[FKP hosted by CEDS UNPAD] Bringing Government Closer to the People? Indonesia’s Flawed Decentralisation Experiment

Decentralisation FKPReported by Adinda Rizky Herdianti

On 15 November 2016, Ross H. McLeod (Arndt-Corden Department of Economics, Australian National University) presented a study titled “Bringing Government Closer to the People? Indonesia’s Flawed Decentralisation Experiment” which heavily focused on the effectiveness of transfer system from central government to sub-national governments (SNGs) after decentralisation was introduced in 2001. The opening premise was that SNGs’ spending responsibilities surpassed their capacity to collect revenue. Hence, SNGs is basically still dependent on transfers from central government.

The study proposed three main things to enhance the role of SNGs and central government in providing public services to its people. First, central government need to treat SNGs as contractors of nationally mandated services which are education and health care. Instead of paying SNGs in a form of untied funds (DAU and DBH), central government might want to consider transferring funds directly to SNGs for the aforementioned services. As a consequence of such arrangement, central government, as the buyer, should specify the standards and SNGs, as the seller, oblige to fulfill the requirements.

Second, as income redistribution by SNGs is prone to result in out-migration of the rich and in-migration of the poor, central government must take over the authority to redistribute income from SNGs by giving another transfer to SNGs. The income redistribution through SNGs should be based on the principles of horizontal and vertical equity. Lastly, to meet the efficient level of public goods provision, the study urged SNGs to improve their revenue-generating capacity. By doing so, SNGs are forced to acknowledge their voters want and how much they are prepared for it.

The discussion was mostly related to the possibility of proposed arrangement being overlapped with other programs that had been implemented, one of which was Bantuan Operasional Sekolah (BOS). McLeod also stated that Indonesia was unique: Indonesia is the only large country that possesses universal health care and education in its constitution.

Presentation file 2016 11 15 McLeod Bringing Government Closer to the People? Indonesia’s Flawed Decentralisation Experiment