2016 Mahi
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The objective of this paper is to evaluate the implementation of Indonesian decentralization.
The rest of this paper discusses the evaluation of decentralization policy in Indonesia, especially
in the area of local leadership and direct elec- tions, welfare and regional disparities, and
budget quality.
This paper also provides highlights of recent movement in the decentralization laws, namely
the revision of the law on local government and the issuance of the new village law. Finally, the
paper ends with a discussion on the future chal- lenge of decentralization in Indonesia.
EVALUATION OF CURRENT DECENTRALIZATION
Along with the transfer of responsibilities to the local government, there is an expectation that
the decentralization policy could provide better local public services. Indicators related to the
economic growth and welfare could be used to monitor the welfare improvement in the regions
after decentralization. The ability of local leaders plays an important role in managing decentrali-
zation. Strong local leadership, a pro-business environment and good management of the public
budget are essentials of the local leader.
Along with the implementation of decentra- lization, some issues have raised concerns,
namely the asymmetric decentralization and regional disparities. These issues must be very
carefully assessed as these may hamper the decentralization policy results.
1. Regional Economic Growth
Indonesia experienced a deep crisis in 1998. Not only did it affect the national economy, it
also had a significant impact on regional econo- mies. Regions also experienced a significant
decrease in economic growth during the crisis, especially in Java. The weakening of the Indo-
nesian Rupiah has made exported commodities cheaper, which benefited regions with these
commodities. Their increasing exports abroad have driven positive economic growth rate dur-
ing the crisis time.
Decentralization has given the local govern- ment stronger authority to manage and to im-
prove the performance of local economies. As seen in Table 1, some regions managed to
recover from the crisis earlier than other regions, and some of them had higher growth than the
national average.
Some provinces, particularly those located outside Java and Sumatra, have enjoyed high
economic growth rates since decentralization, namely: Gorontalo, Jambi, Southeast Sulawesi,
West Sulawesi and West Papua. Unfortunately, natural resource provinces tend to experience
lower growth compared to the national average, such as East Kalimantan and Riau.
2. Local Welfare and Local Budgets
Another measurement to reflect welfare is the Human Development Index HDI which,
according to the definition of the UNDP, is a summary measure of average achievement in
key dimensions of human development: a long and healthy life, being knowledgeable and hav-
ing a decent standard of living. The HDI is the geometric mean of normalized indices for each
of the three dimensions.There are many factors affecting changes in the HDI, among others is
the local government achievement in providing good public facilities, such as education and
health.
An observation of the HDI’s changes between 1999 before decentralization and 2011
after eleven years of implementing decentrali- zation shows that almost 50 of all districts
and municipalities have an increase in the HDI by five to ten percent Table 2. Only a few of
them have seen the HDI increase by less than five percent. Another forty percent of districts
and municipalities have their HDI increased by twenty percent or more. Increases in the HDI
may indicate that some positive progress has been made in managing education and health
services.As we know, the measurement of the HDI depends particularly on 3 three indicating
variables, namely income per capita, educational participation and reduction on infant mortality
rate as measurement of the health index in HDI.
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Table 1. Provincial Economic Growth Various Years
Province Annual Growth Rates
Province Annual Growth Rates
1993 - 1996
1997- 2000
2001- 2004
2005- 2008
2009 - 2011
2012- 2014
1993- 1996
1997 - 2000
2001- 2004
2005 - 2008
2009- 2011
2012 - 2014
NAD 1.74
-7.26 6.79
-4.04 0.77
2.77 E.kal
8 2.68
1.79 3.19
3.75 0.07
N.Sumatra 9.18
1.43 5.04
6.24 6
5.92 N.Sulawesi
8.1 3.21
3.43 6.99
7.47 6.52
W.Sumatra 8.08
-0.54 5.13
6.27 5.48
6.06 C.Sulawesi
8.51 0.95
6.31 8.34
8.54 8.06
Riau 4.76
1.91 3.12
4.91 4.05
2.95 S.Sulawesi
7.94 5.42
4.84 4.63
7.36 8.02
Jambi 8.49
0.86 5.12
6.36 7.43
7.29 SE.Sulawesi
6.59 0.57
7.29 7.56
8.15 8.47
S.Sumatra 8.26
-0.97 4.07
5.24 5.41
5.64 Bali
7.86 -0.15
3.74 6.76
5.88 6.79
Bangka-Belitung -
1.46 4.71
4.15 5.36
5.13 W.NT
7.8 9.17
4.53 3.05
5.10 2.89
Bengkulu 6.66
0.07 5.1
6 6.03
6.13 E.NT
8.57 1.34
5 4.63
5.05 5.31
Lampung 8.51
-0.13 5.39
5.07 5.83
5.77 Moluccas
6.82 -22.15
3.86 5.12
5.98 6.37
Jakarta 8.99
-4.97 5.4
6.16 6.08
6.20 Papua
14.19 6.2
1.05 5.55
4.46 4.3
W.Java 8.15
-8.04 4.51
6.08 5.62
5.97 Banten
- -
7.2 10.02
5.74 6.48
C.Java 7.19
-1.73 4.55
5.47 5.66
5.3 Gorontalo
- -
6.73 7.44
7.62 7.63
Yogya 7.91
-2.29 4.73
4.44 4.82
5.35 N.Moluccas
5.23 -8.59
3.64 10.37
-6.25 6.28
E.Java 8.26
-2.46 4.78
5.98 6.30
6.19 Riau Islands
- -
- 6.75
5.79 7.35
W.Kal 9.25
0.25 4.12
5.11 5.37
5.66 W.Sulawesi
- -
- 8.18
9.45 8.30
C.Kal 9.58
-1.56 5.08
5.99 6.27
6.82 W.Papua
- -
- 6.54
23.21 5.47
S.Kal 9.25
0.99 4.41
5.63 5.66
5.39 Rata-rata
7.92 -0.87
4.72 5.76
6.04 5.70
Source: Calculated from the Bureau of Central Statistical Data
2016 Mahi
123 Table 2. Number of Municipalities and Districts
with HDI Changes From 1999 to 2011
Changes of the HDI Number of
Regions of
Total Decrease
Increase less than 5 Increase between 5 – 10
Increase between 10 – 15 Increase between 15 - 20
Increase above 20 4
226 37
8 178
0.88 49.89
8.17 1.77
39.29 TOTAL
453 100
Source: Calculated from the HDI data.
The increased focus of the local government on these sectors can be seen from the budget
allocation, which increased consistently and sig- nificantly for these sectors after decentralization
Table 3.
However, we need to understand that, for the education sector, the increased portion of its
budget does not solely result from the decisions of the local government; it is also influenced by
the education law, which mandated every gov- ernment to have at least twenty percent alloca-
tion for education.
Table 3. Basic Sectors in Local Budget
Sector Year
19992000 2013
Provinces Agriculture
2.12 2.58
Transportation 8.09
2.94 Education
3.8 8.75
Health 3.11
8.22 DistrictsMunicipalities
Agriculture 1.47
2.16 Transportation
7.64 1.30
Education 3.25
33.31 Health
1.53 9.74
Source: Calculated from the data of Ministry of Finance
3. Local Leadership and Business Environ- ment
