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THREE YEARS OF FISCAL DECENTRALIZATION IN INDONESIA : ITS IMPACTS ON REGIONAL ECONOMIC DEVELOPMENT ... - page 1 / 21

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THREE YEARS OF FISCAL DECENTRALIZATION IN INDONESIA : ITS IMPACTS ON REGIONAL ECONOMIC DEVELOPMENT AND FISCAL SUSTAINABILITY

Bambang Brodjonegoro (Department of Economics, University of Indonesia)

INTRODUCTION Toward the second general election in the “reformasi”(reformation) era in 2004, the issue of decentralization and regional autonomy has not been widely considered as critical issue in nation building, and hence as one of major platform of political parties. There

could be many reasons for this circumstance. considered as quite successful. At least, there was the decentralization process. Second, regardless

First, the process might have been no real chaos occurring as a result of of the effects of the process itself,

Indonesians have adjusted well to decentralization becomes routine

the new condition activities. Third,

and therefore, everything related to the political parties could be more

attracted

to

other

issues

such

as

corruption,

law

enforcement,

economic

recovery

process,

than the and the political

decentralization issues that might not be visible to many Indonesians. Fourth most dangerous one, there might be a tendency at central government and elites to either slow down the decentralization process, or more extreme, go back

to centralization system in the past. There might be many tone of decentralization process but the fact is that only few the decentralization issues as one of their campaign theme.

reasons to parties are

explain the lower interested to raise

After three years of the decentralization process itself, it is still difficult to judge if the process is a successful one or not. The international community deemed the process as “still on the right track” citing that the Indonesians was able to manage the massive and drastic decentralization, and minimize the negative effects. The central government feels that they have managed the drastic change quite well but at the same time admits that they are still worried about the future and many have to be done in order to direct the decentralization on the right path including the revision of law 22/1999 and 25/1999. The local governments, however, are less satisfied than the central one. They are still suspicious that the central government is not fully supporting the process, and when the process is considered as a failure in the future, there will be a recentralization process. On the other hand, they admit that they have experienced a “freedom” that did not exist during the centralized era, and gradually, the learning process of managing and administering the local governments is working. The ordinary Indonesians, especially the local residents, might be the only one who keeps questioning the effects of the decentralization process. Some claimed that they do not feel any impact of the process, while some others felt only the negative impacts. They still believe that the current process is more on the decentralization from central to local governments than the decentralization from government to the local people or community.

Among all types of impacts generated by the decentralization process, the economic (and fiscal) impacts are still considered the most crucial one since Indonesia is still on the recovery process after the 1998 financial and economic crisis. Together with political

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