Indonesia is often described as having undergone a “big bang” decentralisation process. This view points to the unfinished agenda of Indonesia’s decentralisation architecture. But it hides more than it reveals. In fact, decentralisation was but a single act in the unfolding drama of Indonesia’s systemic transition.
Within a decade, this transition has brought about a series of reforms spread across an array of governing institutions. Indonesia has transformed its electoral system and the way political parties function, amended its constitution, instituted a directly elected president and established a range of institutions including an independent central bank, a central audit commission, a constitutional court, a supreme court and an anti-corruption agency. The driving issues of decentralisation in its first decade were both administrative and procedural: establishing regional government offices, civil servant transfers, rules governing payments and incentives for such transfers, as well as criteria governing revenue collection. The major challenge facing the second decade of decentralisation is ensuring that regional governments not only operates smoothly with respect to the central government, but also address Indonesia’s development needs.
Direct elections and democratic pressure will force the decentralised government to raise the quality of economic growth. The government must ensure income equality, social inclusion, food security, physical safety, employment and housing opportunities, and access to affordable health and education. Indeed, these are all reasons why decentralisation was initially adopted. However, structural problems lurk in the background. Principal among these is the unrelenting growth of the urban population and the emergence of mega-cities. These bring not only challenges of delivering high quality public services, but also concentrate resources and skills in urban centres. They also change the political map and challenge the existing structure of decentralisation, if only by a proliferation of “special autonomy” provinces such as DKI Jakarta or Yogyakarta.
Rapid economic development, as well as urban population expansion, has also changed the growth elasticity of employment and poverty. This means that Indonesia will have to grow at a faster rate to generate the same level of employment as it did before the 1998 economic crisis. The same problem is underlying the country’s continued efforts at poverty reduction.
The above concerns, borne out by evidence of rising inequality in Indonesia and high inequality in India and China, has helped prompt the recent presidential decision to adopt the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) as the key to both inter-island connectivity and investment and economic growth acceleration.
The concept of developing economic corridors established by the MP3EI is embedded in the latest draft of the Mid-Term Economic Plan, where the regional priorities are listed as Sumatra, Java-Bali, Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua.
The policy issues of the future therefore lie in finding solutions to a new array of challenges: promoting infrastructure investment through public-private partnerships, transforming infrastructure corridors into economic centres, accelerating the growth of human capital through skill development and supporting innovation-friendly institutions, mitigating the impact of climate change, green building research, as well as looking to establish technology and trade partnerships with other countries in the region and beyond.
While there is still much work to do, we are already seeing positive outcomes. Earlier concerns that strong provincial governments might become centres of rebellion have been largely dispelled by the conclusion of peace in Aceh, and the gradual receding of social conflict in other parts of Indonesia.
Furthermore, new regulatory institutions such as irrigation boards and professional quality assurance agencies will benefit from decentralised decision making. The above is just a taste of the shifting agenda of Indonesia’s “second wave” of decentralisation.
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