Twelve years of fiscal decentralization: a balance sheet

The prevailing view among many policy makers, policy advisers and other interested observers in Indonesia is that decentralization has been somewhat of a disappointment. This assessment derives from the observation that local public service delivery has improved little, if at all, since the government began implementing its regional autonomy program in 2001, despite an apparently significant transfer of funds to provinces and districts to discharge their newfound responsibilities. A number of theories have been put forth to explain the seemingly meagre results of decentralization, each with its own set of policy reform prescriptions. The main intent of this chapter is to review the experience with decentralization since 2001, to critically assess various explanations for the failure of regional autonomy to significantly improve local services and to gauge the prospects for reform going forward. First, the chapter provides a brief review of the history of fiscal decentralization in Indonesia (section 6.2). Next, it examines some of the empirical evidence on decentralized service delivery outcomes (section 6.3). It then discusses and appraises the standard rationales for poor service outcomes (section 6.4). In section 6.5, the chapter offers an alternative explanation for inadequate decentralized service delivery, and in section 6.6 it evaluates the near-term policy reform agenda for decentralization. The chapter concludes with a consideration of the likelihood of successful reform.