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1 Regional Governance Reform 1 INTRODUCTION The Regional Governance Reform in Indonesia, 1999–2004 Coen J.G. Holtzappel INTRODUCTION In 1999, interim President B.J. Habibie initiated an ambitious reform of Indonesia’s regional autonomy based on of the decision of the 1998 People’s Congress No. XV on the reorganization of regional autonomy. It provides rural districts (kabupaten) and municipalities (kota) with the freedom to regulate their internal as well as their external affairs with the consent of the provincial governor and president. Before 1999 these regions had autonomy only on their internal affairs, that is, the regulating and managing of their socio-economic household and raising of traditional taxes. This autonomy was called “real autonomy”. The 1999 reform endows local communities with autonomy also on external affairs like the implementing of national laws and policies and provision of services. These tasks are called “accountable autonomy” and are paid for by the government and thus are accountable to the government. Before 1999 these external tasks were handled by government offices in the regions, the so-called kantor wilayah or kanwil. The sum total of the two types of regional autonomy is called “broad regional autonomy”. The heads of region, that is, the bupati for the rural district and the mayor (wali kota) for the municipality, lead the reorganization and the implementation of the new tasks. The representative parliament of districts and municipalities has to be prepared for its new role in the regulating process. Village communities have been made part of the regional governments. Nomadic communities are not mentioned by the reform laws, nor by the constitution. Legally, they simply do not exist. The reorganization had become financially necessary because of the financial crisis of 1997 which had depleted the dollar reserves of the 1 00a D&RA Intro_Indonesia 9/16/09, 8:41 AM 1 2 2 Coen J.G. Holtzappel government and Indonesian banks considerably, forcing the government to rationalize its expenses. The reform was made politically possible by President Suharto’s enforced abdication in 1998 and became financially feasible by the sponsorship of the World Bank and other domestic as well as foreign donors. The main aim of the reform is to rebuild local government from a poor and backward stronghold of tradition, which had hitherto been excluded from doing government tasks, to a regional government which has the money and the capacity to regulate and manage its external affairs. To that extent it replaces Law No. 5/1974 of the Suharto era, which stated in Article 7 that “The region has the right, is authorized and is obligated to organize and manage its own services in accordance with the prevailing regulations.” In practice, this article was implemented in a dualist way, by separating the services as a government affair from the traditional domain of regional government which excluded district and municipality from servicing the communities. The reform is economically needed to boost rural economic development in order to stop the migration from the countryside to the cities, which had developed since the 1980s, and to end the poverty of the rural population and local government caused by Suharto’s focus since the mid-1980s on cities and export regions instead of on rural development. Law No. 22/1999 regulates the creation of the new autonomy system which is called “broad regional autonomy”. Law No. 25/1999 regulates the fiscal balance of the autonomy system. In principle, regional governance and modernization are no longer a matter of presidential command, as was the case before 1999, but of cooperation between government regions and the people, and of self regulating. In practice and due to the scope of the rural arrear, the government has a strong role in pushing for the reform. The devices of reform are decentralizing and deconcentrating the authorities and duties of the government to district and municipality government, as well as the regional expertise and means that the regions and people need to implement the reform. Decentralization means transferring from government to regions the freedom to carry out government tasks. Deconcentration means helping the regions with out-placed government functionaries, means and tasks to realize that goal. As a general critic on the reform operation, it might be stated that though the ultimate goal of the reform is regional empowerment in the form of autonomy and self government, the daily reality in the regions involves complying with a crash programme of administrative change that puts regional autonomy practically under fiscal custody, as local tax income stands...

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