ABSTRACT
Because Soeharto’s authoritarian New Order regime (1966-98) was highly centralized, political observers focused their attention almost exclusively on the political centre, where more than 70 per cent of the money of the national economy circulated. Developments in the regions, often depicted as a passive periphery, were by and large ignored. However, after the fall of President Soeharto the relationship between the centre and regions changed fundamentally. From 1999 onwards a transition from authoritarian rule to electoral democracy was accompanied by administrative decentralization. These changes did not come out of the blue nor were they unique for Indonesia. Since the
1980s centralized states across the world were seriously undermined by both neoliberalism and the fall of the Berlin Wall. In the western world a belief in the welfare state had given way to the acceptance of privatization while the end of the Cold War meant an end to the socialist state and the necessity to support authoritarian regimes in the so-called Third World. The assault on the centralized state was supported by an unlikely alliance of agencies including the World Bank, which believed that less state would result in more and better markets, and by NGO activists who considered the state as a repressive institution which had to be counterbalanced by democratic forces based in civil society. In Eastern Europe and throughout Africa processes of administrative decentralization resulted
in various degrees of regional autonomy. In Indonesia both regional autonomy and democracy were also at the heart of political change and were expected to enhance good governance and strengthen the role of civil society. This chapter aims to evaluate these optimistic expectations and investigate the extent to which local elites were able to capture and harness the local state.
Because Indonesia suffered seriously from the monetary crisis in Asia which haunted the region from 1997 onwards, it had to accept the terms under which the International Monetary Fund (IMF) was willing to provide a loan of US$43 billion. Decentralization was a key demand because the IMF wanted to dismantle the centralized authoritarian state and the obstacles to markets embedded in it. There were, however, also domestic motivations to move quickly towards regional autonomy. After Soeharto’s demise the ruling (state-sponsored) Golkar party had become the target of widespread criticism. This was, in particular, the case in Java where the
monetary crisis had a serious impact on living standards and the new political party of Megawati Sukarnoputri, PDI-P, appealing to popular sentiment, rapidly gained ground. Thus, in order to survive the 1999 elections Golkar had to consolidate its position in the so-called Outer Islands. Outside Java the effects of the crisis were less serious but resentment against Javanese domination was widespread. In order to harness these sentiments Golkar overnight turned into an enthusiastic supporter of decentralization (Schulte Nordholt and van Klinken 2007). Between April 1999 and January 2001 reforms aimed at regional autonomy were imple-
mented with remarkable speed and without major disturbances. Ironically, it was from the outset a top-down operation. The plan was designed by a small group of high-level bureaucrats who were trained in public administration at American universities and maintained close links with international agencies ideologically committed to decentralization. In April 1999 the national parliament, still populated with old New Order politicians, accepted Law 22/1999 on Regional Autonomy without much discussion, even though the regions had not been consulted. The centre itself had made an end to more than three decades of centralized rule (Schulte Nordholt and van Klinken 2007). Decentralization in Indonesia involved a process of administritive devolution, which involved
the actual transfer of extensive formal administrative and political authority to lower levels of government. From now on elected parliaments in provinces, districts and municipalities would choose their own administrator and decide their own budgets. Districts and municipalities were primarily responsible for a wide range of administrative tasks. Strictly speaking, the central government was only responsible for national security and defence, foreign policy, fiscal and monetary matters, macroeconomic policy, justice and religion. Districts and municipalities were responsible for infrastructure, healthcare, trade, agriculture, industry, investment, environmental and land issues, education and culture.1 Because the new autonomy was located at the district level, the power of provinces, a larger administrative unit, was dismantled, apparently to exclude the possibility of separatism based on various ethnic or historical allegiances. Yet regional autonomy was not accompanied by the rise of local political parties. The law on
political parties from that same year allowed only national parties to participate in the election, which initially gave national party bosses a considerable say in regional affairs. Seen from this perspective, decentralization was a divide-and-rule strategy, permitting administrative fragmentation, but guaranteeing ultimate control by the centre. While Law 22/1999 was drafted by the Ministry of Interior, the accompanying Revenue
Sharing Law (25/1999) was made by the Ministry of Finance and revealed the extent to which regional autonomy would still depend on the centre. The law stipulated that 25 per cent of the net domestic revenue would be channelled to the regions, 90 per cent of which had to be allocated to districts and municipalities. This implied that the central state would remain in control of 75 per cent of the state revenues. The central government maintained its grip on 80 per cent of the income tax, the value-added tax, import and export duties, and foreign aid. Budgets of districts and municipalities consisted of a lump sum (the so-called Dana Alokasi
Umum, DAU) which accounted on average for 80 per cent of the total revenue at the district level. Apart from these funds the government could allocate special funds, which accounted for 10 per cent of the said DAU. Regions were allowed to raise their own income in the form of special taxation but these
remained on the whole minor revenue sources. Only resource-rich regions profited considerably from the new law because they were allowed to keep 15 per cent of oil, 30 per cent of gas and 80 per cent of logging, mining and fishing revenues. This also implies that the central state kept 85 per cent of the oil and 70 per cent of the gas revenues. Only a few districts like Badung in South Bali (income from tourism) and Kutai Kertanegara in East Kalimantan (oil, gas
and mining revenues) were, in financial terms, autonomous. Although decentralization had reduced the imbalance between centre and region as a whole, imbalances between rich and poor regions increased, because the richest regions now had access to fifty times more revenue than the poorest. Fiscal decentralization was therefore by and large synonymous with an uneven subsidized autonomy.2
