realm. The tondok often coincides with a bua’-community but might also include two or more bua’-groups. Conversely, it might also be part of a single bua’-community that in fact stretches out over several tondok (Nooy-Palm 1979, p. 60). Early Sa’dan Toraja was thus sub-divided into a number of different social units. Each community was internally divided into lineages and segments of kin, which were connected to similar units by a network of collective ties. Although names and forms varied widely, bua’, lembang and tondok could be detected as more or less corresponding levels of social organization across Sa’dan Toraja. Originating from (mythical) common ancestors, the population of the Sa’dan highlands spread out over three larger territorial circles (North, South, and West) which were composed of similar bua’, lembang and tondokunits as regards to name, form and socio-political organization. Within each social group, positions of authority were primarily defined by descent and caste. Each group as a whole had a leader or head; nonetheless they regulated its common affairs collectively. Apart from the tondok and to some extent the Tallu Lembangna, socio-political organization in the Sa’dan highlands was not based on territory but on descent.

DELINEATING THE SA’DAN HIGHLANDS The situation described in the previous paragraph, changed dramatically in 1906 when the Dutch entered the Sa’dan region. Until the beginning of the twentieth century, Dutch rule had largely focused on Java. As for the “outer island” of Sulawesi, the Dutch had only effectively subjugated the northern 265

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region (Minahasa and Gorontalo) and the area around Makassar in the southern part of the island. Consequently The highland regions of South and Central Sulawesi (…) had remained a white spot on the maps of the colonial administrators until well into the nineteenth century (Roth 2004, p. 163).

Due to the specific pacification policies of the Dutch colonial government, South Sulawesi was brought entirely under colonial administration between 1905 and 1906 (Plaisier 1993, p. 35). The lowland sultanates of Bone, Sidenreng, Gowa and Luwu had been brought under Dutch control with relative ease. It was only after heavy fighting that the Sa’dan highlands followed suit in late 1906 (Morrell 2001, p. 4). This section will focus on the first two decennia of Dutch administrative engineering in the Sa’dan highlands. During this period, a handful of administrators set out to build a modern government system within the boundaries of traditional sociopolitical organization, which was in line with the Dutch colonial policy for the archipelago. After the sultan of Luwu had signed a short declaration on 19 September 1905, the Sa’dan highlands were incorporated into the colonial administrative structure as two sub-divisions (onderafdeeling) of the division (Afdeeling or Zelfbesturend Landschap) of Luwu. Luwu for its part was placed directly under the authority of the Dutch-colonial government.16 However, instead of the sultan of Luwu, it was the Dutch civil service (Nederlands Binnenlands Bestuur) which exercised actual power in the Sa’dan sub-divisions (Bieshaar 1940, p. 27; Adaatstaatsrecht Loewoe 1947, p. 43). The two sub-divisions of Makale and Rantepao were both governed by a high ranking Dutch civil servant (Controleur). The sub-division of Makale included the southern Tallu Lembangna and the western part of the highlands,17 while Rantepao comprised the northern and central parts of the Sa’dan lands. Between 1907 and 1910, the Dutch started to project a detailed administrative grid onto the Sa’dan highlands consisting of various districts, sub-districts and villages (Volkman 1985, p. 30). When sub-dividing the Sa’dan region, Dutch administrators tried to take local authority structures and customs (adat) into account (Lanting 1926, pp. 4–7). These efforts notwithstanding, the delineation of fixed boundaries remained quite alien to the Torajan way of defining power which was centred in tongkonan rather than clearly defined territory. In 1910, the sub-division of Makale comprised fourteen districts (landstreken), while the sub-division of Rantepao encompassed seventeen districts. These districts largely matched with traditional lembang, federations 266

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of bua’-circles, or single bua’-communities and were usually headed by traditional Torajan leaders (Lanting 1926). District heads were officially elected by the adult male population, but the Dutch controleur retained the right to judge them “fit” or not (Bigalke 1981, p. 126). The thirty-one districts greatly differed in size (800 to 34,000 inhabitants) as well as in structure. Accordingly, the number of administrative units below the district level differed throughout the highlands. The kampung was the smallest and often the only legal administrative unit below the district level. Kampung were created by drawing neat, if arbitrary, lines around tongkonan and tondok. In some districts, especially in the oldest and more complex Tallu Lembangna, two administrative units were inserted in between the district and kampung level: “complex” and “sub-district” (onderdistrict). A complex usually matched with larger bua’communities, comprising several kampung. A sub-district corresponded with a federation of bua’-circles. However, sub-districts were only established in the district of Makale, one of the Tallu Lembangna. The district of Makale for example consisted of four sub-districts, four complexen and several kampung (Lanting 1926, p. 11). The head of a complex was often also the head of a kampung, and few of them held authority over some other kampung heads. Initially, the Dutch introduced four complexen in the sub-division of Rantepao and twenty-four in the sub-division of Makale. However, due to financial reasons the Dutch systematically deconstructed both the complex and the sub-district after 1930 (Van Lijf 1947, p. 99; Adaatstaatsrecht 1947, p. 49). By 1940, only seventeen out of twenty-eight complex heads had remained in office, and all sub-district heads had disappeared, because the Dutch were of the opinion that this function did not have any roots in the adat (Seinstra 1940, pp. 130–31). In spite of all these administrative changes, the Dutch wanted to keep the traditional class-structure largely intact (Volkman 1985, p. 30). Nevertheless, the introduction of democratic elections involving all adult males seemed to ruffle the existing social order. The empowerment of the lowest status groups, that is, slaves, as equal participants in the elections conflicted with Torajan customs, according to which only particular high-class leaders were entitled to vote (Adaatstaatsrecht 1947, p. 50). However, after their own officials signalled that slaves adversely influenced elections by always voting for the weakest candidates, the Dutch colonial government reinstalled elections rooted in Torajan customs (Seinstra 1940, p. 132). With the introduction of an all-encompassing central government and an ordered administration, the Dutch created the conditions which facilitated the implementation of modern education, healthcare, and agricultural 267

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extension as well as the development of a cash-economy (Van Lijf 1951, p. 357). Moreover, the way was paved for the evangelization of the highlands. Dutch civil servants were concerned that Islam, the dominant religion in South Sulawesi, would further penetrate into the Sa’dan highlands. They therefore encouraged missionary societies to take an interest in the region. In 1913, the Calvinist Mission Alliance (GZB)18 was the first to proselytize among the Sa’dan Torajans (Bigalke 1984, p. 89). The close cooperation between the government and the missionary societies was supposed to bring about fundamental change in the highlands. Between the 1920s and the Japanese invasion in 1942, and due to financial constraints, the Dutch repeatedly considered to reduce the large number of administrative units in the Sa’dan highlands. However, Torajan adat did not favour amalgamation of administrative units, and so large-scale centralization of units eventually failed (Seinstra 1940, p. 126). Although, the Dutch managed to unify the sub-divions of Makale and Rantepao under the leadership of one controleur in 1927, culturally the demarcation between the northern (Rantepao) and southern (Makale) region remained firm, at least initially.19 Later on, some educated elites started to mingle in the towns of Rantepao and Makale which belonged to no particular kin group but were a purely Dutch creation. In 1934, the modernized elites of Rantepao founded an organization, Perhimpoenan Boenga’ Lalan (PBL), with the objective to build a brotherhood among the Torajan people so that they could be united (Bigalke 1981, p. 297). This was the first time that Torajans openly conceived themselves as a common group of people from a land called “Tanah Toradja”.20 Two years later, a group of young, Dutch-educated Toraja Christians established the organization, Perserikatan Toradja Christen (PTC), in Makale with the objective to unite a still divided Torajan people (ibid., p. 298). The actual, albeit more covert, intention of the PTC appeared to be separation from Luwu and gaining equal status in terms of governance (ibid., p. 303). Its ultimate goal in fact seemed to be the incorporation of all highland groups of Central and South Sulawesi into a Greater Toradja, or Toraya Raya (Bigalke 1981, p. 304; Kobong 1989, pp. 86–87). The missionary societies supported this demand, as it had been they who had, in 1932, launched the ideal of a Greater Toradja, which would consist of all Christianized mountain peoples of the Sa’dan, Mamasa and Poso areas. Anti-Bugis sentiment was growing in the highlands and the political, social, economic, and traditional ritual relations between the Protestant Torajan highlanders and the Muslim lowlanders of Luwu were increasingly conceptualized in terms of an ethnic identity with religion as the main boundary marker (Roth 2002; 2004). Afraid of a conflict with the ruling house of Luwu, the Dutch government opposed the demands 268

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for an independent Tanah Toradja. Nevertheless, the political basis for a united Sa’dan highland had been created, and the call for an independent Tanah Toradja was growing. With the Japanese invasion in 1942, thirty-six years of Dutch rule came to an abrupt end, leaving a political vacuum in the highlands (Bigalke 1981, p. 312). The administrative structure established by the Dutch began to unravel, and some district chiefs tried to claim authority beyond the boundaries of their territory: (…) internal rivalries between Rantepao and Makale as well as among their various districts foreshadowed the return to the pre-1906 condition of petty principalities among which the larger districts would play dominant but not unchallenged roles. At this point Luwu intervened to reassert Luwu’s authority over Makale-Rantepao and maintain the integrity of Division (Afdeeling) Luwu in the face of purposeful but disorganised attempts to divide it (Bigalke 1981, p. 317).

Luwu encountered firm resistance from the entire Sa’dan Torajan population amongst whom the wish for separation increased (Van Lijf 1948, p. 533). However, their dividedness prevented a concerted effort to assert and maintain the political autonomy of Makale and Rantepao (Bigalke 1981, p. 318). The Japanese rulers initially adopted an attitude of reconciliation towards both parties, just like the Dutch, and on the whole the Japanese administration developed along very similar lines.

THE GENESIS OF TANA TORAJA After the Japanese surrender, Sukarno and Hatta proclaimed the independence of Indonesia on 17 August 1945. In the ensuing chaos of the nationalist revolution and concomitant fighting against the returning Dutch, the Indonesian Republican Party (Partai Nasional Indonesia) which held sway in Luwu fell and started to raid the neighbouring Sa’dan highlands (Adaatstaatsrecht Loewoe 1947, p. 43). The population of Makale-Rantepao managed to resist the raids of lowland guerrillas but highland-lowland tensions heightened once again. Although a small nationalist movement had evolved in the Torajan towns, most Torajans still feared that an independent Indonesia would be dominated by Muslims. They therefore welcomed the reestablishment of Dutch authority in the highlands at the end of 1945. The ensuing four years of Dutch rule again marked a period of rapid administrative transition in which the sub-division Makale-Rantepao became a highly autonomous division within the province of South Sulawesi (Residentie 269

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Zuid-Celebes). Conscious of the great diversity of regions and peoples in postwar Indonesia, the Dutch government tried to rapidly form a sovereign democratic state on a federal basis (Legge 1961, p. 4) by way of implementing decentralization measures in order to achieve far-reaching regional autonomy. These endeavours met with the longstanding Torajan aspirations to separate from Luwu, which led to the realization of the autonomous self-governing division (Zelfbesturend landschap), Tana Toraja, in October 1946 (Van Lijf 1947, p. 91; The Liang Gie 1993, vol. 2, pp. 167–75). Through a complex procedure, seven out of thirty Torajan district heads were chosen as representatives to sign the short declaration that validated Tana Toraja as autonomous territory. The seven district heads were unanimously appointed as members of the executive council of Tana Toraja: Tongkonan Ada’ 21 (Van Lijf 1947, p. 91). The further formation of the self-government of Tana Toraja took place under the leadership of a Dutch controleur who transferred his authorities to the Tongkonan Ada’ by 27 July 1947. By then, Tana Toraja consisted of thirty-two autonomous districts or lembang under the leadership of thirty lembang heads. The lembang possessed autonomy in all affairs that did not harm the authority and interests of Tana Toraja as a whole. All thirty lembang heads were seated in the self-governing council of Tana Toraja, the Kombongan Ada’. However, the executive, as mentioned, lay in the hand of the seven, and later ten lembang heads who were seated in the Tongkonan Ada’. Although all lembang heads had equal rights to become elected as a member of the Tongkonan Ada’, in practice social stratification and descent predominated (Adaatstaatsrecht Loewoe 1947, p. 47). The chairman and four members of the Tongkonan Ada’ were actually executing daily affairs and lived in Makale. They were accountable to the whole Tongkonan Ada’. The latter in turn was accountable to the Kombongan Ada’ (ibid., p. 48). Nevertheless, accountability remained largely ceremonial and real power belonged to the five Tongkonan Ada’ members in Makale. The Dutch were very much aware of the necessity to reconcile modern government organization with traditional forms of government. Yet, as Bigalke noted “(…) Tana Toraja’s unification under a zelf-bestuur [autonomous government] contained a good measure of illusion. Even as the cause which had united them ceremoniously triumphed, the old north-south rivalry between Makale and Rantepao protruded” [Bigalke 1981, p. 362). The structural monopolization of the two key administrative positions (chairman and chief civil servant) by headmen from Makale appeared to be unbearable for the Rantepao headmen, as they demanded the separation from Tana Toraja. Although this claim was rejected by the resident of South Sulawesi, the Tongkonan Ada’ was temporarily dissolved and by the end of the Dutch 270

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era in the highlands, parochial tendencies were still influencing the Torajan political domain (ibid., p. 366).

FEUDAL AUTHORITY REPLACED In 1950, Tana Toraja was integrated in the unitary Indonesian nation state which ended the local experiment with federalism. For the fourth time since the Dutch intervention local governance changed, this time to the disadvantage of the traditional adat leaders. Tana Toraja lost its political autonomy again to Luwu and became largely isolated from the rest of the Indonesian Republic due to regional warfare (Darul Islam rebellion). Since the proclamation of Indonesian independence in 1945, leading politicians had been striving for two objectives: assuming power from the Dutch government; and replacing the feudal authority — for the greater part maintained under the colonial regime — by new government systems based on Western-democratic understandings (Ruibing 1948b, p. 1). Shortly after Indonesian independence, the Tongkonan Ada’ administration managed to continue governing Tana Toraja under the new name Dewan Pemerintahan Sendiri, or Self-Governing Council (Bigalke 1981, p. 381). It was, however, disbanded a few months later, that is, in March 1950, by orders of an East Javanese battalion of the Indonesian Armed Forces (ibid., p. 384). In line with the instructions of the new governor of South Sulawesi, pro-republican leaders of local political parties and of society at large formed a local government that consisted of a council (KNI) and a district head (kepala daerah). The twenty-one positions in the KNI were divided among Christian, Muslim and secular parties, including a few Torajan adat leaders who strongly favoured a unitary state. Other traditional elites had been largely banned from the political domain. The KNI reduced the number of districts from thirty-two to fifteen and consolidated the number of kampung from 410 to 132 (Bigalke 1981, p. 387). In the same year, Tana Toraja lost its autonomy again to Luwu (Pakan 1977, p. 29; Legge 1961, p. 70). Independence also marked the return of local warfare in the highlands, which only finally ended in 1965. During this period, the people of Sa’dan Toraja were subjected to violent attacks from fundamentalist Muslim guerrilla troops of the Darul Islam movement attempting to establish an Islamic state (Morrel 2001, p. 4). The threat of Islamization induced many Torajans to convert to Christianity. As adherence to Christianity was closely intertwined with membership of the Indonesian Christian Party Parkindo, the latter soon became the largest party of Tana Toraja (Crystal 1974, p. 137). Parkindo hence generally represented the Torajan middle class of educated Christians. 271

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Dissatisfaction among peasants with the poor realization of land reforms promised by the republican government, led to local acts of violence against the local traditional elites, pushing them even further into political marginality. The Darul Islam rebellion, Parkindo’s successful mobilization against a Muslim takeover and an emergent Torajan identity again led to a wide-spread denial of Luwu’s claim to political domination. In Luwu itself, the nobility was torn between support and rejection of the Darul Islam rebellion, leaving a political vacuum between the two factions (Roth 2004). The resulting power gap was gradually filled up by members of the national army and Christian Torajans successful in acquiring positions in the regional administration of Luwu due to their educational advantage over their Islamic lowland neighbours (ibid., p. 170). Supported by the majority of government agencies, political parties, and social organizations in Luwu, Torajan leaders officially proposed separation from Luwu to the central government in 1953. In addition, the formation of a “Greater Toraja” also started to play a role again in regional politics. A regional movement for more political autonomy from the central government, known as Permesta, intensified violence in the region. It started in Makassar in March 1957, and soon Permesta troops joined up with the guerrilla army of the Darul Islam.22 In the midst of the turmoil that spread across Sulawesi, Tana Toraja was finally granted political autonomy in August 1957. Luwu and Tana Toraja thus became separate districts (Daerah Swatantra) within the province of Sulawesi.23 In 1959, Tana Toraja was formally established as an administrative unit in its own right, called kabupaten or Daerah Istimewa (The Liang Gie 1993, vol. 2, p. 139). The new government of Tana Toraja was effectively controlled by Parkindo who obtained fifteen out of the twenty seats in the Regional People’s Representative Council (DPRD) (Crystal 1974, p. 141). Parkindo managed to retain its dominance in Tana Toraja’s affairs until the national elections of 1971 (ibid., p. 141). For those who had envisioned the creation of Toraja Raya, separation from Luwu was considered as an important first step in that direction. Yet, separation was in fact moving away from the very definition of the “Toraja” basis of the Toraja Raya ideal since part of the population of highland Luwu identified socio-culturally with Tana Toraja rather than with lowland Luwu. (Roth 2004, p. 172). In the late 1950s and early 1960s, Java-based young intellectuals from Tana Toraja and Luwu developed the concept of “Lutat”24 which proposed a separate province consisting of the administrative districts of Luwu and Tana Toraja (Roth 2002; 2003; 2004). The lobbying for this idea in the national political arena was supported by members of the political elites in Luwu and Tana Toraja, leading to the support of President Sukarno in 1963. Eventually, Lutat did not materialize, however, because of the fierce

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resistance from the political elite of lowland South Sulawesi who objected to the plans for a separation of Luwu and Tana Toraja from the province of South Sulawesi (Roth 2004, p. 177). In retrospective, the political scene in Tana Toraja seemed to have completely changed in just over a decade. The call for a new administrative unit called “Greater Toraja” was eventually realized on a much smaller scale in the form of Tana Toraja (Ramstedt 2004, p. 192). In contrast to the Dutch, the Sukarno regime ignored traditional government structures and promoted a nationwide modernization of the government. A number of districts and kampung were joined together, resulting in a reduction of the number of districts by more than half and the reduction of kampung to one third of its previous number. Leadership of these newly formed territories was handed over to young educated nationalists. The New Order government for its part introduced a multi-party system from which the traditional adat leaders were also excluded. The increasing popularity of the Parkindo party and mass conversions to Protestantism were challenging the power of the traditional nobility of the Sa’dan-Toraja too (Ramstedt 2004, p. 199): It was now the educated Protestants from the lesser ranks of Toraja society who were setting the trend for where society would have to go, i.e. embracing both modernity and Protestantism (…) as a “modern” religion (Ramstedt 2004, p. 199).

DECENTRALIZATION AND LOCAL AUTONOMY: THE COMEBACK OF TRADITIONAL ADAT LEADERS In 1965, the Darul Islam and Permesta rebellion in South Sulawesi was finally subdued by West Javanese troops, and the region was at peace again. In the same year, General Suharto’s ascendancy to power in connection with the extermination of the allegedly Communist supporters of the September putsch heralded the era of the New Order regime. In Tana Toraja, the first phase of the New Order government (1965–79) brought about a far-reaching administrative reorganization which was actually in accordance with the decentralization and local autonomy laws of 1948 and 1957. In the context of this changing political climate, the Torajan nobility sensed an opening to re-assume authority over the district. They started to organize themselves in the non-religious political party IPKI (Ikatan Pendukung Kemerdekaan Indonesia) which was closely affiliated with the army (Crystal 1974, p. 141). The Desa Gaya Baru (new style village) elections of 1968–69 provided the first opportunity for Torajan adat leaders to make their comeback on the political scene. With the introduction of the new style villages in South Sulawesi, the Suharto regime intended to reorganize the village structure and

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to reintroduce direct elections of village chiefs (The Liang Gie 1967; Ardiwilaga 1970). As a matter of fact, the objective of the new style villages was to stimulate modernization and democratization from the inside out.25 Besides, it purported to stimulate the freedom of village governments as well as cooperation with other villages and regencies (inter-regional cooperation). The execution of the new style villages decree of 1965 (Surat Keputusan 450/ xii/1965) was fully delegated to the administrations of individual regencies (Crystal 1971, p. 126; Donzelli 2002/2003, p. 30). The new style village was implemented in 1967 after the government of Tana Toraja issued a local decree (Surat Keputusan 152/sp/1967) for the administrative reorganization of the district (Donzelli 2002/2003, p. 30). Subsequently, local boundaries of Tana Toraja were again redefined, and its fifteen districts and 113 kampung were reduced to nine districts (kecamatan) and sixty-five new style villages named lembang.26 Although the elections of the sixty-five newly established lembang were formally carried out in the absence of declared party affiliation, IPKI-backed individuals managed to win most of them. A 1970 Presidential Instruction (Inpres No. 6/1970) that made participation of all civil servants in the new Golkar party compulsory enabled the nobility to break Parkindo hegemony during the national elections of 1971. As Golkar enlisted support from all “anti-Communist” factions of society, adat leaders were clearly indicated as such (Ramstedt 2004, p. 199). All lembang heads but one participated in Golkar and led Golkar to an overwhelming victory.27 Beside the replacement of Parkindo as the dominant political actor, the majority of the seats in the new legislative (DPRD) and executive body (BPH) of Tana Toraja were now taken by the old elites as representatives of the government organ, Golkar.28 In a certain way the political climate of the 1970s displayed many similarities with the first years of Dutch colonial rule in the highlands. On a district level, the nobility assumed political control over Tana Toraja but they had to comply with the wishes of the central government. The lowest level of the government structure (lembang), on the other hand, remained largely beyond the reach of the central government on account of the lembang’s autonomous position. The new style villages however, corresponded neither to pre-colonial nor colonial administrative units.

CENTRALIZATION AND STANDARDIZATION: ADAT DEPOLITICIZED In the 1970s, the central government started to strengthen its power over local communities and to standardize regional variations in local government. 274

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This resulted in the introduction of a new law on village government in 1979 (that is, Law No. 5/1979). This law forced regional governments throughout Indonesia to transform the structure of local village governments into an idealized Javanese model of the village. By standardizing village government structures, local traditions were completely ignored. In fact, the New Order regime feared regional and ethnic separatism and consequently aimed at depoliticizing adat, by reframing it as culture (budaya).29 The centralization policies of the New Order government spanned almost two decades until President Suharto was replaced and the recent era of reformation and decentralization set in. The so-called “New Order village” or desa put forth in Law No. 5/1979 was implemented in Tana Toraja by 1985, and the previously established new style villages were again fragmentized into a larger number of desa. Central and regional government power over the newly formed desa was based on intimate personal relations and patronage: “Whether lured by privileged access to funds or forced by intimidation, virtually all leaders, local notables and people with prestige and authority inevitably became state clients” (Antlöv 2003, p. 196). The former lembang committee, which was still rooted in local tradition, was replaced by the Village Consultative Assembly (Lembaga Musyawarah Desa, LMD). The desa head became automatically the chair of the LMD, and in consultation with the sub-district government and the village guidance army officer, the desa head also appointed the other members of the assembly. Because the local population lacked any mechanism to hold the desa head accountable, he possessed considerable power, at least in his own territory. However, the desa head was selected from within the respective community itself and remained part of the community (that is, kin group) he ruled. He had thus still to operate within the boundaries of cultural and social expectation. The administrative levels that formerly existed below the lembang level were abolished and replaced by the dusun (hamlet). The head of the dusun was also appointed by the desa head and was just an arm of higher echelons of civil servants. In the New Order administration, village administrative units differed with respect to whether an area was considered “urban” or “rural” (Donzelli 2002/2003, p. 30). Tana Toraja district (kabupaten) was considered a predominantly rural area but was endowed with a mixed system that consequently consisted of both desa and kelurahan units. The basic administrative unit throughout Tana Toraja was the desa, but in and around the two towns of Makale and Rantepao, the urban administrative units kelurahan (and lingkungan) applied which corresponded to the rural desa 275

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(and dusun respectively). In contrast to the head of the desa who was selected through regular elections, the head of the kelurahan (lurah) was appointed by the district head (ibid., p. 7). After the implementation of Law No. 5/1979 in Tana Toraja, the district consisted of 290 desa and kelurahan and over 900 dusun and lingkungan.

DECENTRALIZATION AND REGIONAL AUTONOMY:30 TANA TORAJA RESHAPED The introduction of the 1999 legislation on decentralization and regional autonomy seemed the solution to the separatist movements and communal acts of violence that swept throughout post-Suharto Indonesia. To speed up the decentralization and democratization process, the new legislation allowed for the possible creation of new regions (sub-districts, districts, municipalities, and provinces) by dividing or merging existing administrative units (ICG 2003, p. 4).31 At the local level, the 1999 legislation also transferred an extensive degree of autonomy to the desa. Moreover, village units need no longer to correspond to the form of the desa but may accommodate traditional forms of local governance (see Introduction). Along with the regional implementation of administrative decentralization, a resurgence of adat was on the rise.32 The establishment of the Alliance of Indigenous Peoples of the Archipelago (AMAN) added an even greater impetus to the drive to revitalize adat.33 AMAN is a non-governmental organization (NGO) which is composed of traditional adat leaders from most ethnic groups throughout the country. It has been promoting the value of adat at all levels of politics. In Tana Toraja, adat leaders — who had been marginalized since the introduction of the uniform local administrative structures across Indonesia in the 1970s — sensed new opportunities after the enactment of Law No. 22/1999 and emphasized the important role of traditional institutions in daily life.34 The election of a Torajan woman as the head of AMAN added an even greater impetus to the drive to revitalize Torajan adat (Fauzi and Zakaria 2002). Less than six months after the establishment of AMAN, that is, on 6 August 1999, a local branch was founded in Tana Toraja, named AMAT 35 (Donzelli 2002/2003, p. 28). Interestingly, the first AMAT conference was attended by representatives of thirty-two adat regions (wilayah adat) which was the same number of regions that existed under the Dutch colonial administration between 1925 and 1949. The enthusiasm about the possible restoration of traditional roles and forms of local government started to dominate local debates about decentralization and local autonomy. 276

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On the instigation of local and national NGOs and due to the widespread enthusiasm for the revitalization of adat, the DPRD of Tana Toraja passed the “return to the lembang” regulation No. 2/2001) just three months after Law 22/1999 had become effective. The new regulation stipulated the reorganization of territories at the village (desa) level into lembang. A lembang was now defined as a geographical area inhabited by a group of people who share the same ancestral origins over generations and a concomitant sociocultural set of laws and values as well as a “traditional” form of government organization. The lembang has thus officially become an autonomous territory with its own institutions based on local customs and tradition. The official term for the dusun — the administrative level below the desa — has changed into kampung, a term introduced by the Dutch colonial administration. The kampong themselves are now grouped under the administration of the lembang. The lembang regulation No. 2/2001,36 however, dictates rather detailed guidelines for the establishment of lembang governments, leaving little room for deviation. Accordingly, the government of a lembang now consists of an elected head (kepala lembang) and the lembang committee, including a secretary, heads of affairs (such as economy and development), and the leaders of the kampung under the authority of the lembang. In correspondence with the adat, the people eligible for the candidacy of lembang head are by definition from the highest social strata. Kampung leaders are generally appointed by the head of the lembang. Provided the lembang head signals approval, a kampung head might also be elected by the kampung community. One of the major differences of the lembang government compared to earlier government systems is the introduction of a Lembang Representative Council (Badan Perwakilan Lembang, BPL). This council has to communicate the interests and aspirations of the lembang community to the lembang executive committee as well as to control its daily practices. The members of the “lembang parliament” should be descendents from the traditional lembang leaders and are directly elected by the inhabitants of the lembang. The number of members that are seated in the council depends on the total population of the lembang.37

THE RETURN TO THE LEMBANG IN PRACTICE In theory at least, the “return to the lembang” regulation seemed a promising way to install local autonomy and democratization in accordance with local customs and tradition. However, the new regulation was running into problems once the process entered the implementation phase (Simarmata 2002). Stiff resistance began to emerge from desa and sub-district heads (kecamatan) that 277

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stood to loose their power and privilege under the lembang system (Fauzi and Zakaria 2002). Besides, Torajan elites started to struggle over lembang boundaries, names, customary law and available government positions. Influential Torajan migrants, descendants from the traditional noble families, also interfered in the creation of the new lembang and were influencing lembang elections openly or from behind the scenes. Some migrants even returned to Tana Toraja to lobby for particular candidates in the lembanghead elections, whereas others migrants run for the position of lembang head themselves. In fact, many newly elected lembang heads are former migrants who were living elsewhere in Tana Toraja or the Indonesian archipelago. Interestingly, the candidates’ identification with a particular tongkonan seemed an important factor within the electoral contest. Candidates for lembang head election strategically identified themselves with their fathers’ or mothers’ tongkonan or even re-established lost genealogical lines that go back many generations. One lembang head explained that he used his mother’s tongkonan in the elections because this side of the family had traditionally had good relations with the slave class that constituted the majority of voters in his lembang. The candidates’ identification with particular tongkonans also demonstrates that there is much more at stake than a single government position. It is a matter of honour and shame that drives the old elites to contest for the reestablishment of their traditional leadership role in society by sponsoring a representative of their family in the lembang head elections. Especially in the oldest adat communities in southern Tana Toraja, there was a lot of competition over lembang head candidates and their eventual election. The interference of family members living outside Tana Toraja or working for the regional government in Makale sometimes delayed the final establishment of a lembang and its government for more than a year. In some cases this even prevented the formation of a new lembang altogether. In the southern adat community Marinding38 for example, descendants from several puang families have been struggling over the boundaries, name and leadership of the yet to be formed lembang for over three years and an agreement has still not been reached. This is typically a case in which the honour of several puang families and their respective tongkonan are at stake. Conversely, there are also lembang which were established with relative ease and without internal conflict. The extent to which the territories of the newly established lembang and kampung coincide with pre-colonial socio-political organization differs from area to area in Tana Toraja. In Tondon, an adat community located northeast of Rantepao for example, the new lembang system largely matched with the boundaries of traditional, pre-colonial socio-political organization. Here is a 278

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case in which the return to the lembang consolidated the authority of the old nobility. The key positions in the lembang administration are filled only by members from the highest class, and they make decisions which are largely in the interests of this class. As the lembang representative body includes the same people as the adat committee, it becomes difficult to function as a controlling committee that represents the best interests of all layers of society. In fact, the interests of the executive and legislative are largely intermingled, paralysing the controlling function of the legislative committee. Under the new lembang regulation, one lembang can comprise as many as four desa but on average consists of two or three desa. Out of the 116 lembang established by early 2004, nineteen lembang retained the same territories as those of the former desa they had replaced. In general, the territory of a lembang is larger than the desa of the New Order regime. Usually, they are much smaller though than those of the pre-colonial adat communities mapped by the Dutch in the course of their penetration of the highlands in the beginning of the twentieth century. Below the lembang level, there are usually three to four kampung. Yet some lembang comprise as many as ten kampung. The kampung sometimes, but not always, match the territory of the New Order dusun. Although the lembang obtained an autonomous status under the new lembang regulation of 2001, the administration of the kelurahan remained under the direct control of the district head’s office. Moreover, the head of a kelurahan is not democratically elected but appointed directly by the bupati or head of district. All twenty-seven kelurahan are grouped around the two towns of Rantepao and Makale. The kelurahan in the former New Order subdistricts (kecamatan) were completely removed after the implementation of the “return to the lembang” legislation. In contrast to the heads of kelurahan who have been receiving a salary as civil servants, lembang heads have so far39 not received any salary from the district government. Yet according to Art. 67 of the lembang regulation No. 1/2001, lembang heads are officially supposed to earn 500,000 Rupiah per month (that is, approximately US$50). Strangely enough, this has not led any candidates to withdraw from their lembang head position. On the contrary, the position of lembang head has become one of the most desirable positions in Tana Toraja. One of the respondents explained this as follows: “Due to the relative autonomy of a lembang, kepala lembang (lembang heads) have become raja kecil (little kings).” A major opportunity for lembang heads to obtain money is through taxes on land and the slaughtering of pigs and buffaloes at funeral or house-building ceremonies.40 One lembang 279

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head said: “In this lembang they slaughter nearly the most animals of Tana Toraja, so I do not have to worry about money. This year the inhabitants of this lembang paid 50 million Rupiah on slaughtering tax, which is more than enough for my salary.” The real situation might be a little more complex, as much more people with their own demands and requirements try to obtain a share of the benefits of the new decentralization laws. Besides, a large proportion of the taxes has to be transferred to the districts office. Yet in sum, it can be said that if a lembang head manages to strike a balance between the needs and desires of his constituents and the requirements and prerogatives of the local bureaucracy, the opportunities to increase his social and material status are considerable.

THE LEMBANG REVISED Three years after the implementation of the lembang had been launched, dissatisfaction with the limitations and deficiencies of the lembang law of 2001 started to grow. Several lembang were still not formed, others still lacked a lembang head because communities refused to elect one, or else the elected heads had not been acknowledged by the government of the district. Moreover, various adat communities were increasingly dissatisfied with their forced inclusion into neighbouring lembang. The lembang law of 2001 lacked any precise description about the territorial delineation of communities, which made the creation of new lembang difficult. Besides, the minimum requirement of 2,500 inhabitants or 500 households for the formation of a lembang forced smaller adat communities to merge with others under the umbrella of one lembang. This in turn created problems between the different systems of traditional authority. Aside from the conflicts over territorial boundaries and lembang head elections, lembang heads still had not received any salary. They therefore created the Lembang Head Association (Forum Kepala-Kepala Lembang, FKKL) in order to more efficiently voice their complaints to the district government and to lobby for the revision of the lembang law of 2001. Last but not least, the functioning of the lembang parliaments was largely dissatisfactory, as they frequently did not effectively control the executive within their respective localities because they were themselves involved in executive tasks.41 The general dissatisfaction with the results and constraints of the lembang law finally resulted in a revision of the law (No. 5/2004) in June 2004. One of the major achievements of the revised law appeared to be the reduction of the minimum amount of persons in one lembang to 1,500 inhabitants or 300 280

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households. In addition, Law No. 5/2004 stated that the changes concerning lembang boundaries should not lead to a disruption of community life. Besides, the majority of the inhabitants of a lembang as well as the regional parliament and head of the district have to agree upon the transformation of a lembang. By the end of the same year the number of lembang had increased by almost a third, that is, up to a total of 170 lembang.42 The regulation on the minimum amount of the lembang executives’ salary was also removed. Instead, the amount of money paid to the executives of the lembang has to be reviewed every year and depends on the prosperity of the lembang’s economy. Although the revised law of 2004 supposedly provides some solutions to the problems caused by the earlier lembang law of 2001, it is still too early to observe whether the final results will be satisfying. Some people who were involved in the initial phase of implementing the “return of the lembang ” are quite disappointed about the materialization of the ideal. They have pointed out that the new administrative system only brought back feudalism instead of increasing democracy. Recently, some politically influential Torajans even started to discuss the “return of the desa”. It is difficult to predict whether the lembang system will hold or not, but the fusion and fission process at the village level is definitely not over yet.

A ‘GREATER’ OR A MORE FRAGMENTED TORAJA? Just after the 1999 legislation on decentralization and regional autonomy was launched, seventeen out of twenty-four districts and municipalities of South Sulawesi announced their desire to separate from the province in order to form as many as five independent provinces (Morrel 2002, p. 34). Tana Toraja was included in the plans of neighbouring districts to the east and to the north to form the province of “Greater Luwu” (Luwu Raya). To the west, the three neighbouring districts of Mamuju, Majene and Polewali-Mamasa proposed the idea to form the province of West Sulawesi (Sulawesi Barat). Two other regions in South Sulawesi emulated these examples and announced their intention to form a separate province as well, namely “Eastern Sulawesi” and the “Province of Pare Pare region”. Particularly the regions most distant from Makassar, the administrative and commercial capital of the province, were the most eager to separate, as they were dissatisfied “with centralist governance at the provincial level” (Morrelll 2002, p. 35). Situated in between the proposed provinces West Sulawesi and Greater Luwu, Tana Toraja found itself in a somewhat ambivalent situation. Some Luwu adat leaders had started to urge for Tana Toraja’s exclusion from the Greater Luwu province by pointing to the former Dutch administration 281

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which did not include the Torajan highlands. Advocates of Tana Toraja’s inclusion highlighted the close connections between Luwu and the highlands that pre-dated colonialism. In the west, Torajans from Tana Toraja and the neighbouring district Polmas were also discussing the potential integration of the district into the proposed province of West Sulawesi but did not come to an agreement either. While the discussion about Tana Toraja’s inclusion into Greater Luwu or West Sulawesi continued, proposals for a separate northern and western district were submitted to the district’s office in Tana Toraja itself.43 Again, applications were supported by appeals to cultural and adat specificities and supposedly pre-colonial conditions (Donzellli 2002/2003, p. 37). Initially, the proposals only involved the fragmentation of Tana Toraja into three smaller regencies (North, West and South Toraja). Later on, however, the idea of a Greater Tana Toraja province popped up again which would include all Toraja regions of South Sulawesi and thus also parts of the proposed western and Luwu province. As the official requirements for constituting a new province at that time necessitated the existence of at least three districts (presently, five regencies are needed), fragmentation of Tana Toraja became even more valuable. Hence, several attempts of fragmentation and confederation were going on in Tana Toraja. Interestingly, these efforts included the lobbying of Torajan migrants (mostly intellectuals and businessmen) in Luwu, Makassar and Java (predominantly Jakarta). The general fragmentation fever in Tana Toraja drew attention largely away from political processes beyond the immediate concerns of the district. In September 2004, the Indonesian parliament approved the creation of the province of West Sulawesi. Due to miscommunication and insufficient lobbying of the Torajan government, Tana Toraja was excluded from the newly established province. The inclusion of Tana Toraja into a province of Greater Luwu seems to also be less likely than before. Polls that had been conducted in all village councils (Badan Perwakilan Desa, BPD) of Luwu resulted in a 95 per cent vote in favour of a future Luwu province excluding Tana Toraja (Natan 2004). At present, the Regional Autonomy Office of South Sulawesi (Biro Otoda Propinsi Sulsel) has only approved the proposal for the formation of the district of North Toraja. It has rejected the proposed district of West Toraja. The Torajan elites in the northern part of Tana Toraja are confident that their proposal will also be accepted by the Ministry of Home Affairs in Jakarta. Yet, Torajan migrants (especially those who live in Java) cast doubts on the actual approval of a new district called “North Toraja”, as they are promoting the 282

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inclusion of Tana Toraja into a new province called “Greater Luwu”. They have derived their motivation from the fact that, since 2000, there have been concerted Muslim efforts to introduce the Shari’a in the whole of the province of South Sulawesi. According to the Java-based Torajan elites, inclusion of Tana Toraja into Luwu is the only option left to prevent the political, economic and religious domination of the Bugis and Makassarese lowlanders of South Sulawesi. After a long history of struggles over political power between the northern and southern nobility of Tana Toraja, administrative separation of the two regions is now closer than ever. The proposed western Toraja district has been rejected on the provincial level and will only be reviewed after its northern neighbour has obtained final approval from Jakarta. On a regional level, the struggle for Tana Toraja’s inclusion into the proposed Greater Luwu province seems extremely difficult but still not lost. History has demonstrated that regional political scenarios are extremely flexible and change all the time. In fact, current attempts for the unification of Tana Toraja and Luwu show many similarities with demands for a Greater Toraja and a Greater Luwu in the 1950s and 1960s.

CONCLUSION This chapter has discussed the dynamics of decentralization and local power politics in Tana Toraja. The seemingly revolutionary political and administrative change in present-day Tana Toraja is just part of a long-term cycle of territorial and administrative restructuration at the local level. In fact, the recently introduced lembang system builds on the effects of six cycles of decentralization and centralization, and the recent decentralization attempt in Tana Toraja is the third44 in a series of decentralization attempts involving the integration of modern and traditional form of governance. The return to the lembang actually entailed the reinvention of a traditional socio-political government system and its boundaries that had supposedly existed before it was deconstructed, adjusted, fragmented and recombined in the course of the last century (see Table 11.1). In the ensuing struggle over boundaries, names and lembang head elections, the term “tradition” has obtained multiple meanings and is strategically negotiated by kin groups, lineages and elites to attain certain political objectives. In short, the introduction of the lembang seems to face the same problems as earlier attempts of decentralization in Tana Toraja. The case of Tana Toraja shows that decentralization and more political autonomy at the local level does not automatically lead to democratic elections 283

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and/or a democratic way of governance. While elections are heavily influenced by patron-client and blood relations, social stratification and money politics, the membership of Lembang Representative Councils generally consists of adat leaders who stem from the highest social strata. As their interests seem to be intermingled with those of the executive, the controlling function of the councils is paralysed. Also the proposals for the separate districts of North Toraja and West Toraja as well as the current attempts for the creation of a Greater Toraja or Lutat province show many similarities with earlier efforts. Just like in the 1930s, 1950s and 1960s, the creation of a Greater Toraja or Lutat turns out to be a more complex political process than it appeared at first. Again, the great variety of actors and their differing interests seems to preclude the possibility that Tana Toraja will attain a separation from the province of South Sulawesi. The history of Tana Toraja is coloured by struggles between elites from the noble class over authority in the social, political, economic and cultural domains. These have been most notable between members of the nobility from the northern and the southern part of Tana Toraja. They have, however, also been taking place between various adat community leaders as well as puang families. The members of the old noble caste have been banned from the political scene no less than three times, that is, in the beginning of Dutch rule, between 1950 and 1968, and again between the late 1970s and 1998. Yet, they have recently again proven that they can still command the loyalty of large parts of the Torajan population in an open contest for local level political leadership. It should be added that some affluent members of the Torajan middle class have also been able to increase their influence, for instance through buying votes. But the majority of the members of the middle and the lowest strata of society are still excluded from participation in Tana Toraja’s politics. As fusion and fission plans are still in full swing in Tana Toraja, it is still too early to predict the outcome of the recent decentralization process. Thus, for the moment it has to be concluded that the lessons of one century of centralization and decentralization in Tana Toraja have not yet yielded a satisfying synthesis between the traditional and modern forms of governance.

Notes 1

The term New Order refers to the period 1965 to 1998, in which Indonesia was ruled by the presidential regime of Suharto. The New Order was preceded by the

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Old Order, which started with the declaration of independence (1945) under the political leadership of Sukarno. To some extent the traditional ethnic concept of lembang can be compared with the more widely known nagari in West Sumatra. See the following chapter by Franz and Keebet von Benda-Beckmann. There are various spellings for the name of the Toraja people. The more common ones are Toraja, Toradja, and Toraya. According to Torajan linguistics at the Christian University of Tana Toraja (IKIP), within the English language the term Torajan should be used to refer to someone who originates from the Tana Toraja region. Accordingly, for the purpose of this work, I apply the term Torajan to refer to the people from Tana Toraja. The field research on which this paper is based was part of the research programme “Indonesia in Transition” funded by the Royal Netherlands Academy of Sciences (KNAW). I would especially like to thank Coen Holtzappel and Martin Ramstedt for their inspiring comments and editorial advice for the accomplishment of this chapter. The Bugis or Buginese people make up the largest ethnic group of Sulawesi and generally live along the coastal areas of South and Southeast Sulawesi. “Tana Toraja possesses the finest educational system in all of rural South Sulawesi. Developed over half a century by missionaries, Toraja Protestant and Catholic schools have produced high caliber high schools and technical school graduates whose skills have been utilized in government service, the armed forces, and private industry” (Crystal 1989, p. 165). The Indonesian census of 2000 indicates that the total group of Torajans (from Tana Toraja) comprise 750,828 people (Suryadinata et al. 2003, p. 7). This means that around 350,000 Torajans are living outside Tana Toraja, at least according to the official count. Nearly 80 per cent of the Christians are Protestant, while 20 per cent are Catholic (BPS Tana Toraja 2001). The number of people adhering to Pentecostalism is steadily growing but there are no official counts. For more information about the claim of both Christian and Hindu Toraja to aluk to dolo, I refer to Ramstedt 2004. In the absence of a better term, I use “Sa’dan” to differentiate Toraja people — whose ancestors had lived in the valleys of the Sa’dan River before it was demarcated and named by the Dutch as Makale/Rantepao and later Tana Toraja — from other Toraja groups in the South and Central highlands of Sulawesi. In most of the anthropological literature, the people who nowadays live in the Tana Toraja district are still labelled as Sa’dan Torajans. However, I am aware of the fact that this concept will never be used by Torajans themselves to denote the whole area of Tana Toraja (for a more detailed explanation, see Donzelli 2002/ 2003, p. 15). In 1683, Sa’dan communities united against the occupying troops of Aru Palaka

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from Bone and his vassals. After this joint defence (‘tulak buntunna Bone’), however, the Sa’dan alliance dissolved again (Adatstaatsrecht Loewoe 1947, p. 41). Although, this event is the only occasion in which Sa’dan communities united, until today it is used as a unifying motive for Sa’dan Torajans in opposition to other ethnic groups in the region. The term penanian is synonymous with bua’-circle. It depends on the area whether people use bua’ or penanian to denote a federation of tongkonans (Lanting 1926, p. 7). Sometimes lembangs are called patang penanian, an organization of four penanian (Nooy-Palm 1975, p. 64). According to Toraja belief, three Tomanuruns were sent down from heaven. This mythology is shared by the other people in South Sulawesi. Where the Tomanuruns really came from is still to be investigated but according to Salombe’, they may have come from East Java during the reign of Kertanagara, the last King of Singhasari (Salombe’ in Liku Ada’ 1986, p. 28). According to Ramstedt, the direct relationship between the highlands and Singhasari or its successor Majapahit is highly speculative. Instead, he proposes Bugis Bone as a more direct transmitter of Old-Javanese influence (for more details see Ramstedt 2004, p. 197). Mamasa is currently a separate district (kabupaten) at the western border of Tana Toraja and belongs to the province of West Sulawesi. In 1888, the Dutch colonial government had in fact made a political contract with Luwu in which the “Sa’dan lands” were considered to be part of Luwu (Van Lijf 1947–48, p. 530; Adaatstaatsrecht Loewoe 1947, p. 42). The contract was based on the statements of the Governor of Celebes (South Sulawesi) who had obtained his knowledge of the political situation in the Sa’dan highlands and Luwu from informants in Palopo (Luwu). In 1905, the Dutch government still did not have a different understanding of the situation, and so the Sa’dan highlands became part of the Division of Luwu. The people of Sa’dan Toraja, however, never accepted their official subordination. As mentioned before, the western region of the Sa’dan highlands originally belonged for the greater part to the Toraja Mamasa region, at least from a cultural point of view. However, because they were afraid of reprisals by the Dutch military due to the fact that their kin-groups in the Mamasa area heavily opposed Dutch pacification efforts, the Sa’dan Torajans did request incorporation into the sub-division of Makale (Adaatstaatsrecht Loewoe 1947, pp. 42–43). Roman Catholic missionaries entered Makale-Rantepao in 1938, after the Dutch government had permitted them to do so (Van Lijf 1951, p. 366). The new sub-division Makale-Rantepao remained part of the division Luwu. The Toraja people, however, still rejected the self-government of Luwu and the Dutch civil service kept the actual political power in the highlands (Van Lijf 1951, p. 370). During the colonial period, “Toraja” was written as “Toradja” and “Tana” as

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“Tanah”. I adopt the spelling of the particular government era I am writing about; yet both spellings have the same meaning. “Ada’ ” carries the dual meaning of “headman who settles small disputes” and “traditional council” (Bigalke 1981, p. 363). For a more detailed description about Darul Islam and Permesta in South Sulawesi, see Barbara Harvey (1974 and 1977). The separation of Tana Toraja from Luwu was prescribed in the emergency law (Undang-undang Darurat), No. 3/1957, TLN 1138 (The Liang Gie 1993, p. 48). Lutat is the abbreviation for Luwu and Tator. Tator is the short name for Tana Toraja. Based on Law No. 22/1948 that prescribed far-reaching village autonomy. After Tana Toraja obtained its autonomous status in 1957, the number of kampung was already reduced from 132 to 113 under the command of its first regent Mr Lakitta (Sandarupa 1996). In Tana Toraja, 83, 4 per cent of all votes went to Golkar and the remaining votes (16.6 per cent) to all the other political parties (Crystal 1974, p. 144). In total ten parties were involved in the district’s elections. The Legislative body DPRD (Dewan Perwakilan Rakyat Daerah) was a council that consisted of thirty representatives from the district. The BPH (Badan Pemerintahan Harian) was composed of five members who were running daily affairs. The head of the district was appointed by the Indonesian government and usually held a high rank in the army (Nooy-Palm 1975, p. 59). “Culture” was mainly expressed in houses, artefacts, and dresses, leaving out traditional social structures and traditional laws and regulations. Although “decentralization” and regional autonomy are often used interchangeably in Indonesia, they actually describe different phenomena. Decentralization is the transfer of central administrative functions, tasks and competencies to regions and regional autonomy is the transfer of power from state to society (for more details, see the introductory chapter of this book). The procedures that allow the dividing or merging of existing administrative units are set forth in Regulation No. 129/2000. “Under the terms of Regulation 129, advocates of a new district must demonstrate that it is a viable entity, in terms of economic resources, regional potential, population size, geographical area, and political and cultural conditions. They must also gain approval of both the district from which to separate and the relevant provincial government, as well as the Ministry of Home Affairs and the Indonesian Parliament” (ICG 2003, p. 4). Adat was often glossed as “tradition”. However, because of its usage in different and sometimes opposing discourses, it obtained multiple meanings (Donzelli 2002/2003, p. 16). AMAN stands for Aliansi Masyarakat Adat Nusantara and, in 2004, consisted of 927 registered communities, 777 of them were verified members. Eighteen 287

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indigenous organizations at the local level and eleven at the regional level were allied with AMAN (Moniaga 2004). It should be noted that Torajan adat leaders do not necessarily adhere to the traditional aluk to dolo religion any longer but can also be Christian or Muslim. In contemporary Tana Toraja, aluk to dolo has become a religion under the heading of Hindu Dharma Indonesia (see Ramstedt 2004) rather than an all embracing way of life. Instead, adat has now become the popular term to refer to all local customs and tradition that have ancestral origins. Just like elsewhere in Indonesia, adat has become a popular buzzword in public discourse (Donzelli 2002/2003, pp. 16–17). For that reason, when talking about adat leaders (tokoh adat or pemangku adat), I refer to leaders who have derived their authority through descent from the old nobility or as members from the highest ranking tongkonans, no matter whether they are adherents of aluk to dolo, Christianity or Islam. AMAT stands for Aliansi Masyarakat Adat Toraja. That is, Lembaran Daerah Kabupaten Tana Toraja No. 2/2001. With a number of 2,500 people living in one lembang (the minimum amount), the council consists of at least seven members. The maximum number of members that can be seated in a lembang representative council is thirteen (Art. 21 of lembang Law No. 2/2001). Marinding is one of the eight penanian (bua’) in the area of Mengkendek which is in turn one of the three lembang (Tallu Lembangna) in the south of Tana Toraja. That is, until the writing of this chapter was finished, in January 2005. Generally, tax on land and tax on slaughtering animals passes through the hands of the lembang head before it is transferred to the office of the district head. It should be added though, that not all lembang leaders have abused their power but that a great number of lembang governments have applied their authority to the benefit of the community they have been heading. Law No. 5/2004 also dictated the transformation of lembang into kelurahan, resulting in a total number of sixty-seven kelurahan by the end of 2004, compared to the original twenty-seven earlier that year. Before a region can be established as an independent district, the proposal for separation has to be approved by various institutions at the district, provincial and national level. The previous two attempts occurred in 1948 and 1968/69 respectively.

References Acciaioli, G. “Kinship and Debt: The Social Organisation of Bugis Migration and Fish Marketing at Lake Lindu, Central Sulawesi”. In Authority and Enterprise among the Peoples of South Sulawesi, edited by R. Tol, K. van Dijk, and G. Acciaioli. Leiden: KITLV Press, 2000. 288

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Adaatstaatsrecht Loewoe. Afdeeling Loewoe, Bijdrage tot de Monografie over ZuidCelebes. Leiden: KITLV, 1947. Adriani, N. and A.C. Kruyt. De Bare’e-sprekende Toradja’s van Midden-Celebes, Vol. 3. Batavia: Landsdrukkerij, 1914. Antlöv, H. “Village Government and Rural Development in Indonesia: The New Democratic Framework”. Bulletin of Indonesian Economic Studies 39, no. 2 (2003): 193–214. Ardiwilaga, R.A. Pemerintahan Desa. Bandung: Penerbit Tarate, 1970. Badan Pusat Statistik Kabupaten Tana Toraja (BPS). Tana Toraja in Figures. Rantepao: BPS-Statistics of Tana Toraja district, 2001. ———. Tana Toraja in Figures. Rantepao: BPS-Statistics of Tana Toraja district, 2004. Bieshaar, W. Om te Gedenken: Vijf-en-twintig jaar zendingsarbeid van den G.Z.B. onder de Sa’dan Toradja’s; Zuid-Midden-Celebes. Zeist: G.Z.B., 1940. Bigalke, T.W. A Social History of “Tana Toraja” 1870–1965. Michigan: The University of Wisconsin-Madison, 1981. ———. “Government and Mission in the Torajan World of Makale-Rantepao”. Indonesia 38 (1984): 85–112. Crystal, Eric. “Toradja Town”. Ph.D. dissertation. Berkeley: University of California, 1971. Crystal, E. “Cooking Pot Politics: A Toraja Village Study”. Indonesia 18 (1974): 119– 51. ———. “Tourism in Toraja (Sulwesi, Indonesia)”. Hosts and Guests: The Anthropology of Tourism, edited by V.L. Smith. Philadelphia: University of Pensylvania Press, 1989. Donzelli, A. “Sang Buku Duang Buku Kada” (One or two words), Communicative Practices and Linguistic Ideologies in the Toraja Highlands of Eastern Indonesia. Unpublished Ph.D. dissertation. Milano: Università Degli Studi di MilanoBicocca, 2002/2003. Fauzi, N. and R.Y. Zakaria. “Democratizing Decentralization: Local Initiatives from Indonesia”. Paper submitted for the International Association for the Study of Common Property 9th Biennial Conference. Victoria Falls, Zimbabwe, 2002. Harvey, B.S. Tradition, Islam, and Rebellion: South Sulawesi 1950–1965. Michigan: Ann Harbor Microfilms, 1974. ———. Permesta: Half a Rebellion. Ithaca, N.Y.: Monograph Series Publication 57, Cornell University Press, 1977. ICG (International Crisis Group). Indonesia: Managing Decentralization and Conflict in South Sulawesi. Jakarta/Brussels: ICG ASIA Report No. 60, 2003. Kabupaten Tana Toraja. Lembaran Daerah Kabupaten Tana Toraja, Nomor 2 Tahun 2001, Seri D, Nomor 2. Makale: Bagian Hukum Setda, Kabupaten Tana Toraja, 2001. ———. Lembaran Daerah Kabupaten Tana Toraja, Nomor 1 Tahun 2002, Seri D, Nomor 1. Makale: Bagian Hukum Setda, Kabupaten Tana Toraja, 2002. 289

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———. Lembaran Daerah Kabupaten Tana Toraja, Nomor 5 Tahun 2004. Makale: Bagian Hukum Setda, Kabupaten Tana Toraja, 2004. Kaudern, W. Migrations of the Toradja in Central Celebes. Gotenborg: Elanders Boktryckeri Aktiebolag, 1925. Kennedy, R. Field Notes on Indonesia: South Celebes, 1949–1950. New Haven: Human Relations Area Files, 1953. Kis-Jovak, J.I., H. Nooy-Palm, R. Schefold and U. Schulz-Dornburg. Banua Toraja: Changing Patterns in Architecture and Symbolism among the Sa’dan Toraja, Sulawesi, Indonesia. Amsterdam: Royal Tropical Institute, 1988. Kobong, Th. Evangelium und Tongkonan: Eine Untersuchung über die Begegnung zwischen Christlicher Botschaft und der Kultur der Toraja. Hamburg: Verlag an der Lottbek - Peter Jensen, 1989. Kruyt, A.C. De West-Toradjas op Midden-Celebes. Amsterdam: Noord-Hollandse Uitgevers-Maatschappij, 1938. Lanting, H.T. Nota van H.T. Lanting, Controleur van Makale/Rantepao. Leiden: Archive KITLV, 1926. Legge, J.D. Central Authority and Regional Autonomy in Indonesia: A Study in Local Administration 1950–1960. Ithaca: Cornell University Press, 1961. Lijf, v. J.M. Memorie van Overgave betreffende de onderafdeeling Tana Toradja van den aftredenden Controleur bij het Binnenlandsch Bestuur. Bestuursperiode 23 Juli 1946–23 Juni 1947. Makassar: Celebes Drukkerij, 1947. ———. “Kentrekken en problemen van de geschiedenis der Sa’dan-Toraja-landen”. Indonesië 1 (1947–48): 518–35. ———. “Tana Toraja 1905–1950”. Indonesië 7, no. 2 (1951): 352–75. ———. “Tana Toraja 1905–1950: Technische voorzieningen en hun gevolgen”. Indonesië 6 (1952–1953): 254–77. Liku Ada’, J. Towards a Spirituality of Solidarity: A Study of Sa’dan-Torajan Solidarity in the Light of Gaudium et Spes, with a View to an Inculturated Authentic Christian Spirituality of Solidarity. Rome: Pontificia Universitas Gregoriana, 1986. Malamassam, D. Kajian Efektivitas Pelaksanaan Peraturan Daerah Nomor 2 Tahun 2001 Tentang Pemerintahan Lembang di Kabupaten Tana Toraja. Makassar: UKI Paulus, 2004. Moniaga, S. “From Bumi Putera to Masyarakat Adat: A Long and Confusing Journey”. Paper presented at the Workshop on Adat Revivalism in Indonesia’s Democratic Transition, Batam Island, organized by Asia Research Institute, National University of Singapore, 26–27 March 2004. Morrell, E. A Visible Minority: Image and Identity amongst the Sa’dan Toraja. Victoria, Working Paper 112, Centre of Southeast Asian Studies, Monash Asia Institute. Australia: Monash University, 2001. ———. “How Many Degrees of Separation? Observations from South Sulawesi”. Antropologi Indonesia, Special Volume (2002): 33–43. Nobele, E.A.J. “Memorie van overgave betreffende de onder-afdeeling Makale”. Tijdschrift voor Indische Taal-, Land- en Volkenkunde 66 (1926): 1–143. 290

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Nooy-Palm, C.H.M. “Introduction to the Sa’dan Toraja People and their Country”. Archipel, no. 10 (1975): 53–91. ———. “Sa’dan Toraja”. In Insular Southeast Asia: Ethnographic Studies; Section 2: Java, Lesser Sundas and Celebes, edited by F.M. LeBar. Connecticut: New Haven, 1976. Nooy-Palm, H. The Sa’dan-Toraja: A Study of their Social Life and Religion. The Hague: Martinus Nijhoff, 1979. Pakan, P. “Orang Toraja: Identifikasi, Klasifikasi dan Lokasi”. Berita Antropologi 9, no. 32–33 (1977): 21–49. Pelras, C. “Patron-client Ties among the Bugis and Makassarese of South Sulawesi”. In Authority and Enterprise among the Peoples of South Sulawesi, edited by R. Tol, K. van Dijk, and G. Acciaioli. Leiden: KITLV Press, 2000. Plaisier, B. Over Bruggen en Grenzen. De Communicatie van het Evangelie in het Torajagebied (1913–1942). Zoetermeer: Uitgeverij Boekencentrum, 1993. Ramstedt, M. “The Hinduization of Local Traditions in South Sulawesi”. In Hinduism in Modern Indonesia: A Minority Religion between Local, National, and Global Interests, edited by M. Ramstedt. London: RoutledgeCurzon, 2004. Roth, D. “A National Crisis in Regional Perspective: Some Observations on Luwu District, South Sulawesi, Indonesia”. In Riding a Tiger: Dilemmas of Integration and Decentralization in Indonesia, edited by C. Holtzappel, M. Sanders, and M. Titus. Amsterdam: Rozenberg Publishers, 2002. ———. Ambition, Regulation and Reality: Complex Use of Land and Water Resources in Luwu, South Sulawesi, Indonesia. Ph.D. dissertation. Wageningen: Wageningen University, 2003. ———. “From ‘Grooter Toradja’ to ‘Toraja Raya’: Emergent Ethnic Identity, Expansionism, and Political Struggle in Tana Toraja and Luwu, South Sulawesi”. In Hinduism in Modern Indonesia: A Minority Religion between Local, National, and Global Interests, edited by M. Ramstedt. London: RoutledgeCurzon, 2004. Ruibing, A. Concept van een beknopte algemene analyse politieke situatie Landschap Tanah Toradja. Losse aanwinsten Indische bestuursambtenaren no. 10: 22. Den Haag: Algemeen Rijksarchief, 1948a. ———. Concept van een beknopte algemene analyse politieke situatie Landschap Tanah Toradja. Den Haag: Algemeen Rijksarchief Losse aanwinsten Indische bestuursambtenaren no. 10: 19, 1948b. Sandarupa, Stanislaus. Life and Death in Toraja. Ujung Pandang: PT Torindo, 1996. Sandarupa, S. Life and Death in Toraja. Makassar: Computer Ujung Pandang, 2000. Schrauwers, Albert. “In Whose Image? Religious Rationalization and the Ethnic Identity of the To Pamona of Central Sulawesi”. Unpublished Ph.D. thesis, Department of Anthropology, University of Toronto, 1995. ———. “Returning to the ‘Origin’: Church and the State in the Ethnographies of the ‘To Pamona’ ”. In Southeast Asian Identities: Culture and the Politics of 291

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Representation in Indonesia, Malaysia, Singapore, and Thailand, edited by J.S. Kahn. Singapore and London: Institute of Southeast Asian Studies, 1998. Seinstra, G.R. Memorie van overgave betreffende de onderafdeelingen Makale en Rantepao van den aftredenden Controleur bij het Binnenlandsch Bestuur. Bestuursperiode 18 Juli 1935–1 Januari 1940. The Hague: Rijksarchief Den Haag, 1940. Simarmata, Rikardo. “Regional Autonomy and the Character of Local Government Laws and Regulations: New Pressures on the Environment and Indigenous Communities”. Paper presented at “The Commons in an Age of Globalisation”, the Ninth Conference of the International Association for the Study of Common Property, Victoria Falls, Zimbabwe, 17–21 June 2002. Suryadinata, L., E.N. Arifin, and A. Ananta. Indonesia’s Population: Ethnicity and Religion in a Changing Political Landscape. Singapore: Institute of Southeast Asian Studies (ISEAS), 2003. The, Liang Gie. Pembasahan tentang Per-undang2an Pemerintahan Daerah di Indonesia. Jogjakarta: Penerbit Karya, 1967. The, Liang Gie. Pembasahan tentang Per-undang2an Pemerintahan Daerah di Indonesia. Three volumes. Jogjakarta: Penerbit Karya, 1993. Tol, R., K. van Dijk, and G. Acciaioli, eds. Authority and Enterprise among the Peoples of South Sulawesi. Leiden: KITLV Press, 2000. Veen, H. van der. “Nota betreffende de grenzen van de Sa’dansche taalgroep en het haar aanverwante taalgebied”. In Tijdschrift Batavia’s Genootschap voor Taal-, Land- en Volkenkunde (TBG) 69 (1929): 50–97. Volkman, T.A. Feasts of Honor: Ritual ands Change in the Toraja Highlands. Urbana and Chicago: University of Illinois Press, 1985. Volkman, T.A. and Caldwell, eds. Sulawesi: Islands Crossroads of Indonesia. Lincolnwood: Passport Books, 1991. Waterson, R. and T.A. Volkman. “Introducing Tana Toraja: Establishing a New Ethnic Identity”. In Sulawesi: The Celebes, edited by T.A. Volkman, I. Caldwell, and E. Oey. Singapore: Periplus, 2000.

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12 RECENTRALIZATION AND DECENTRALIZATION IN WEST SUMATRA Franz and Keebet von Benda-Beckmann

INTRODUCTION When in 1999, decentralization policies were being developed in post-Suharto Indonesia,1 West Sumatra was the first province that set out to restructure its administration. The region has received much attention for this, but it became particularly famous because it immediately used the opportunity provided by Law No. 22/1999 to reorganize village government. The territorial and administrative scale of village government was transformed from the rather small and purely administrative villages (desa) to the much larger nagari. The nagari had been the most important pre-colonial units of Minangkabau political organization and had served as the lowest unit of local government through colonial times and after independence. When the Law on Local Government of 1979 (that is, Law No. 5/1979) was implemented in Minangkabau in 1983, each nagari had been divided up into several much smaller desa. In 2000, the province “returned to the nagari” (kembali ke nagari). What has become known as “The Minangkabau way” of decentralization has also attracted much attention from outside West Sumatra. Going back to the nagari is understood by Minangkabau and other Indonesians as going back to older adat political traditions and as a revitalization of adat in general. Within Indonesia representatives of other Indonesian regions have 293

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initiated similar movements to revitalize older structures of village government. The international donor community such as the GTZ, USAID, and the UNDP Partnership for Governance has hailed the West Sumatra initiative as the most successful example of the new trend towards a decentralized government along traditional lines that is supposed to be more democratic, participatory and accountable (Asian Research Centre 2001; UNDP 2001). This chapter analyses this development in its wider historical context. It will be argued that decentralization is not new in West Sumatra. Periods of centralization have followed periods of decentralization in the past, but previous policies of decentralization were usually relatively limited in scope. In contrast to these earlier policies, the current decentralization means a more fundamental shift in authority from the central and provincial government to the districts. The chapter focuses on two inter-related contradictions that characterize the decentralization process in West Sumatra. The process is contradictory because top-down regulation, in which the centre enacts higher legislation to be followed by implementing regulations on ever descending and smaller levels of administration goes hand-in-hand with the dynamics of relatively autonomous local politics and regulation. The province of West Sumatra in a way pre-empted what would be possible under the Decentralization Laws of 1999, starting the return to the nagari before the laws of 1999 had been passed, and certainly before the implementing regulations of the centre on village government (such as Government Regulation No. 76/2001) had been enacted. Some districts on their part had their regulations of nagari government in place in early 2001, taking the initiative and leaving the province behind. The second contradiction lies in the fact that the process of decentralization is accompanied by processes of centralization at the lowest level. Districts have assumed tasks and competences that used to be held by sub-districts, though in practice the sub-districts have kept some competences. And the return to the nagari involves not only a geographical up-scaling from the smaller desa to the larger nagari. It also means that competences have moved from the desa to the nagari, which in effect meant a considerable centralization of village government. While the return to the nagari has been proclaimed as a return to adat, it has not abolished the ever shifting dualism of traditional, adat based village government and state administrative village organizations. We shall see to what extent the current nagari involves a return to a more authentic, precolonial form of village government. There appears to be a remarkable resemblance with the village government under the Suharto regime, while it differs markedly from the desa structure. We shall argue that the current 294

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structure of village administration only to a limited extent reinforces adat. Like its predecessors, it remains deeply dualistic in character. Finally, focusing on the lowest levels of state administration reveals the great diversity among and within districts both in the organizational set up of the new villages and in the level of village autonomy and the relation between village, sub-district and district. We shall trace some of the reasons for this diversity, and discuss the regional and local differences in endowment with resources and the tensions between villages and districts about the division of competences and authority. The history of the nagari as adat and as administrative unit in the indirect rule system of the Dutch, and the administrative system of the Republic of Indonesia will first be summarized. Then follows a discussion of how the 1983 implementation of the Local Government Law of 1979 changed Minangkabau village government. The last part will focus on the ongoing reform of local government and its recentralizing dimensions and the problems this has generated internally and in relation to district and subdistricts and towns. Some conclusions will be drawn about the role of adat and the continued dualism in village government, on the problematic relationships between districts and villages, and on the variety in the degree of village autonomy.

THE MINANGKABAU NAGARI The reconstruction of the pre-colonial nagari is hampered by a scarcity of literature. Given early reports we have to assume considerable variation and political dynamics. When the Dutch conquered the region in the beginning of the nineteenth century and incorporated it in their colony, the nagari were the highest level of authority in the region, apart from some loosely structured federations and a defunct former Minangkabau kingdom which seems to have had little authority over villages.2 The nagari were often referred to as village republics, and their relative autonomy from the earlier Minangkabau kingdom or village federations was emphasized. This autonomy also was expressed in the saying “adat salingka nagari”: While sharing the general principles of Minangkabau adat, each nagari in principle has its own adat and is not under anyone else’s adat and control. Not every settlement was a fullfledged nagari, according to Minangkabau constitutional adat. The region was gradually settled over a period of centuries, during which settlements evolved from informal settlements into increasingly structured socio-political units, from taratak, to dusun, to a more structured koto and ultimately to the highest level of the nagari. For a settlement to become a nagari, several 295

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requirements had to be fulfilled. A major requirement was that at least four matriclans or clan associations (suku) were living in the settlement. These localized Minangkabau-wide matriclans were usually sub-divided into a larger number of major matrilineages headed by a titled lineage head (panghulu). The named suku were exogamous units; the nagari were strictly endogamous. To become a nagari, a settlement also had to have a common mosque, a market, a graveyard, and common village territory. The village territory (ulayat) typically extended far beyond the borders of the settled area and comprised forest and grazing lands. Some nagari were formed on the basis of one major central settlement, a fortified koto. Other nagari were associations of several koto.3 The koto were political communities before the nagari was founded and formed the core from which settlements further expanded. Each koto was thus a nagari in chrysalis state and usually already had the genealogical and political division of four suku required for nagari formation. The nagari in its basic structure thus was an association of matriclans and their matrilineages and settlements under a specific constitutional status. In their internal affairs, including property affairs, the matriclans were largely autonomous. The nagari was headed by the council of all lineage heads (panghulu), or by the heads of the four main matriclans. The Minangkabau distinguished two major systems of socio-political organization, the lareh Bodi-Caniago and the lareh Koto-Piliang. Bodi-Caniago and Koto-Piliang stood for different political systems, which originally may have been political associations. In the Bodi-Caniago type, the council of all the lineage heads of the founding matrilineages formed the village government and highest judicial authority on the basis of equal status. In the Koto-Piliang system, a supreme council of four clan heads stood hierarchically above the council of lineage heads.4 In the course of time, many nagari adopted constitutions that combined elements of both political traditions. Authority and decision-making processes were dominated by two major principles. One was the principle of consensual decision-making, the reaching of consensus after a process of common deliberation (musyawarah untuk mupakat or sakato). The other one was more hierarchical and stressed the line of authority between clan and lineage heads and their lineage members (K. v. Benda-Beckmann 1984). It is because of these central principles of decision-making that Minangkabau indigenous democracy has become famous. Due to population pressure in the original settlement area, people would set out to establish new temporary or more permanent settlements in the border regions of the nagari’s territory (ulayat). These new settlements remained at first within the existing social and political hierarchies. In the course of time, some of these settlements could become more permanent and try to obtain some degree of independence from their original nagari. Independence

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could be granted if certain conditions were fulfilled and the new settlement then would form its own nagari, though it often remained under some supervision of their “mother nagari” (induek nagari) and its panghulu council. The clan and lineage structure also formed the basis for persons or groups who wanted to join the nagari at a later stage. Though the clans were localized in specific nagari, they were part of Minangkabau-wide clans. When people from other regions or nagari wished to settle on the village territory of an existing nagari they had to become part of one of the lineages. If their clan was represented in the new nagari, the migrants would be incorporated into a matrilineage of the same clan; otherwise they would become part of a (putatively) related clan. They would receive land controlled by their patron lineage or from the village as a whole, and they would from then on stand in a patron-client relationship with those who had given them land. In many nagari, there were also small numbers of slaves. After the abolition of slavery in the 1860s, descendants of former slaves were incorporated into nagari but remained dependent on their original masters. They were given land to work but had a more pronounced inferior social and political status within the village. While the descendants of the lineages who originally founded the nagari live in the nagari centre and had the best areas of irrigated rice land, latecomers and descendants of former slaves were often given land in the more marginal and remote areas of the village such as the slopes higher up the mountains or in border zones with neighbouring nagari. While the history of incorporation may have gone back to the first latecomers coming in 250 years ago, their inferior status remained. These old ties of dependency are a main bone of contention in the current return to the nagari.5 Many nagari, though by no means all, thus developed a complex genealogical, geographical and political internal structure that belies the stereotype notion of the nagari as a close-knit community. Many nagari had complex geographical structures. Each nagari is divided into jorong or village wards.6 Some nagari have also territorial divisions centred on mosques (sidang) and neighbourhoods (buek), with different jurisdictions in property and inheritance matters, common village adat issues and neighbourhood problems. Within the nagari, many social and political communities could coexist, such as the genealogical units from the small matrilineal segment up to the suku, and territorial units such as the koto, the buek, the jorong, and the sidang, sometimes overlapping, and with specific administrative and political tasks.7 There certainly is more complexity than the frequent stereotype representations of the nagari suggest with their strong emphasis on the unity of the nagari in its autonomous external relationships. The far-stretching political autonomy accounts for the considerable variation of internal structures among nagari, each with its own specific

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history of settlement. Attempts to change the nagari structure always have had implications for their external relationships towards larger political and administrative structures, as well as internally for their relationships among their composite units. Attitudes of Minangkabau towards such changes therefore always have to be understood both in relation to internal and external factors. Some of the recent resistance towards a return to the nagari is not so much resistance towards more external autonomy, but primarily towards a return to old and often stratified internal relationships.

THE NAGARI UNDER COLONIAL GOVERNMENT In the beginning of the nineteenth century the Dutch intervened in a civilreligious war between orthodox Muslims and more traditionalist adat proponents, the so-called Padri War, and gradually incorporated West Sumatra into their colonial empire. In 1823 the first resident of the Padang en Onderhoorigheden was appointed. The Dutch suppressed the Islamic political aspirations of the orthodox Islamic Padri and strongly supported the traditionalist adat parties. This was expressed, among other things, in the incorporation of the nagari as the lowest level of colonial administration, a nagari stripped of its Islamic characteristics, while adat features were emphasized. The nagari, however, became embedded in a wider political regional and national organization.

The Administrative Structure8 During the colonial period, the region was repeatedly restructured by which both status and size of the units of administration changed. The residentschap was upgraded in 1837 with a gouverneur, consisting of two residentschapen with a resident and a number of afdeelingen (departments) and onderafdeelingen (sub-departments) headed by a controleur. The region expanded up to Tapanuli, which was separated from Sumatra’s Westkust only in 1905 (Asnan 2003, p. 78). As there was virtually no stable political structure above the level of the nagari, the higher colonial administration followed the pattern developed in Java and the rest of the colony. A dual structure with a hierarchy of European administration alongside an indigenous hierarchy was introduced. But in contrast to Java, in Minangkabau there was no indigenous administrative structure available beyond the village. Thus, the newly created so-called indigenous administration consisted for the most part of totally new positions that had not even a remote semblance with an indigenous structure. The inlandsch bestuur (indigenous government) consisted of a Minangkabau hoofdregent (main regent) for each hoofdafdeeling (main department), and a

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regent for each afdeeling (department). Below this level the Dutch administration created administrative units consisting of several nagari — the laras. The laras were named after the Minangkabau term lareh, comprising several associated nagari sharing the same adat (Westenenk 1918; Leyds 1926). Starting during the Padri War, the Dutch used these laras as intermediate administrative units and appointed lara heads (Tuangku Laras). While the laras often coincided with the older adat federations, the new administrative structures and their heads were never fully accepted as an “indigenous” adat institution by the Minangkabau themselves. Officially abolished in 1907, the laras continued to exist until 1913. They were then replaced with larger districten with a districtshoofd or demang. As Leyds (1926, p. 415) lamented, these new districts often cross-cut the older laras boundaries. The Domain Declaration of 1874 was another important intervention in local political and economic organization. It drastically curbed the authority of village councils and clan heads over the uncultivated village land (ulayat) by declaring them “wastelands” (woeste gronden) and therefore to become part of the state’s domain. This brought most of the forest and grazing lands that formed part of the nagari territory officially under state control, though this status has been contested until today (see F. and K. von Benda-Beckmann 2004). Moreover, the colonial administration in 1875 also ceased to recognize the role for the KAN for village justice.9 During the nineteenth century the administration became increasingly centralized and the indigenous institutions were forged into a colonial mould. The new social policies of the early twentieth century elicited a reconsideration of the colonial administration which led to a first major decentralization policy in the Dutch colonial history. In 1903 the Dutch Tweede Kamer passed a law on decentralization which gave the regions more legislative authority (Asnan 2003, p. 125). To this end, representative councils (raden) were installed at each of the administrative levels; in Sumatra’s Westkust it was the Minangkabau Raad, which had no relationship to traditional forms of Minangkabau government. Thus the only attempt to build upon indigenous structures that surpassed the level of the nagari, ended in the early twentieth century. Only the lowest levels of colonial administration, the nagari, had a real indigenous basis. Nagari government, however, was increasingly affected and changed by the colonial administration. Despite their initial promise to leave the internal nagari structure intact, adat leadership and nagari government were substantially reshaped in several ways. To deal with a nagari government with a great number of clan heads was a nightmare for the colonial government which quickly tried to streamline the village structure by introducing a headpanghulu as village head. In the 1880s, it also fixed the number of recognized lineage heads. This did not stop the local population from increasing the 299

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number of lineage heads. When a lineage became too large, it was officially divided and a new panghulu-ship created for the new branch. The effect was that in most villages there were both unrecognized lineage heads and lineage heads recognized by the colonial administration. During the period of forced cultivation, the Dutch also created a new type of lineage head, responsible for the cultivation and delivery of coffee (panghulu rodi). Thus, the village internal structure became more centralized, allowing the colonial government to deal with a village head with clearly defined authority, instead of the multiheaded village council of all panghulu. That the Dutch based their local indirect rule on the adat nagari government by clan and lineage heads does not mean that they appreciated this. On the contrary, they found it highly irritating and tried to change it.10 In 1915, the colonial administration reconstituted councils of lineage heads as nagari councils. While these at first consisted of (recognized) lineage heads only, the nagari council regulation of 1918, formally recognized the inseparable unity of leadership by the adat lineage heads (ninik mamak), religious officials (alim ulama) and a third group, the cerdik pandai, usually translated as “intelligentsia” or “intellectuals”. With these measures, the dualistic government structure of the village was firmly established. Though minor adjustments followed repeatedly, this dualism continues until the very present. On the one hand, there was the state-imposed and state-regulated nagari government with a head panghulu and a village council, Kerapatan Nagari (KN), which included religious leaders and intellectuals and some, but never all, adat leaders, who usually dominated the council (Manan 1984). On the other hand, there was nagari government “according to adat”, with at the top the council of lineage heads, called Council of Panghulu or Village Adat Council (Kerapatan Adat Nagari or KAN).11 These KAN were not officially recognized by the colonial government as part of the village government. But their functioning was known and widely appreciated by the colonial administration, especially in the domain of dispute management. In the 1930s it had become regular practice of the Dutch colonial courts to demand that lineage-internal disputes be decided in the KAN before coming to court. In 1935, a kind of village justice was officially resuscitated by the colonial government.

THE NAGARI AFTER INDEPENDENCE The Japanese administration was, apart from the very early period of military rule, more or less organized along the same lines as the Dutch system, including the dualism of parallel Japanese and an indigenous administration, which adopted Japanese terminology though (Asnan 2003, pp. 139ff ).12

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The Indonesian Constitution of 1945 abolished the dual administrative system except for the village level. It divided the country initially into eight provinces. The residency of West Sumatra was part of the province of Sumatra. In 1946, the province Sumatra was divided into three provinces. Minangkabau became the central and dominant region in the province of Middle Sumatra, with Bukittinggi as its capital. In general, the administrative system of the Dutch and Japanese period was continued. During this period there was once again discussion about decentralization (Asnan 2003, p. 161). Urban centres requested more autonomy and a similar status as districts (kabupaten). As a result of the PRRI insurgency of 1957, the province Middle Sumatra was divided up again and West Sumatra became a separate province by UU Darurat No. 19/1957. After that, the state administration was increasingly centralized. Ministerial Decree No. 8/1970 established the four-tiered structure with propinsi (province), kabupaten (district), kecamatan (sub-district) and nagari (village). Except for the reorganization of the village structure (see below), this structure stayed in place until the most recent Decentralization Law No. 22/1999. The latter severely reduced the power of the province, focused most decentralized power at the level of the kabupaten, and reduced the camat to a mere extension of the bupati. The leadership structure of the nagari changed in the period leading to independence and during the early times of the republic. During the struggle for independence, party politics and representative democracy gained in importance. During the Japanese Occupation, a new tripartite division of village government emerged: adat leaders, religious officials and nationalists (Manan 1984, p. 219). After independence, the composition of the village councils was changed again. Now, there were to be five different categories: adat elders, religious officials, one village national committee of 100 men, one of 100 women, and representatives of political parties. After the PRRI rebellion had been subdued, village government was changed so as to bring it into line with Sukarno’s policy of Guided Democracy. Representation and leadership became based on ten kinds of functional groups: adat elders, religious officials, the national front, village social development, co-operatives, women, farmers and fishermen, workers, youth, and veterans (Manan 1984, p. 232). Sukarno had introduced this system of functional groups as a means of mass mobilization; it was later adopted by Suharto and transformed into the well-oiled system of political patronage and tight political control over the civil service that characterized his regime. Under Suharto, the first “New Order” (Orde Baru) regulations stipulated elections by popular vote. But in the years to come, the village constitutions moved back to the earlier colonial model. Regulation of Local Government 301

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of 1974, with a village mayor and a legislative council of adat elders, religious officials and intellectuals, restored the status of the traditional village leadership.13 In this period, the KAN was once more not officially recognized. However, its existence was acknowledged by the provision that the members of the KN should be recruited from the KAN. The establishment in 1966 of a Minangkabau-wide association of Village Adat Councils (Lembaga Kerapatan Adat Alam Minangkabau, LKAAM) was a further indication that the government took the KAN seriously. This move “back to adat” however did not do away with the political dualism in Minangkabau nagari, which was observed to be quite marked in a Minangkabau nagari in 1974 and 1975. While a number of panghulu formed the core of the KN, the KN and the KAN were quite different institutions and usually the Wali Nagari and the KN were opposing the KAN and vice versa.14

THE INTRODUCTION OF THE DESA In 1974, the central government started to homogenize the diverse regulations on local government. Under the Law on Local Government of 1979 the Javanese model of the village (desa) as the lowest local government unit became standard throughout Indonesia. In West Sumatra, this law was effectively implemented in 1983 by transforming the jorong into desa. Besides the pressure of the central government to implement Law No. 5/1979, the main reason for adopting this un-Minangkabau model was financial. The new law allocated a fixed yearly development grant (bandes) to each village, irrespective of its size or population. In theory the nagari could have simply been converted into a desa. However, as the nagari were substantially larger than villages elsewhere in Indonesia, West Sumatra would financially have been severely disadvantaged had each nagari simply been converted into a desa. Instead of redefining the nagari as desa, the jorong were converted into desa.15 The 543 nagari in West Sumatra (including the islands of Mentawai with their very distinct social organization) were thus divided up into 3,516 desa. This multiplied the amount of funds from the central government by a factor of seven. It soon became clear that many desa were too small to be viable administrative units. In 1988/89, the number of desa was therefore reduced by combining adjacent desa, reducing their numbers to 1,700.16 Nagari Candung Kota Lawas, where research was carried out in the mid1970s, was first divided into eleven desa which later were recombined into six (see Map 12.1).17 We were told that this later recombination of desa did not affect the total amount of development funds. The financial structure that had been the 302

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MAP 12.1 Nagari Candung Kota Lawas

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