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The unique characteristics and priorities of each region complicate the integration of regional and central level programs. For this reason the decentralization process is carried
out in phases, taking into account the capacity of each region.
b. Decentralization of fiscal policy
Together with the Regional Autonomy Law, the government issued Act No. 172003 concerning State Finances and Act No. 332004 concerning Fiscal Balance between the
Central Government and Regional Governments. The budget allocation between central and regional governments generally takes place through the allocation of General Funds
Allocation Dana Alokasi Umum DAU and Special Allocation Funds Dana Alokasi Khusus DAK as well as tax and natural resources income sharing.
The amount of DAU allocated to regions is determined by factors that include the area, population, building material price index, poverty level, regional GDP, natural
resources index, and human resources index of the respective region. The amount of regional DAK is determined by the amount of revenue generated from the exploitation of
natural resources in the region. Thus the amount of DAK allocated to a region and revenues generated from natural resources exploitation in the region are correlated, without terms that
require these funds to be reinvested in the natural resources sector from which they derived.
At the same time, current regulations allow regional governments to explore means of generating additional funds Local RevenuePendapatan Asli DaerahPAD through levies
on revenues generated from sectoral activities such as forestry, mining and transportation. This fiscal framework will have significant impacts on forestry sector development.
In order to maximize their allocation of DAU, DAK, and PAD, regions will have the incentive to exploit their forest resources to the greatest extent possible. The sustainability of
this income will depend on the sustainability of the forest utilization. As long as natural resource exploitation can be done based on principles of sustainability, regional revenue can
be maintained and even increased.
c. Legal reform and law enforcement
The three main national development strategies until 2009 are: 1 6.6 annual national economic growth; 2 development of the real sector; and 3 revitalization of
agricultural development and rural economies. These strategies require simple regulations that facilitate national economic growth. For these regulations to be successful good
governance along with strong and consistent law enforcement will be required.
Analysts observe that many regulations in the forestry sector are overly complicated, are not in the best interest of the people, are inconsistent, and overlap with regulations at the
regional levels or with regulations from other sectors. This creates a burden for investors, and the public and it hinders forest sector performance. The many regulations established by
regional governments add to the complexity of implementing national forestry development programs.
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To reduce forestry bureaucracy, and to promote national economic development, the government issued an Investment Climate Enhancement Policy Package Presidential
Instruction No. 32006. It was hoped that this package would lead regions and sectors to initiate legal reforms that would be in favor of investors, the public at large, and especially
poor communities.
In the forestry sector, the government has identified several cross-sectoral regulations, including Government Regulations and Ministerial DecreesRegulation issued
by the Minister of Forestry, that are overly bureaucratic. However, the legal reform process will be time consuming and will depend on the central and regional governments’ ability to
implement good governance and coordination of legal reforms. This in turn will depend on successful law enforcement and control from the stakeholders in the forestry sector.
d. Global commitments
