Indonesia Decentralization Opportunities and Risks Bert Hofman, Ehtisham Ahmad, Ali Mansoor Paper presented at the Conference The Indonesian Economic Recovery in a Changing Environment University Indonesia, October 4-5, 2000

Indonesias decentralization zThe current legal framework (Laws 22 and 25 of 1999) will give Indonesia substantial decentralization of authority zThe districts/cities will manage most of the Government services, including health, education, and infrastructure zPP25/2000 specifies remaining functions of the center zThe Government will start implementation in 2001 yThe Law says Big Bang yMPR Decree and Ten Point Program calls for gradual implementation

Indonesias decentralization zRegions will get most resources through a general grant allocation zRegions must implement functions of Pasal 11 of Law 25 (education, health, agriculture, etc.) zRegions must follow national law--but this must adjust to Law 22 zCenter can set guidelines for service delivery zDistricts can give back functions to the province, or jointly implement--but they receive less resources

Decentralization will shift much spending to the regions

Central Servants

But not as central as spending

And many are already in the regions

If it were gradual , , , , , , /971997/981998/991999/ Central own revenues Central own spending Regional Own Spending Regional Own Revenues

Heres the money

Key outstanding issues zHow fast will implementation be? zHow equalizing will the alokasie umum be? zWhat if there is a shortfall of funds in the regions? zWho will have the authority over tax and levy rates? zHow will borrowing be controlled? zHow will accountability be established? zlain lain….