Friday, March 2, 2012

After the Initial Big Bang of Decentralization, What Awaits Indonesia in the 2nd Decade?

Indonesian decentralization is often presented as a prime example of “big bang” decentralization. But this view hides more than it reveals. In fact, decentralization so far has been just a single act in the unfolding drama of Indonesia’s systemic transition.

This process can be seen in a series of interconnected reforms across a vast array of governing institutions. It is equally evident in the fast-changing size and functions of civil society.

Within a single decade, Indonesia has transformed its electoral system and the functioning of political parties, it has amended the Constitution and made sure its president is directly elected. It also established a number of very important independent bodies, of which the Corruption Eradication Commission (KPK) is a good example.

Not surprisingly, the driving issues of decentralization in this first decade after the Law on Decentralization took effect in 2001 were administrative and procedural ones. Regional government offices had to be established and civil servants transferred to the regions. Rules governing payments and incentives for such transfers had to be drafted, as well as the criteria governing revenue collection and sharing. New divisions of labor had to be worked out, and so on.

The overarching issue is the second decade of decentralization that we are now entering is how to ensure not only that decentralized governments cooperate smoothly with Jakarta, but also how they respond to longstanding and new developmental problems that Indonesia continues to face.

Primarily, this second wave of decentralization will have to find ways of raising the quality of economic growth. There is still a lot to do in terms of income equality, social inclusion, access to high-quality public health facilities, education and food security. Not to mention physical and job security.

These are all the right reasons why the country embarked on decentralization in the first place.

But the systemic transition is not as easy as some political leaders make it seem. Structural problems lurk in the background. Principal among these is the unrelenting growth of the urban population and the subsequent emergence of mega-cities. These bring not only the challenges of achieving an acceptable quality of integrated public services but also the negative effects of resources and skills concentrating mainly in urban centers.

Rapid economic growth accompanied by continued expansion of the urban population and internal migration on the one hand, and more capital-intensive technologies on the other have also changed the employment landscape and the poverty elasticity of growth. This means that Indonesia will have to grow faster to generate the same level of employment as it achieved before the 1998 financial crisis. The same problem underlies its efforts at poverty reduction.

The above set of integrated policy questions, and concerns over rising regional inequality in Indonesia as already evident in India and China, are at least partly behind the recent presidential decision to adopt the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI). The idea of economic corridors established by the MP3EI will be the key instrument for raising both interisland connectivity and investment and economic growth acceleration.

To be sure, the policy challenges of the future will lie in anticipating and finding solutions to a new array of problems. Infrastructure investment should be promoted through public-private partnerships, infrastructure corridors should be turned into economic hubs and the growth of human capital should be stimulated through skill development and innovation-friendly institutions.

Also, there is a need to build a consensus on the fair distribution of the results of economic growth. Behavioral change is necessary to mitigate the impact of climate change and a final challenge is to build research, technology and trade partnerships with other countries in Asia and beyond.

But not all is toil and gloom.

Earlier fears that strong provincial governments might become centers of rebellion and separatism are now increasingly dispelled by the achievement of what seems to be lasting peace in Aceh and receding social conflict in other parts of the country.

Given the very large investments envisaged as part of the MP3EI, stable provincial governments have to be key safeguards against local state infrastructure being dominated by business lobbies.

There is much to be optimistic about. Not least that Indonesia, in choosing the path of decentralization, has managed to stay clear of breaching universally respected best practices in this field.

Of course, if one were to take even a cursory look at the neighbors in the region, it is evident that there is no Asian benchmark for some ideal form of decentralization. But one of the great paradoxes of economic and political development in today’s globalizing world is that the decentralization bug seems to have affected virtually every country in the developing world.

The Asian experience with decentralization seems to span political systems, developmental trajectories and ethnic boundaries. China and Vietnam continue to decentralize under authoritarian but liberalizing governments. India is an established federal democracy. The Philippines and Indonesia are countries intent on rapid and comprehensive decentralization. And Cambodia and Burma are relatively late arrivals on the decentralization scene but are feeling their way forward.

Evidence on the costs and benefits of decentralization, however, is rather ambiguous. Interregional inequalities have not convincingly diminished under decentralized governments. In the case of India, they might even have increased. Service provision, which was one of the most frequently cited benefits of decentralization, has been improved in some Indian states, such as Kerala, but has languished in others, like Bihar and other parts of the Hindi-speaking belt.

Uneven economic development accompanied by rapid urbanization have skewed the patterns of regional inequalities in most developing countries. But the concrete results of decentralization on interregional inequalities in many places have been lost in a fog of confusing statistics, self-interested analysis and anecdotes from traveling observers.

Indonesia’s second-generation decentralization policy therefore has the luxury of developing its own model of decentralization based on a decade of its own experiences . It will be able to lead the way in showing the benefits of big-bang decentralization compared with a long and tortuous process of deliberation, debate, dissent and disinterest.

Located in the fastest-changing region of the world and characterized by one of the most rapid urbanization rates anywhere, Indonesia can act as a pathfinder on the road to democratic consolidation and devolution of authority.

If the Indonesian model proves to be a success, it will influence a wide range of countries in Asia and beyond to take the bold route of big-bang systemic transformation, rather than the calculated and hesitant steps toward a dispersion of political and economic power. Indonesia will also be among the few countries that at an early stage of their march toward decentralization can make the most of everything the 21st century has to offer. It can benefit from information technology while prioritizing distance learning systems, health security and low carbon footprints.

All of this is just a foretaste of the enormous agenda of Indonesia’s decentralization program. If you think the first decade was a big bang, wait until you witness the second one.

By Satish Mishra managing director at Strategic Asia, a Jakarta-based consultancy promoting economic cooperation between Indonesia, India and China. Jakarta Globe

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