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THREE YEARS OF FISCAL DECENTRALIZATION IN INDONESIA : ITS IMPACTS ON REGIONAL ECONOMIC DEVELOPMENT ... - page 2 / 21

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reformation, most Indonesians had expectation that the decentralization process will contribute to the economic reformation especially reducing disparity between Jawa and outside Jawa or between the western and eastern part. Giving more economic policy decision making power to the local government is also considered as the expected output of successful decentralization process. Therefore, this paper is intended to evaluate the three years Indonesian decentralization process with the emphasis on the economic and fiscal impacts but the discussion will begin with the evaluation from political and administrative point of view since they will affect the economic side eventually. Special concern about fiscal sustainability that might relate to decentralization will be on the last part of this paper, and this might have further implication to future Indonesia economic development pattern.

DEVOLUTION OF POWER AND POLITICAL APPROACH After three years of decentralization, it is not too surprising if there were problems due to multi-interpretation or lack of clarity of law 22/1999. In 1999, the law was drafted without a blue print or general design of decentralization scheme and without a white paper. Sequentially, the decentralization process should begin with the blue print followed by a white paper. The white paper should be then the foundation for the legal drafting. Due to political condition and limited time availability, the decentralization process in Indonesia jumped directly to the law drafting and as a result, when there is confusion about the law itself, no valid reference is available. Various groups, with their own argument, are competing to be the “true” interpreter of the law, especially law 22/1999. If one group is in verge of having enough power over the implementation and revision of the law, other groups will try very hard to undermine them through frequent and sometimes unfair critiques. Ironically, this possible conflict or rivalry sometimes takes place between groups in the ministry of home affairs (MOHA) that is clearly responsible for drafting and implementing the decentralization laws, especially from political and administrative point of view.

Among many confusing and debatable issues in the law 22/1999, there might be three most crucial issues : devolution of government authorities, formation and amalgamation of new local governments, and the local executive-legislative relationship. At the first issue, the devolution of government authorities, the central government may claim that they have managed the devolution process quite well and after three years, the central government influence in the local government activities has significantly declined. However, the local government might not share the same opinion. They claimed that the devolution of authorities was far from clear, and eventhough it was clear, the line ministries at central government were obviously still interested in the authorities. Lack of clarity in the devolution process might come from two different extremes in the law. At one part, the law states that the central government will only be responsible for five functions plus planning and standardization. At the other part, the law also states that each local government has to be responsible for eleven obligatory sectors. The problem

lies on the government and sectors supposed to

“gap”

between

the

central

government

obligatory

functions

and

the

local

ones, and for local

the inconsistency between functions for the

governments.

The

government

regulation

central government (PP) 25/2000 was

close the “gap” by giving more detailed direction to local government, but

2

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