Indonesia has population more than 200 million people and is comprised of 13.667 islands-large and small-6044 of which are populated by numerous ethnic groups. It is a heterogeneous society. Each ethnic group, residing in a specific area of the archipelago has its own characteristic, language, tradition, customs, culture and even law. Each province in Indonesia has numerous ethnic groups, for example, the province of South Sulawesi contains a number of distinct ethnic categories-Buginese, Makassarese, Torajan, and others-and residents of the province are highly aware of these categories and the cultural differences across them.
After more than 30 years of centralization during New Order Administration, Indonesia made a break with the past in 1999, with a set of radical decentralization reforms. These reforms wrought significant changes in central regional relations and in local political life. After a few years of implementation, it became evident that some aspects of decentralization were not unfolding as expected, and that some safeguards had been neglected in the rush to enlarge regional autonomy. Revisions were made to the key laws concerned with regional government and its finances in 2004, and other legislation/regulations were introduced to renew and expand the framework for regional governance. This process is still ongoing and has been dubbed a period of “consolidation” by the Government of Indonesia.
Two main laws established decentralization in Indonesia. Law 22 on Regional Government of 1999 eliminated hierarchical relationships between cities and districts and higher levels of government, granting the former autonomy and broad responsibilities. This legislation has been revised as Law 32 of 2004, which allows for the direct election of sub-national leaders beginning in 2005. Law 25 on Fiscal Balance of 1999 modified the intergovernmental transfer system and provided for limited local revenue authority. This law has been updated as Law 33 of 2004, which further defines aspects of the intergovernmental fiscal system. Constitutional amendments passed in 2000 consolidated certain decentralization reforms and make it more difficult for the National Assembly and the president to substantially reverse them.
Significant strides in democratic decentralization over the last five years have been made when reforms were first felt on the ground. It is widely acknowledged that Indonesia made a bold break from its centralized past through political reforms in regional elections, capped lately by direct elections of regional heads; devolution of key public services to the district/city level; the reassignment of 2.5 million staff; and a substantial transfer of funds to regional government. These changes have empowered the regional government, providing the discretion and means to pursue service delivery and development that are more attuned to local needs and preferences. Study on recent decentralization reforms acknowledges the progress made to date and takes stock of actions and reforms still required to meet the decentralization agenda that Indonesia has set for itself.
Basically, two arguments warrant decentralization, democratization of government and government manageability (Smith, 1992). There are fours important points for the success of decentralization: attainment of allocation efficiency in the face of different local preferences for local public goods; improvement to government competitiveness; realization of good governance; and enhancement of the legitimacy and sustainability of heterogeneous national states (Litvack, Ahmad & Bird, 1998) They all contribute to reducing the economic and social costs of a central government unable to respond to changes in society and enhancing the efficiency of state administration through the delegation of authority to local governments.
The major problem of decentralization implementation is that it is not always work as it is supposed to be. It is important to quote a critical comment by Mawhood on decentralization experiences (Mawhood, 1993):
“Most of is-and most governments-like the idea of decentralization. It suggest the hope of cracking open the blockages of an inert central bureaucracy, curing managerial constipation, giving more direct access for the people to the government and the government to the people, stimulating the whole nation to participate in national development plans. But what do we often seen practice? Experiments with local government that end in chaos and bankruptcy; ‘decentralized’ structures that only act as a more effective tool for centralizing the power; Regional and district committees in which government officials make decisions while the local representatives sit silent; village council where local people participate but have no resource to allocate”
The ambiguity of the concept as well as its application in wide variety of situations make it difficult to arrive at definite statements on the causes of success and failure of the decentralization (Frerks and Otto, 1996). However, decentralization concept is more than a mere academic exercise; in fact, the failure to arrive at appropriate concept and perspective can have dramatic impacts on policy, public service provision, and citizen participation in developing countries. Indonesia could benefit tremendously by decentralization but only as long as it is well planned, well managed, and well timed.
2. Decentralization effect in Indonesia: Sustaining Local Economic Development
Many countries are decentralizing because they believe this can help stimulate economic growth or reduce rural poverty. Some countries see it as a way to off load expensive responsibilities onto lower level governments. Thus, decentralization is seen as a solution to many different kinds of problem (Manor, 1999).
As a remedy for the perceived poor performance of overly centralized governments in developing countries, numerous decentralization reforms were initiated by both national governments and multinational agencies. Particular attention has been paid to the devolution of public service responsibilities to regional and local governments in order to improve the quality of local services. Strong, competent regional governments and greater autonomy are fundamental requirement for a country as diverse as Indonesia. The main aim of decentralization and regional autonomy is to bring the governments closer to their constituents so that government services can be delivered more effectively and efficiently. This is based on the assumption that district and municipal governments have a better understanding of the needs and aspirations of their communities than the central government. Although there is considerable potential for district and municipal governments to be more responsive to community aspirations, before that can occur political parties and civil society groups in the regions need to be strengthened to ensure that the processes of good government can be properly established.
Some of the changes that need to be made for the transformation of Indonesia from a centralized autocracy to a decentralized democracy have been implemented quite quickly (for example, by holding free elections and passing laws that transfer central government functions to the regions). However, implementation of decentralization process in Indonesia was not without problem, despite its success story of promoting democracy and community welfare; many problems arose during its implementation.
The impact of government decentralization on economic performance and growth is a hotly contested issue even in Indonesia. Decentralization in Indonesia makes regional governments responsible for their economic development planning, and for including the citizens in decision-making. It is clear that some regional governments have taken to this with enthusiasm. But they still have limited capacity to plan for and meet the requirements of sustainable development.
The size of the General Allocation Tax provided for the regions is relatively large. But after central government employees and more responsibilities for government services have been transferred down to the regions, most of the allocated budget has been sufficient only to fund routine local government expenditure. This situation has boosted the desire of local governments to increase their local revenue, even though in the long term (consciously or unconsciously) such endeavors will tend to create a negative impact on the local business climate. Regional governments, especially at district and municipality level, are aware that they are still restricted in their capacity to implement regional autonomy. Since local governments will still continue to depend on the central government, especially for budgetary assistance, the regions have been trying to increase their income through their power to raise local revenue based on Law No. 18, 1997 (later revised as Law No. 34, 2000, “Local Taxes and Levies”). The increased enthusiasm of local governments to seek out new sources of revenue has resulted in community concern, especially in business circles and among NGOs.
This fiscal strain above makes some local government have difficulty to sustain economic development in their regions. Most of local budget share is used for infrastructure development and for local government daily expenditure in the expense of local services and welfare. This condition is worsened in new established local governments; there is an effect on the degradation of community welfare in some of new established local government (KDP News, 9 October 2006). Consequently some new established local government might face bankruptcy in near future.
A large body of empirical work on the economic development of local governments in many different countries is beginning to emerge. This literature attempts to provide measures for achieving the desired economic development and to estimate its important determinants. These include the empowerment of local community economy as well as the formal design of decentralization. In case of Indonesia decentralization reform relating to the improvement of local economic development; I believe that one of the measures as the proposed reform is the promotion on local amalgamation as been shown by Japanese Local Government.
3. Local Amalgamation in Japan: Key Features
Amalgamations are not solely a phenomenon of the west, nor of contemporary Japan. Even though the decentralization reform officially started in the nineties, local amalgamation has been occurred in Japan before that. As Mabuchi points out (2001; see also Nakanishi 2002), there have been two significant periods of amalgamation in Japan’s modern history. From 1883 to 1898, the number of municipalities decreased from 71,497 to 14,289 as a direct result of municipal amalgamation, justified under the reasoning of increasing the scale and relevance of the resulting respective autonomous governing bodies. The first is called Meiji Amalgamation. The second drastic change took place from 1950 to 1960. During this period, the total number of municipalities decreased from 10,443 to 3,526. The second major amalgamation is called Showa Amalgamation.
The motivation behind each amalgamation is different. The great Meiji Amalgamation have been motivated principally by the desire to use municipalities more effectively as an instrument of state power and policy and to modernize Japanese State. The Showa Amalgamation was motivated largely by the need to ensure sufficient capacity to deliver newly devolved and important local services, more importantly to strengthen local autonomy (Iqbal, 2001; Mabuchi, 2001).
After 1961, further amalgamations had a more pronounced bias in favor of economic development; infrastructure programs and subsidies targeted at larger units were used to coax small municipalities to amalgamate. In many cases, however, post 1960 amalgamations were voluntary. Residents voted with their feet by leaving small villages to go and live in adjoining large cities; in cases where the outflow to neighboring cities was large, villages voluntarily apply to be annexed to these cities. In this sense many of the more recent amalgamations have been amalgamations from below, advocated by mayors and village assemblies rather than forced by prefecture or national authorities (Iqbal, 2001). Mabuchi also notes this reason (Mabuchi, 2001) that, “In short, we can conclude that the amalgamations after 1961 were oriented toward economic development rather than administrative efficiency”
The process of municipal amalgamation, as outlined by Nakanishi (2002; see also Ikegami 2003) consists of two major stages, each of which include multiple internal steps. The first stage consists of interested cities, towns and villages forming voluntary assemblies, which initiate investigations and study of amalgamation. Closing out this first stage the assemblies undertake decisions based in legal statutes, the final of which is the decision to merge. The second stage, consisting of the application and official formation stage, includes the presentation of an official application, the decision of the prefecture governor accepting the application and the emergence of the amalgamated municipality.
Local government amalgamation in itself has purpose on promotion decentralization. As mentioned by Hirashima (2003), the purposes of the present municipal amalgamation in Japan are:
1. Promotion of Decentralization
2. Policy for aging
3. Policy for diversifying needs of citizens
4. Policy for expansion of residential area
5. Streamlining of municipal administration
It can be argued that amalgamations have contributed to broad based economic development. By banding together, several villages were able to obtain various services that they probably could not have obtained independently. Thus, smaller, more remote villages were provided access to services such as secondary schools through amalgamation; it is unlikely that similar access could have been achieved had they remained completely autonomous (Iqbal, 2001). Beside the contributed to economic development, amalgamation is proved to have positive impact on local government efficiency in delivering public services or in other word administrative efficiency (Mabuchi, 2001). It certainly true if Joumard (2004) said that local amalgamation in Japan is the strategy to reach an optimum functional size of local government.
To enhance the ability of local authorities, in order that they can administer their area with efficiency, comprehensiveness, and originality, the Decentralization Promotion Commission recommended the measures of Restructuring of Local Governments’ Administrative Structures. One of the focuses in the measures of Restructuring Local Government Administrative Structures is the promotion of further amalgamation of municipalities (Kamiko, 1997). In this regard Central Government encourages local amalgamation and promise to give some fund incentives for the local amalgamation. Among financial incentives for amalgamation, one might note certain adjustments in the application of the Local Allocation Tax to amalgamated municipalities and financial incentives related to local bonds (Mabuchi, 2001)
However, even we have discussed that the Japan Central Government promotes local amalgamation; voluntary amalgamation has been occurred in the first place. Pressure to achieve economic development and to provide public services to local community has become the powerful reason in merger together.
4. Conclusion: Learning from Japan
There are high expectations among policymakers and enlightened citizens for an increased public role in development and governance. The citizens are looking forward to genuinely taking part in the decision making process on matters that concern their welfare. The basic elements of good governance that were absent in Indonesia during centralized system are to be actualized through the decentralization process. However, the expectation is not fully achieved in the process. Some of local government fails to achieve the economic development since the implementation of decentralization and depend on central government allocation fund in performing the function of local government.
Furthermore, the condition is worsened by the failure of local expansion in some of the regions. Local expansion that initially has purpose on the improvement of local economic development is not always success. Rather than make the local welfare improve, local expansion oppositely makes the local welfare worse.
The promotion of local amalgamation as been experienced by Japan will be the key role to improve the quality of decentralization process in Indonesia. By banding together, I believe that the failed local government will gain their strength and efficiently make the progress in local economic development improvement. The promotion of local amalgamation is not so difficult considering that the legal framework for the local amalgamation has been provided in Law No. 32/2004 on Decentralization.
Frerks, G and Otto J.M. 1996. Decentralization and development: A review of development administration and literature In Commemoration of Dr Haile K. Asmerom. Van Vollenhoven Institute for Law and Administration in Non Western Countries, Research Report 96/2.
Hirashima, Akihide. 2004. Decentralization in Japan. Paper presented in KEIO-UNU-JFIR Panel Meeting Economic Development and Human Security on February13th, 2004
Ikegami, Hiromichi. 2003. Shichoson gappei: kore dake no gimon (Municipal Mergers: Only These Questions). Tokyo: Jichitai Kenkyusha.
Iqbal, Farrukh. 2001. Evolution and Salient Characteristics of the Japanese Local Government System. World Bank Institute Working Paper: Washington. DC.
Joumard, Isabelle. 2004. Getting the Most Out of Decentralization. Available at http://www.esri.go.jp/jp/prj-rc/macro/macro15/08-1-P.pdf
Kamiko, Akio. 1997. Asian Review of Public Administration, Vol. VIX, No. 1 (January-June 1997)
Kecamatan Development Program (KDP) News, 9 October 2006. “Pemekaran Wilayah Turunkan Kesejahteraan” (Local Expansion Decrease Community Welfare. Available at: http://www.kdp.or.id/ppk/index.php?option=com_content&task=view&id=398&Itemid=107
Litvak, J., Ahmad, J., & Bird, R. 1998. Rethinking Decentralization in Developing Countries. The World Bank: Washington, D.C.
Mawhood, Philip. 1993. “Decentralization: the Concept and the Practice”. In: Ph. Mawhood, Local Government and the Third World: Experience of Decentralization in Tropical Africa. 2nd Edition. Africa Institute of South Africa.
Mabuchi, Masaru. 2001. Municipal Amalgamation in Japan. World Bank Institute Working Paper: Washington. DC.
Manor, James. 1999. The Political Economy of Democratic Decentralization. Washington. DC: The World Bank.
Nakanishi, Hiroyuki. 2002. Shichoson gappei: machi no shorai wa jumin ga kimeru (Municipal Mergers: Residents to Decide the Future of our Cities). Tokyo: Jichitai Kenkyusha.
Smith, B.C. 1992. Progress in Development Administration. Chicester: John Wiley & Sons. Ltd.