Decentralization is a form of organization structure. It is often described as the opposite of centralization, but in fact there is no organization without centralization. Every organization needs to be centralized; no centralization means that they are not united as an organization. Every organization needs central approval to make general decisions and plans, a center management head that is responsible to unite and harmonize the operation of all its divisions. An organization is considered to be more decentralized if the decision making authority and responsibilities are distributed to more divisions or group in the organization rather than always leave the decision making authority and responsibilities to upper level management. So the more decentralized the organization, the flatter its structure and the more flexible its operations. The bigger the organization, the more decentralization is needed.
A nation is also a super big organization that has its centralization and decentralization. In a nation, the centralization is related to authority of head governments and decentralization is related to the distribution of authority and responsibilities to local governments. Usually, the local government has responsibility of regular administration tasks and the head government has responsibility of crucial tasks that affect all of nation such as military, foreign relations, monetary, long term development programs, and so on. The more decentralized the country, the more tasks and authorities given to local governments.

There is two type of decentralized country, unitary and federal country. In the unitary country, the local governments are not independents; they are just the division of head governments who help head governments to do local tasks. But in the federal country, the local governments are independents in their spheres – political, fiscal and administrative autonomy. The local governments are the ones who give certain authorities to federal government. Not all federal countries are more decentralized and not all unitary countries are more centralized. It depends on the distribution of tasks between local and head/federal government.

Until now, Indonesia is stated as unitary country (Constitutional Law 1945 Art 1 & 18). The local governments have received local authorities since 1945 (Law No.1/1945 about Local National Committee). Since 1999, the authority of local governments is become wider (Law No.22/1999) due the threat of disintegration from many province especially from east Indonesia as the result of wide economic gap between java and non-java citizens. In 2004, there is an independent direct election to choose local governors and mayors. They are also given more authority to create local regulations and law, even Nangroe Aceh Darussalam has freedom to apply syariah Islam in formal regulations.

In fiscal assignments, the local governments are given more authority to collect taxes and spend budgets. The conflicts rise as no harmonization between local governments before levying taxes that makes potential multiply tax burdens to taxpayers. For example, eggs tax is levied in some local district. As eggs are object of VAT tax to head governments but also object to local tax, this double tax makes higher cost to farmers in that local area and make them uncompetitive. More examples in cow tax, cows were distributed from Nusa Tenggara to Jakarta, and got cow tax in every local district, so the cow price became really high. Conflicts also rise in spending budget, local corruptions are hard to be controlled and many development programs from head governments are failed because local governments prefer to spend their budgets not based on those programs. The local governments often keep their sending on government securities and obligations (SBI & SUN) rather spending their budget for development tasks to avoid finance & fraud audit by head governments (KPK & BPK). There is also a rumor that they want to keep the money in SBI & SUN for separatism plan.

Fiscal decentralization in Indonesia has improved the economy of rich local districts but somehow it create wider economic gap between rich and poor local districts. Many poor local districts depend on intergovernmental transfer from central government; they can’t provide themselves from taxes, charges and natural resources. In other way, rich country refuse to give more shares of their revenues to head government, they put separatism threat to against it. This makes head government must to find other source from foreign debt or selling its assets to finance its budget.
This lack of independency makes the spirit of local authority decline, many citizens want to create new local district just to get intergovernmental transfer and spend it for only certain people interests. The local elections also spend really big money. The administration conflict between local governments and between local and head government make higher cost of beaurocracy. Local authorities still need a lot of backup from head government as they still lack of competent human resources and technology to operate high quality service to citizens. These make decentralization become not flexible and efficient but complicated and lead the country into bankruptcy.

As many troubles occur during the wider local authority applications, many people like Prabowo said that decentralization system in Indonesia has failed to fulfill its objections. Maybe it caused by lack of preparation plans to build new decentralization system in 1999. The local authority law was forced to be done immediately due the threats of disintegration. It was not considering the effect and potential conflicts that occur lately. Indonesia still need more time to improve its decentralization system to work well. Even Japan, the modern well established country, needs more than 40 years to build its decentralization system. Hopefully, the result will be so much better for social welfare and equality.

• Prof. Benyamin Hoesein – Materials of Public Administration Lecture
• Dr. Machfud Sidik – Materials of State & Local finance Lecture
• Dr. Tjip Ismail – Pengaturan Pajak Daerah di Indonesia. 2007. Yellow Printing.


2 pemikiran pada “Decentralization in Indonesia (Written by: Nany Ariany, SE)

  1. I blog also and I’m publishing a little something very similar to
    this article, “Decentralization in Indonesia (Written
    by: Nany Ariany, SE) Natanedan’s Blog”. Do you care if Iapply several of your own ideas? I appreciate it ,Isabell

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