When Power moves Faster than Institutions: The case of The Indonesian “Big Bang” Decentralization
When Autonomy and Capacity Diverge
In 1998, Indonesia’s Reformasi movement finally forced Soeharto’s resignation from the presidency, finalizing the chapter of the New Order in Indonesian history.
It was expected to be a turning point for Indonesian democracy. Law Number 22 of 1999 on Regional Government and Law Number 25 of 1999 on Fiscal Balance between Central and Regional Governments became significant milestones, effectively laying the foundation for the independence of subnational governments in domestic political affairs.
Twenty-seven years have passed since, and the decentralization reform, becomes a subject of scrutiny. I question: Have the institutional and social conditionalities of the Indonesian landscape yet been met for effective decentralization? More precisely, how does the structural inequality across Indonesian regions implicate the uniform enforcement of decentralized formal rules?
The 2001 Decentralization, or “The Big Bang Decentralization”, was enacted to redistribute the political, fiscal, and administrative capacity to local agents. It was legally anchored on Law Number 22 of 1999 and Law Number 25 of 1999, effectively increasing the autonomy for municipalities and city-level governments.
For Indonesia, the mechanism of decentralization is built upon the pillars of political, administrative, and fiscal aspects, uniformly applied to all subnational regions. Firstly, decentralization forces a delegation of authority to local governments through local elections for subnational government heads and the Regional House of Representatives (DPRD) at the district level. Secondly, the authority on the provision of most local public services is transferred from central to subnational governments. Lastly, local governments gained increased authority for managing expenditures and are encouraged to collect local taxes through the mechanism of regionally owned revenue (PAD).
Prior to decentralization, Indonesian districts function under the strict control of the central government. Under the framework of Law No. 5 of 1974, regional governments were predominantly reliant on the central government. Mostly, revenue sources are obtained from the Subsidy Fund (SDO) and Instruction Funds (Dana Instruksi), with minimal revenue sharing from natural resources. The 1999 laws replaced the former model of dependency with an entirely new framework for self-governance and independence.
I argue that, although equitable in spirit, the uniform approach to Indonesian decentralization has failed to consider the asymmetrical economic and social landscape of affected districts. With significant disparities in fiscal capacity, public infrastructure, and human resources quality, Indonesian decentralization rested on the conceptual axiom that greater autonomy, regardless of institutional readiness, would produce positive social and economic consequences for treated districts.
The implementation rests on the assumption that greater independence allows districts to exercise control over resources, that independence and autonomy should be an unambiguous strength and a driving factor for better economic growth. It undermines the importance of addressing different constraints of regional government.
Between 1996 to 1999, Indonesian districts are structurally unequal. Using the dataset obtained from the World Bank’s Indonesia Dataset for Economic and Policy Research, it is shown that regional human development index (HDI), fiscal capacity, physical infrastructure, and government service delivery, differ severely.
It highlighted the widespread inequality in areas such as regional economic conditions, fiscal capacity, and service delivery. Other measurements also indicated severe variation in the quality of provision of basic needs, which include access to electricity and sanitation. Moreover, health service indicators, as illustrated by the percentage of child births attended by health workers, showed significant inequality. With such a condition, it highlights the disparities in the local government’s ability to provide basic services, indicating evidence of unequal service delivery.
Proxied by percentages of roads already covered with asphalt, the physical infrastructure of Indonesian districts was severely unequal prior to decentralization. This aspect is especially important for the Indonesian development agenda, underlining the existence of a structural barrier for equitable subnational economic activities.
The poverty gap indicated a coefficient variation of more than 0.9, highlighting the existence of extreme inequality among regions. Furthermore, fiscal independence, proxied by the PAD share over total revenue, reached over a 1-point value of the coefficient variation.
By instituting the 2001 decentralization reform, Indonesia has created a framework for equitable power distribution. But, behind the legal hardware, lie such deeper complexities. One that is intangible and only seemingly permanent.
Indonesia did not decentralize into a neutral landscape. Rather, it unfolded across regions with severe administrative, fiscal, and service inequality. Yet, even though power can be distributed simultaneously among regions, capacity differs.
Decentralization may revealed a foundational principle amongst Indonesian regions. The success of autonomy and independence is conditional. It may expose the fragility of some and accelerate the opportunity of others.
Power can be transferred, but not the institutional ability that comes with it. When power moves faster than institutions, the promise of empowerment may strain and risk the benefits of the transformation it brings. Two decades later, decentralization remains a discussion, and with it, its paradoxical manifestation.