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Decentralised government: greater demand needed to raise service quality in Indonesia

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In Brief

The devolution of public service delivery and financing to local governments in Indonesia was legislated in 1999 and implementation began in earnest in 2001. The roll-out of decentralisation is often characterised as a ‘big bang’ because of the speed with which it occurred and the striking extent of reforms. It is not an exaggeration to say that Indonesia went from being one of the most centralised countries in the world to one of the most decentralised in a period of just less than two years.


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Despite initial widespread support for decentralising government service delivery and financing responsibilities, most observers in Indonesia would appear to be somewhat disappointed with the results. The prevailing view is that local public service delivery has improved little since decentralisation began — despite a very substantial transfer of funds to local governments to discharge their new-found responsibilities.

While some of that disappointment must be a function of overly optimistic expectations about what could actually be achieved in a relatively short period of time, the objective evidence does indeed support a rather less-than-enthusiastic valuation of the impact of decentralisation thus far. School enrollments have increased at all levels of education but Indonesian children’s performance on international learning assessments, for example, have remained especially weak in mathematics and even deteriorated in science. In health, immunisation rates have risen quite substantially across many areas of the country but progress in reducing maternal mortality and child malnutrition has stagnated. Perhaps most problematic is the lack of improvement in infrastructure services. While the extent of local roads has increased the overall quality has deteriorated. The percentage of households with access to safe water has actually dropped from 50 to 48 per cent since 2001. More broadly, Indonesia tends to perform poorly in most aspects of local service delivery compared with countries in the region at similar income levels.

What explains the uneven and largely inadequate performance in local service delivery under decentralisation? Most explanations focus on three reasons: insufficient funding of local governments, lack of capacity among local government officials, and poorly designed intergovernmental fiscal relations.

The argument that regions generally lack sufficient funds to deliver improved public services seems implausible. Transfers to subnational governments now make up approximately one-half of the national budget (not including subsidies and interest payments) or about 6 per cent of GDP, over 80 per cent of which accrues to subnationals at the lowest level. By contrast, recent analysis shows that transfers to third-tier subnational governments make up only 0.4 per cent of GDP in India and 3 per cent of GDP in the Philippines. A more credible proposition is that local governments in Indonesia spend their funds in an inefficient and ineffective manner. Recent analysis shows that administrative spending by districts in Indonesia, which amounts to more than one-quarter of total budgetary expenditure, far exceeds international best practice, which posits reasonable administrative spending of less than 5 per cent of budgets. More broadly, the empirical evidence indicates that general levels of spending appear to have little or no effect on a wide range of service outcomes.

Of course, Indonesia is still a developing nation, so the capacity of local governments to deliver services tends not to be as high as it is in more advanced economies. Deficiencies in local government planning and financial management merit some mention in this regard. At the same time, experience shows that there is a great deal of variation in capacity across local governments in Indonesia, with the best among them being quite well run. The important question about potential capacity shortfalls, however, is to what extent they occur and where. A defensible view is that most places are not overly constrained by a lack of capacity. In other words, the vast majority of subnational governments could deliver better-quality services now with the capacity they already have.

A number of potential difficulties with current intergovernmental fiscal arrangements have been raised over the years. Perhaps the most frequently voiced concerns of late relate to the ‘one size fits all’ nature of the intergovernmental system and the disincentives for improved performance embodied in intergovernmental transfers. The uniform treatment of heterogeneous local units in policy design and implementation is clearly a problem for the proper resourcing of local governments. The extent to which this approach affects the general quality of local service delivery is unclear, however, since it appears that the level of funding has little to do with service outcomes in the first instance. Recent research casts significant doubt on the assertion that perverse incentives in intergovernmental transfers have major deleterious local fiscal effects.

An alternative explanation for poor service delivery outcomes would focus on the lack of accountability of local governments towards their constituents. It is well known from international experience that weak accountability and poor local public services go hand in hand. Accountability in this context actually comprises two separate dimensions: an appeal from citizens for improvements to service quality, and a response by local governments to meet constituents’ demands. Appeals from citizens implicitly presuppose the existence of some reasonable measure of dissatisfaction with the status quo.

In Indonesia it turns out that citizens actually seem quite satisfied with the quality of local public service delivery. The World Bank’s recent ‘World Governance and Decentralization Survey’, a fairly large project, found that 78, 90 and 85 per cent of respondents were at least somewhat satisfied with the quality of local administrative, health, and education services, respectively. Less than 30 per cent of the randomly selected households in the study indicated that they wanted better administrative and social services and were willing to pay for them. In fact, only 7 per cent of households had ever formally complained about the quality of local government services. Of those that had not complained, more than 90 per cent said it was because they had no complaints about service quality.

So it would seem that the lack of downward accountability at the local level in Indonesia may in large measure be a function of insufficient citizen demand for higher service quality. This, in turn, provides a clear and robust explanation for the lack of observed improvements in local public service quality under decentralisation. That is, if citizens are already reasonably satisfied with the quality of service delivery, there would seem to be little reason for local governments to strive to improve it.

In this context, two possible conclusions present themselves. The first is that the quality of local services in Indonesia is already good enough and that there is no real need for improvement. The objective evidence seems to indicate that this is not true, but on the other hand it appears as if Indonesian citizens themselves are reasonably satisfied with the amount and quality of local service delivery. If this is the case, then Indonesians already have the decentralised system of government that they want and deserve.

Second and the view expressed here is that the status quo is not acceptable. In that case it would seem that perhaps the most important initiative that could be undertaken to reform decentralisation would be to convince Indonesia’s citizens that they deserve better and to encourage them to vigorously express their demands to their local leaders. Only then will local governments be forced to make good on the potential benefits of decentralisation. This is clearly an objective that can only be realised in the long term, but this is indeed how we should see decentralisation—as a long-term process. It is still early days and reformers both inside and outside government must remain vigilant in demanding necessary changes.

Blane D. Lewis is an independent consultant based in Jakarta. He has served as an adviser to the Indonesian government under the auspices of the World Bank, among others. The views in this note are personal.

This article appeared in the most recent edition of the East Asia Forum Quarterly,‘Indonesia’s choices’.

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