THEME : PERFORMANCE MEASUREMENTT How Effective is the Indonesian External Public Sector Auditing Reports Before and After

r the Audit Reform for Enhancing the Performance of Public Administration? Septiana Dwiputrianti Decentralization, Accountability, And Local Government Performance In Indonesia Sujarwoto and Tri Yumarni Analysis Of Democratic Public Service Network (Case Study in Urban Transportation Service in Makassar City, South Sulawesi Province, Indonesia) Alwi

HOW EFFECTIVE IS THE INDONESIAN EXTERNAL PUBLIC SECTOR AUDITING REPORTS BEFORE AND AFTER THE AUDIT REFORM FOR ENHANCING THE PERFORMANCE OF PUBLIC ADMINISTRATION? Septiana Dwiputrianti*)
Abstract The research aims to enrich the existing administration, accountability, and auditing of public sector literature. This is undertaken through examination of the quality of information in the reports of the Indonesian State Audit Institution (BPK) with comparison between preceding and following audit reform. This study evaluates the factors influencing to the effectiveness of such audit information. Two main research questions; firstly, how is the quality of information in the audit reports of the BPK; secondly, what are the key factors influencing the effectiveness and ineffectiveness of information in the audit reports. Data were collected through triangulation of observations, documentations, questionnaires, and interviews. Key informants in this study were (1) auditors, members and managers of BPK (2) the members of Parliament and regional Parliament, (3) public sector officials (auditees) in central and local levels, (4) and other respondents from academics, researchers, practices, and non government organization (NGO). This study revealed that the executives history had historically neglected the roles and functions of BPK. Auditors lacked independence as the executive influenced the administration and finances of BPK. Auditors also had lack of opportunity to increase their professionalism. Since there was little incentive for auditors not to accept audit fees from auditees, the objectivity and integrity of auditors was reduced significantly. Since the third amendment of 1945 Constitution in 2001, the Indonesian government had reformed laws and regulations related to public sector auditing for strengthening BPK. In situation where the Indonesian public administration needs immediate reform, BPK keeps trying to improve its professionalism and independence to provide qualified audit reports. BPK has been given much attention to education, training, and the development of other skills and knowledge; implemented remuneration; applied a rewards and sanctions. This study revealed a significant improvement in the amount and quality of in audit resources, including numbers of qualified auditors, representative offices, information and technology, and modern equipment. However, many new auditors lack of experience and lack of diverse educational backgrounds in addition to accounting and finance for conducting performance auditing. To enhance the quality of public administration and accountability, this study gives recommendations for BPK in (1) strengthening its independence, (2) expanding auditors professionalism and competency in risk management (3) improving the facilities of the

*)

PhD Candidate the Australian National University (ANU), Crawford School of Economics and Government Canberra, Australia (septiana.dwiputrianti@anu.edu.au). Senior Lecturer and Head of Postgraduate Program School of Public Administration, the National Agency for State Administration (STIA LAN) Bandung, West Java, Indonesian (septiana_dwi@yahoo.com)

training centers, (4) increasing follow up of audit reports, (5) evaluating laws and regulations, (6) enforcing the implementation of performance auditing. Keywords: public administration and accountability, transparency, public policy, public sector performance auditing. Introduction Since the audit reform that was begun since the third amendment of Indonesian Constitution (2001), the Indonesian public sector audit has been strengthened to achieve transparency and accountability of public administration in central and local level governments agencies. This paper aims to examine the implementation of external of public auditing to provide better performance of public administration, before and after the audit reform. The introduction is divided into three parts, the first part of this introduction is to describe the differences between financial and performance auditing as Indonesian public sector has expanded its scope of auditing from financial to performance auditing. The second part explains the role and function of auditing in reforming public administration (as the first priority in Indonesian government reform) and for good governance. The third part describes the historical development of the Indonesian public sector auditing. What are the differences between financial and performance auditing? Some literatures explained the difference of financial and performance audits in different perspective. In terms of audit results, Brown and Copeland (1985:3-8) pointed out that financial auditing report provides opinions on auditees financial statements, while performance auditing report provides audit recommendations for obtaining better organizations performance. In terms of audit standard and period of time, Politt, et.al. (1999: 9-16) argued that financial auditing is conducted yearly, and based on financial audit standards and procedures, while performance auditing is carried out more occasionally and is based on evaluation of performance criteria and indicators that are varies, in terms of scope, length, focus, and design, in every public agencies. In terms of auditors competencies, Sheldon (1996: 52) pointed out that performance auditing in public sector requires for a wide range of auditors competencies, ability, and educational backgrounds to design the performance targeting in auditing, while financial auditors require a specific competencies in financial and accounting backgrounds, and additional knowledge in public administration. In terms of orientation, Kitindi (1992: 8-11) believed that financial auditing is more related to examine the financial reports and works that have been conducted in the past, while performance auditing has broader future, long term and strategic orientation which is relevant to examine not only the outputs and results of programs that have been done, but also the impact and benefits of programs to be achieved.

In addition, Lindeberg (2007: 337-350) compared financial, performance auditing and non-audit evaluative practices, he argued that performance auditing has great differences with financial auditing, but greater similarity with program evaluation. Therefore, the recommendations from the performance auditing can be used evaluating and monitoring the programs and policies that are implementing in the public sector. Outside financial and performance audits, there is specific purposes audit that can be based on a request from the President, members of Parliament, or government agencies that need immediate attention for specific auditing for certain purposes. Some examples of this type of auditing are related to auditing of forensic, IT, environment, and financial reports (such as auditing for expenditure, tax income, non-tax income, subsidy, foreign loan, donors, and foreign aid) for certain programs or projects. Table 1 presents the summarizing of comparison between financial and performance audits. Table 1: Comparison between Financial and Performance Audits Financial (Compliance) Audit Objective/ Focus Examining financial statements regularity and compliance Performance Audit Assessing management and operational (inputs) for optimal performance(outputs, outcomes, and impacts) Constructive recommendations for improving performance Education background from wide range of educational backgrounds Carried out vary in length, depending on scope and focus Based on performance audit standards which applying norms of economy, efficiency and effectiveness (3Es) Perspective or toward the future

Results Auditors competency Time Period

Audit opinions on compliance and financial statements Strong background in finance, accounting, public administration and laws Yearly/fiscal year

Audit standard Based on accounting standards, and norms legitimacy, legality and completeness Orientation

Retrospective (the work has done so far) Source: Processed from different references: 1. Brown, R.E. and Copeland, R.M., 1985, Current issues and developments in governmental accounting and auditing: impact on public policy, Public Budgeting and Finance, 5(2), pp. 3-8. 2. Politt, C., et.al. 1999. Performance or Compliance? Performance audit and public management in five countries, Oxford University Press, New York, pp. 16. 3. Sheldon, D.R., 1996. Achieving Accountability in Business and Government, Quorum Books, Westport, Conn, pp. 52. 4. Kitindi, E.G., 1992. Performance auditing in Tanzanian parastatals, International Journal of Government Auditing, 19 (2), pp. 8.

5. Gong, T., 2009. Institutional learning and adaptation: developing state audit capacity in China, Public Administration and Development, 29 (1), pp. 37.

Role and Function of Public Sector Auditing in Public Administration and For Good Governance In line with the political demands for greater accountability in providing better services to the public and efficiency in managing public resources, public sector auditing become a necessity for public sector in recent decade (Power 2003b: 191). The members of parliament as representative of the public have greater concerned about the efficiency and effectiveness of the quality of public sector goods and services. Durrant (2000: 80) highlighted that public sector auditing is the prominent aspect for encouraging public sector agencies to improve their effectiveness and efficiency in public administrative. Efficiency in using public funds and resources reduces the resources to provide public goods and services, while effectiveness provides a certain result (outputs, outcomes, impacts and benefits) on the quality of goods and services provided by the government. By preventing the public money from waste, fraud and misappropriations expenditures, the government can allocate funds for greater numbers and quality of public goods and services. As argued by Devas (1989: 271) that the external auditing can ensure all governments income is collected, accounted for and properly used. Moreover, efficiency can provide low costs of goods and services that influences on the tariff setting by the government which is important for the country to be able in competing internationally (McIntosh 1997: 123-129). Funnel and Cooper (1998: 283) argued that effective public sector auditing can significantly improve the public sector performance. Therefore, an effective public sector auditing can provide the value of greater efficiency and effectiveness in public administration by examining the public sector agencies in preventing and reducing waste, abuse, fraud and corruption that can improve to the performance of public administration, public goods and services for the benefit of the public. Public auditing that holds out a transparency, accountability, efficiency, effectiveness, openness, preventing of corruption and excess expenditure, can promise of good governance (Shimomura 2003: 167). This is also supported by Curtin and Dekker (2005: 36-37) who emphasized the principles of accountability, transparency, effectiveness and participation in public administration, which is expanding the role of government in providing government accounting system, and public sector auditing to provide accountability of public sector agencies which lead to good governance. Moreover, Barret (1996:137-146) argued that the audit institution is a part of the governance framework that influences to the development.

An effective auditing practice is an essential precondition for good governance (Doig 1995:151). Similarly, Mulgan (2003: 24) found that Auditors-General make a significant contribution of the public accountability to the public sector reform in Australia by standing up for values of transparency, probity and good governance. Innes et.al. (1997: 706) also believed that audit report enhances the credibility of the financial statements that is useful for investors and management of public sector. Therefore, public sector auditing is an important tool for resulting of good government in long terms. Auditing provides assurance of an appropriate use of resources and prevents misuse, fraud, abuse and corruption of public funds and resources which can maintain and improve public trust, including the local and foreign investors; and also tax payers. Historical Development of Public Sector Auditing in Indonesia Prior to the 1945 Indonesian independence, the public administration and auditing was dominated by the Dutch administration and Javanese culture that strongly influenced the bureaucratic culture with patrimonial and patronization practices. The President as person of the sovereign was powerful and strongly influenced all he bureaucracy, including the BPK. Although the position of BPK in the past was under the 1945 Constitution and MPR, BPK had no independence from the government or less powerful than government. The audit reports of BPK reported to the parliament which was majority dominated by Golkar party, as a ruling party and single winner in the election. Hence, during the New Order Era, the practice of corruption became systemic under the power of the President (Soeharto) and his cronies. There were no external audit institutions which independently examined the public financial management and accountability of the government. Duplicating audit functions in public sector had occurred not only between BPK and internal audit institutions but also among the internal audit institutions themselves. BPKP, an internal audit institution had the same roles and functions as BPK, in conducting post audit, instead of examining the planning and management of the internal public sector agencies financial budget and reports. However, BPKP had much higher budget, qualified auditors, representative offices, and other audit resources in conducted public sector audit. As a result, BPKP had greater audit scope in regional governments, SOEs and ROEs, while BPK only audited the central government. This means, the function and role of BPK to examining the public accountability of public sector agencies were diminished by reducing resources and audit scope. The duplicating of audit functions had burdened state finances and auditees. Since the third amendment of the 1945 Constitution (2001), the roles and functions of BPK as the only external audit institution has stated clearly. BPK has gradually given greater power to examine the public accountability of public sector agencies under the Audit Law (GOI 2004a). Since then, BPK has reformed its organization and strengthened its roles and functions. Table 2 shows the comparison of the function, laws, and types of

auditing, position, and standards of internal and external auditing pre and after the audit reform. The table illustrates the reformation of the system and regulations of public sector auditing in Indonesia. Table 2 Comparison of Internal and External Public Sector Audit before and after Audit Reform (2001) No 1. Public Sector Auditing External audit institution(s) - The function of BPK - The function of BPKP -Reporting to - Basic laws Before Reform (Before 2001) BPKP, BPK Limited auditing central government Audits central government, SOEs, and ROEs The President and Parliament ICW and IAR regulations Law on BPK (1965) Law on BPK (1973) SAP (1995) Financial and compliance audits A high institution (a limited power of State institution) Bawasda, IG, SPI, Main Inspectorate Post auditing Colonial era of the Netherlands, IAR (1933) Not available After Reform (2001-present) Only BPK Auditing all state finances of central and local governments, SOEs, ROEs Supporting the internal auditing functions Direct to Parliament and regional Parliaments The third amendment of the 1945 Constitution, state finances Package laws (20032004) and Law on BPK (2006) SPKN (2007) Financial, performance and specific purpose audits A state institution (stronger position) BPKP, Bawasda, IG, Main Inspectorate Pre-auditing for management of state finances Law on State Finances (2003), Law on Treasury, and Audit Law (GOI 2004b). Based on accounting standard (2005)

- Auditing standards - Types of Audit - Position of BPK 2. Internal audit institution(s) -The function -Basic laws

-Accounting standard

The Indonesian External Public Sector Auditing (before and after the reform) This section assesses the criteria of the audit reports information quality and factors influencing the criteria of the Indonesian Supreme Audit Board (BPK). The criteria consist of three parts: (1) the content of, (2) communication of, and (3) acting on, information in audit

reports. The key factors influencing the criteria of the quality of public sector auditing reports information also describe in this section. Quality of Indonesian Supreme Audit Board (BPK) Reports This section assesses the quality of BPK reports that consists of the quality of content of information, the quality of communication information in audit reports, and the quality of acting on audit information. Related to the content of the information, there are three criteria, namely (1) scope of audits; (2) access for reliable evidence; (3) objectivity, and credibility of information. Related to the communication of information in audit reports, there are three criteria, namely: understandable information; precise and informative formatting; and timely reporting. Related to acting on information in audit reports, there are three criteria, namely: the publication of audit reports; realistic audit recommendations; and following up audit findings and recommendations. The following sections describe research findings of each criteria of the quality of audit reports information. Laws, regulations, and rules as the heart of both the theory and the practice of public administration are examined, to understand the policies of the Indonesian external public sector audit. Moreover, findings from the interview results enrich the paper with the empirical condition of Indonesian public sector auditing. Scope of audit The financial audit scope of BPK has been expanded extensively as the mandate of the Constitution to examine transparency and accountability of all public sector bodies. The workload of BPK increases in terms of the number of agencies and audit scope which includes financial, performance and special purposes audits. However, until 2009, BPK still cannot audit tax revenues and some SOEs. Moreover, the lack of competency of government agencies to apply the new government accounting standard (2005), resulting on late submission of their financial statements that caused BPK to examine their financial accountability. Although BPK has significant improvement in increasing numbers of audited entities for financial, including compliance audit, the audit scope of BPK still have limited role in enhancing accountability as it has not focused yet in the actual outcome and performance audit. BPK is still continuing to develop the instrument and measurement to examine the performance of public sector agencies. For specific purpose audits as a demand from the Parliaments, BPK conducted investigative audit for the case of corruption, environment audit, financial audit for the heads of governments elections, and international aid audits. Access for Reliability of Audit Evidence Under the new law of BPK (2006), auditors have power to access any data and information for auditing purposes in every government agencies. The sanctions for auditees who do not provide data and information for auditors, and auditors who misuse these data and information, have been stipulated. The clear power and authority of BPK auditors to

access data and information for auditing indicate positive commitment from the government to act transparent and accountable and also provide positive perceptions from the respondents. However, based on the research evidence, although the power of BPK to access data and information have been strengthened, BPK still has impeded in accessing data and information from auditees, such as in the case of tax revenues data and data for audit go public SOEs. Objectivity and Credibility of Audit Reports Information Based on the study, it revealed both positive and negative responses and comments on the objectivity and credibility of information in BPK audit reports. However, the survey pointed largely to positive perceptions of information in audit reports and optimism from the respondents on the significant reforms design to provide objective and credible audit reports. Survey supported comments by a range of key informants from BPK, auditees and the members of Parliament. However, criticisms and negative views have showed that these claims were over-optimistic. Some negative comments during interviews provided more open and honest statement that reduces the optimism to some degree. The key informants doubt the objectivity and credibility of audit reports due to BPKs lack of independence. The study revealed that BPK auditors had strong pressure from the high officials or elected people who were not acting responsibly to the public such as at the local level, the pressure from the Regent or Mayor. In addition, the reports of the Ministry of the National Army had been altered. These negative and deficiencies views noted a more balanced viewpoint and showed that there is still room for BPK to improve the objectivity and credibility of its audit reports. Understandable Information The survey results indicate various perceptions whether the reports of BPK provided a clear and understandable information or not. From interviews, the study revealed that information in audit reports from BPK was still hard to understand by the stakeholders, especially when technical terms on auditing and finance used were not well defined. Although auditors argued that the ability to understand audit reports depends on the competency of stakeholders, this study found that presenting clearer and simpler information in the report can avoid misinterpretation and help citizens to understand the reports. Precise and Informative Formatting Audit reports from BPK were too thick, too long, too complicated and lack of interesting presentation for stakeholders. This condition affected difficulties in reading, absorbing and understanding information in audit reports. Since 2007, BPK has provided a new summary audit report format and continued producing innovations with an elegant lay out, pictures, fancy pie charts, and short written stories. Moreover, BPK attempts to obtain

information about expectation of audit reports from those who produce the audit reports and who read these reports, in particular, the members of Parliament and government. Timely Reporting Timely audit reporting has been stipulated by the Audit Law (2004) and included in audit standards. The survey results indicated more positive responses from auditors and auditees groups, in contrast with the members of Parliament who were doubtful about timeliness of audit reports. Negative views were also revealed which suggested BPK did not successfully fulfill the requirements of the stakeholders, in particular members of the Legislative institutions, to provide up-to-date and timely audit reports. Publication of Audit Reports BPK audit reports are now published to provide the public with information on the performance of government and how government funds are spent. Moreover, audit findings of BPK have raised curiousness of the public that increased the number of articles in printed media, radio and television. Table 3 presents the numbers of articles of BPKs findings/results in 2006. Table 3: Numbers of News Articles of BPKs Findings/Results in 2006 No 1 2 3 4 5 6 7 8 9 10 11 12 Month January February March April May June July August September October November December Numbers of News 61 56 92 53 68 69 157 136 59 131 108 84

Source: Adapted and processed from Clippings of BPK, the Public Relations Division of BPK, Jakarta,

Moreover, a public awareness program has been conducted to raise public understanding of BPKs roles and functions in promoting participation in effective public sector auditing. The survey of this research found that the respondents agreed that BPK audit reports have been published. However, some respondents including politicians and audited found unhappy with the publication BPK audit findings. Audi tees covered-up their cases and tried to stop BPK from publishing their cases. They argued that information in BPK reports could provide a bad impact on organizations, for example, information on nonperforming loans (NPL) and irregularities in national banks that made customers distrustful about depositing their money and encouraged them to move to other foreign banks. Realistic Audit Recommendations and Following up Findings and Recommendations A realistic and constructive audit recommendation to improve the public administration and performance of public sector agencies is essential for effective audit reports. The research found that the audited found difficulty and lack of responsiveness to follow-up the recommendations in BPK reports. On the other hand, the auditors could not provide realistic recommendations that can be done in short or medium terms by audited. As a result, the BPK recommendations from year to year do not change. Although the mandate for public sector agencies to follow up BPK audit reports has been provided in the audit regulations, the evidence shows that the rate of follow up of BPK findings and reports are still very low. This study revealed that the members of Parliament found it difficult to encourage the public sector agencies to follow up BPK reports. The public sector agencies aware of the importance to follow up BPK audit findings. However, audited found hard to follow up and to meet all the data, information and recommendations requested by BPK auditors in the short term. After audit reform (2002-2006), data indicate a serious problem of the government in following up BPK reports. National daily newspapers (Sam 2006, Sunspot 2006 and Sara Pembaharuan 16 May 2006) revealed that the level of follow-up of BPKs audit reports was very low. From 2003 to 2005, 16,433 cases of the misuse of state finances with a value of Rp.132.49 trillion, US$146.69 million, 98.91 thousand and 361.48 million, were found by BPK. However, only 6,920 cases, or about 42 per cent of the total, were followed up, while the rest, valued at Rp.34.22 trillion (25.8 per cent of the total value in Rupiah) and US$ 61.11 million, were not addressed by government.

In addition, significant findings of BPK include inefficiencies and loss of state finances up to a value of Rp.253.75 billion in various government procurement projects, plus Rp.1.5 trillion in questionable debt reductions and bad loans involving a number of dissolved banks, which were not followed up (Hudiono 17 May 2006). Moreover, in semester 1 of 2006 the follow-up on BPK audit reports was only 36.15 per cent1.

Table 4: Follow-up of Cases and Values (in billion rupiahs) of State Losses in 2005-2006 Group of Entities State Losses Cases 701 2,330 Values 7,713 1,352 Followed-Up Cases 104 226 Values 2,507 89 No Followed-up Cases 597 2,104 Values 5,205 1,263

Central Government Regional Government SOEs 23 4,762 23 4,762 Total Year 2005 3,054 13,827 330 2,597 2,724 11,230 Central Government 165 16,056 18 143 147 15,913 Regional 1,530 1,869 3 0.3 1,527 1,868 Government SOEs 26l 1,321 5 56.2 21 1,265 Total Sem. I 2006 1,721 19,246 26 199.5 1,695 19,046 Source: Adapted from: Kompas, 6 January 2007. Tata Pemerintahan: BPK segera terbitkan standar pemeriksaan (State administration: BPK will launch auditing standards soon), Jakarta. Table 4 summarizes the cases and value of the state losses in audit findings of BPK in 2005 and semester I of 2006 which indicates a very low rate (only 10.8% cases in 2005 and 1.51% cases in 2006) of follow-up on BPK findings. Although few in number, the follow-up of state losses contributed about Rp.2,597 billion in 2005 and Rp.199.5 billion in 2006 to state treasury. Table 5: Follow up of BPK Audit Recommendations (Central and Local Governments and SOEs) in 2008 Institutions Total Status Completed Recommendations Recommendations Finished Under Process No Follow up Central 13,794 cases 7,062 cases 3,130 cases 3,602 cases Government (23.3%) (48.52%) (28.18%) Rp. 52 trillion Rp. 108.31 Rp. 62.91 trillion trillion
This information was presented by at the Tortama IV of BPK in the auditorium of BPK, Jakarta, on 6 December 2006.
1

Local 76,733 cases Government

SOEs

2,954 cases

29,399 cases 13,588 cases (24.16%) (44.03%) Rp.100.3 trillion Rp. 182.75 trillion 1,000 cases 1,292 cases (50.75%) (41.28%) Rp. 63.82 Rp. 51.92 trillion trillion

33,746 cases (31.81%) Rp. 132.04 trillion 662 cases (7.97%) Rp. 10.02 trillion

Source: Processed from website BPK RI (www.bpk.go.id accessed on 13 March 2009).

In addition, Table 5 shows a quite significant numbers of cases with huge values of money were not followed by auditees. It seems that the recommendations were run very slowly. For instance, for State Owned Enterprises (SOEs), from about 2954 cases, there were still 662 cases have not been completed. Almost 25% of BPK reports were followed up by central and local governments and more than 50% by SOES and has contributed more than Rp. 216 trillion for state treasury. The data from Table 5 also indicates significant BPK findings on the inefficiency of state expenditures in public sector that were returned to state treasury. The highest inefficiency was in local government, central government and SOEs respectively. BPK only has the responsibility to monitor the follow-up of audit reports. Factors Influencing the Quality of BPK Audit Reports This paper examines three key factors influencing the content and communication of information in BPK reports, namely: the independence and autonomy; the professionalism and integrity; and the audit resources. To support the analysis, this study examines the factors pre and post audit reform, including the legal basis, the survey, comments and statements from personal interviews, publication of the media, and conferences/seminars.

Independence and Autonomy of an Audit Institution Before the audit reform, BPK had no independence as mandated by the sacred (sakti) 1945 Constitution. The president was powerful in influencing all the bureaucracy,

including BPK, to meet his purposes. As a result, BPK could not provide an objective and credible information in its reports because the reports were sorted and checked by the government for national stability reasons. Moreover, BPK had limited budget to maintain its independence. Since the audit reform, the independence of BPK has been secured and strengthened by the amendment of the 1945 Constitution (2001), the Law on BPK (2006) and state finance audit standards (SPKN 2007). Some significant reforms have been made to make BPK an independent audit institution. In terms of budgeting, the approval of BPK budgeting is not from the government, but from the parliament based on the needs of BPK. Figure 1 illustrates the process of getting the budget resources and auditing accountability of BPKs budget. Three main state institutions are involved in this process, namely: Parliament, the Government (the Ministry of Finance) and BPK. To maintain independence in budgeting, (1) BPKs plan budget is separated from the state budget plan. BPK proposes its budget plan to get approval from the Parliament after a discussion about the need for state audit activities; (2) after the BPK budget is approved, Parliament informs the audit need of BPK to the Ministry of Finance to be inserted in annual state budget plan; (3) for examining the accountability of BPK to the public, Parliament appoints an independent public accountant office (KAP) of three auditors proposed by BPK; (4) the audit results of KAP on the BPK accountability are published to the public.

Figure 1: BPK Budgeting Resources and Process

Appointed (5) An Independent Public Audit Office

Audited and Published (6)

Budget Proposal (1) Budget of BPK Parliament Approved Budget (2)

Annual State Budget Plan

Inserted (4)

Minister of Finance

Informed (3)

ource: Adapted/Processed from Article 35 of the Law Number 15 of 2006 (GOI 2006b).

Figure 2: Appointment Process for Members, Chairman and Vice Chairman of BPK
DPD (Senate) 1 5 Consideration 7 Head of Supreme Court of Justice Swearing-in selected Members, Chairman and Vice Chairman of BPK Appointe 8 Input 4 Attended Candidates of BPK Members 3 Announced Public President as the Head of State 7 9

Parliament

Appointed 6

Members of BPK

Chairman and Vice Chairman of BPK

Source: Adapted from the amended 1945 Constitution (2001) and Article 14 of the Law Number 15 of 2006 on BPK (GOI 2006b). In terms of leadership, the new appointment process for the Board members, including BPK Chairman and Vice Chairman, has resulted in independence of BPK leaders from the government. The appointment process of BPK members can be depicted in Figure 2. DPR proposes all candidates for BPK members to be considered by DPD (processes 1 and 2). After that, all of the candidates for BPK membership are announced to the public (process 3). Parliament (DPR) makes the final decision on the appointment and selection of members of BPK after the consideration by DPD and input from the public (processes 4, 5 and 6). In terms of human resources, BPK has more flexibility in recruiting, developing, terminating, rewarding and punishing Board of members, auditors, and staff based on the BPK demand required, without being subjected to the strict rule of MENPAN and BPK. Besides positive responses on the improving of BPK independence, this study reveals that BPK has not been successful in becoming an independent audit institution. This study recorded evidence which implies deficiencies of BPK auditors in achieving substantial independence, especially due to the fact that they are still accepting money from auditees, are still bribable, and still open to the possibility of negotiations between auditors and auditees. These practices significantly reduce the independence of auditors. Since 2004, a member of SAI has been involved as external reviewer and an inspectorate unit as internal controller has assessed the independence and performance of BPK. The roles of peer review and internal inspector have significantly influenced the effort

of BPK to keep improving the quality of its audit reports through maintaining its independence. Integrity and Professionalism of BPK Members and Auditors Before audit reform, BPK lacked of integrity and professionalism, the training and education was not effectively improving the skills and competence of auditors. Moreover, BPK had not many auditors with a background in accounting and had no the Code of Ethics for its auditors. Moreover, BPK had no clear audit manual, guidelines and technical guidance. Since the reform, the requirement of BPK to maintain its integrity and to ensure the security and immunity of auditors and members of BPK are stipulated clearly under the Law on BPK (GOI 2006b). BPK also has had the Code of Ethics (BPK RI 2007c). Besides, BPK has implemented a remuneration system to provide fairer reward for auditors who are more professional and have better performance; and also to maintain auditors professionalism in providing credible and objective reports. This study found that BPK has strongly attempted to improve the auditors competence and professionalism by sending its auditors for training and education both inside and outside the country. All auditors are compulsorily required to develop their competence by completing at least 20 hours of the 80 hours education within a one to two years period. Besides positive responses on the improvement of integrity and professionalism of BPK, this study also revealed that the competencies and knowledge of auditors was still not as stakeholders expected. For new auditors, lack of experience in auditing public sectors agencies resulted in their lack of ability to detect fraud and corruption. BPK auditors also still lack of knowledge and experience beyond accounting and finance to examine the performance of public sector agencies and provide realistic audit recommendations. Auditing Resources of BPK Before the audit reform, BPK had very limited resources, including budget, auditors, representative offices, trainings and other audit resources. Besides, the resources of BPK were controlled under influence of the government and the bureaucracy. As a result, the quality of findings, opinions and recommendations in BPK reports was deficient.

Table 6: Annual Budget Allocations for BPK before (1993-2000) and after Audit Reform (2001-2009)

Year 1993/1994 1994/1995 1995/1996 1996/1997 1999/2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Amount in Rupiahs (billion) Description 29.27 33.30 42.39 55.92 93.09 81.01 116.44 153.96 199.91 238.33 329.36 690.23 1,337.85 1.490.84 1.725.48 Before audit reform

After audit reform

Source: Adapted from 1. BEPEKA Statistics 1995/1996 (BPK RI 1996). 2. BEPEKA Statistics 1996/1997 (BPK RI 1997). 3. BPK RI Statistics 2001 (BPK RI 2002). 4. BPK RI Statistics 2002 (BPK RI 2003). 5. BPK RI Statistics 2003 (BPK RI 2004) .

6. BPK RI Statistics 2004 (BPK RI 2005b). 7. BPK RI Statistics 2005 (BPK RI 2006b). 8. BPK RI Statistics 2006 (BPK RI 2007b). 9. Website of BPK (www.bpk.go.id, accessed on 17 August 2009).

Table 6 shows that the budget allocation of BPK before audit reform was much smaller than after the audit reform (2001). The parliament and government have increased the budget of BPK more than five times higher from Rp. 329.36 billion to Rp. 1.725.48 billion in 2009, after they found a significant improvement in BPK performance in auditing public finance that saved state expenditure and increase the state revenue. BPK has put in place an impressive increase in the quantity of resources. Since 2004, the allocation of budget has improved significantly; numbers of new auditors and staff have increased by more than 1500 personnel. Figure 3 shows the total number of BPK personnel in the period of 1998/99-2008 which indicates increases in the number of employees continuously every year. According to the head of human resources of BPK (6/12/2006), in 2007, BPK recruited more than 1700 auditors to fulfill its audit mandate especially for the new employees for the representative offices. Compared to the number of employees before the audit reform, the number of employees in 2008 has increased by about 2600 personnel. Figure 2: Numbers of BPK Employees Period 1998/99-2008

Sources: Adapted from: 1. BPK RI, BPK RI Dalam Angka (BPK Statistics) 2003 (BPK RI 2004). 2. BPK RI, BPK RI Dalam Angka (BPK Statistics) 2004 (BPK RI 2005b). 3. BPK RI, BPK RI Dalam Angka (BPK Statistics) 2005 (BPK RI 2006b). 4. BPK RI, BPK RI Dalam Angka (BPK Statistics) 2006, (BPK RI 2007b). 5. BPK website (www.bpk.go.id Accessed on 17 July 2009). Moreover, since BPK has been employing the implementation of reward and punishment for its personnel in separate functional and structural positions, HRB has a special section for evaluating and developing competition between staff and auditors and for managing functional positions (BPK RI 2007f). Table 7 shows numbers of BPK employees

who received rewards, namely Satya Lencana Wira Karya2 for their achievement. On the other hand, BPK also employed punishment for auditors and staff who broke the BPK rules and code of ethics. Table 7 indicates that evaluation had been employed by the HRD. The remuneration system has been implemented for the welfare and fairness of BPK personnel. Moreover, there is a welfare section that has responsibilities in managing the remuneration system, providing consultation and health for its personnel. Table 7: Numbers of Employees Received Reward and Punishment (2004-08) Year Rewards* Punishment 2004 29 7 2005 18 35 2006 28 25 2007 4 93 2008 10 41 Total 89 201

Source: website of BPK (www.bpk.go.id. Accessed on 27 July 2009) Note: * Satya Lencana Wira Karya Award In addition, Table 8 presents data of the recruitment of new personnel of BPK in 2007 and 2008, which indicates that the priority was mainly for auditors with a background in professional accountancy, in addition to other educational backgrounds, such as: financial and human resources management, development studies, law, civil engineering and public relations. Table 8: Recruitment of New BPK Personnel for Financial Year 2007-08

This award is from the Government for BPK employees who perform well achievements and dedication.

No 1

Department Recruitment Accounting 272 Financial Management 25 Human Resources Management 5 Development Studies 5 2 Law Law Science 40 3 Engineering Civil Engineering 25 Industrial Engineering 10 Mining Engineering 5 Informatics Engineering/ 20 Computer Science 5 Social and Communications 20 Political Science International Relations 2 6 Agriculture Agriculture 5 7 Forestry Forestry 10 8 Psychology Psychology 5 9 Literature Indonesian Literature 2 English Literature 4 French, German, Dutch and Russian 1 (for each Literatures literature) Total Recruitment as of Year 2007/2008 469 Source: BPK Announcement Number: 01/S.Peng/X-X.3/12/2007 on Recruitment of Candidate Public Officials for Bachelor Degree at BPK, the financial year 2007/2008 (BPK RI 2007d). In addition, the number of Board has increased from seven to nine, as there are compulsory of 80 hours training for auditors. The number and quality of BPKs training and education have improved. Table 9 shows the programs in education and training centre which were held from 2004 to 2006 for auditors and managers. Data indicated expanding education and training held by the centre extensively, in line with the increasing numbers of auditors as well as levels of managers as a result of opening new offices. Moreover, BPK also increased the numbers of personnel pursuing their formal education through post graduate degrees and overseas short courses (non-degrees). Table 9: Numbers of Participants in BPK Training and Education (2004-06) Education/Training Training of Managers Training of Auditors Training of Technical Staff: Overseas Short Courses (Non-Degree): Formal education for Post-Graduate Degrees: 2004 2005 2006

Faculty Economics

26 47 60 445 497 1472 2828 3444 1642 28 49 10 28 6 36 Source: BPK RI, BPK RI Dalam Angka (BPK Statistics) 2006, pp. 46 and 49 (BPK RI 2007b)

The modern equipment and IT has been added; and regional offices have opened in every province. Figure 4 illustrates Indonesias geographical spread and the BPK location of representative offices throughout Indonesia, 33 provinces from West to East and from North to South. Figure 4: Representative Offices of BPK RI in 33 Provinces (after the audit reform, in 2008)

These facts indicate that since the reform, BPK has gradually increased its resources as to conduct its audit roles and functions more effectively. Conclusion Since the audit reform, BPK has had clear mandate from the Constitution and the Law on State Finances (2003), the Law on State Treasury (GOI 2004b), the Law on Audit (GOI 2004a), and the Law on BPK (GOI 2006b). Its scope of auditing now (1) includes all the state finances (both central and local governments, SOEs, ROEs, the Central Bank of Indonesia, public services agencies, and other agencies using the states money; (2) has a higher and broader scope of audit, which covers three types of audits (financial, performance and specific purposes audits). Moreover, BPK has been confirmed as the only external audit institution for all public sector agencies in Indonesia, while BPKP is the internal auditor. As a result, the numbers of auditees has increased multiple times. BPK reports in the past were difficult to understand because of too many technical financial, accounting and auditing terms which could not be understood by any stakeholders with no knowledge or background in finance and accounting. Since the audit reform, BPK provides guidelines for auditors to provide a clear and understandable report for stakeholders. This is described in new BPK state finance standards (GOI 2005). Moreover, BPK provides summary reports which are easier to read for stakeholders and includes a glossary of some technical terms on the reports. Since the audit reform, audit reports are issued and published on time in printed form and electronically in BPK website. The new

legal basis has required auditees to submit their reports to BPK and auditors to submit the audit reports to Parliament on time. The publication of audit findings has raised the participation of the public to control the performance and openness of government agencies. However, the study also found misuse of published audit reports by the media or opponent parties for sensitive or corruption cases. Evidence indicates that the follow up of audit reports of BPK is still low. Before the audit reform, there was no obligation for auditees to follow up BPK audit findings or recommendations. The Parliament was never following up the BPK reports (submission to the Parliament was only a formality) which did not indicate corruption, fraud or misuse of public funds (the reports had been previously screened by the government). Since the audit reform, the follow up of BPK audit findings and recommendations is mandated by amendment of Constitution (GOI 2006C), the Law on Audit (GOI 2004a) and the Law on BPK (GOI 2006b). The Members of Parliament are the main stakeholders of BPK, who follow up the audit reports as part of their major task to oversee the performance and accountability of government. As follow up of audit recommendations and findings are very important to providing better performance in public administration and management, BPK provides discussion and communication with audited, members of Parliament both central and regional levels to give explanations about BPK recommendations and findings that have to be followed up. Besides, BPK signed joint agreements with the Legislature. Moreover, BPK monitors and reports the follow up to the Parliament. As BPK has no power to give sanctions or to prosecute audited who do not follow up audit reports or have indications of criminality, BPK signed joint agreements with authorized investigators (the Police, the Attorney General and the Corruption Eradication Commission or KPK). After the audit reform, the independence of BPK has been bolstered by (1) a clear mandate of Constitution to be the only external audit institution that is to be independent in order to improve the transparency and accountability of the public sector; (2) a clear difference of function between BPKP (as a part of government) and BPK (as an independent body), with no rivalry between internal and external audit institutions; (3) an independent budget that is separated from state budget; (4) a new appointment system of the Board of Members, including the Chairman and Vice Chairman, that are appointed by the Parliament. This is resulting in more independence and autonomy of BPK leaders; (5) clear regulations to maintain the independence of BPK auditors and personnel; (6) greater authority to organize its human resources management without being subject to strict rules administered by MENPAN (Ministry of Administrative and Bureaucratic Reforms). BPK has gradually strengthened its professionalism and the integrity of auditors and members with skilled auditors and professional training as one of the most important factors for providing quality audits. BPK has also provided a Code of Ethics for maintaining the auditors integrity and professionalism. The implementation of the Code of Ethics is supervised by the Honorary Members of Code of Ethics Board that come from professionals and academics. Based on the Law, BPK also provides immunity and security to avoid

pressure and intimidation practices (such as from the head of regional government and army) to BPK auditors. In addition, since BPK has implemented a performance-based remuneration system with incentives for promoting or sanctioning its auditors and staff, auditors are not allowed to accept any money, facilities, tickets and accommodation from auditees. This new system is intended to reduce bribes from auditees to BPK auditors. There is evidence that public sector agencies have supported BPK findings and recommendations in audit reports about making changes and improvements to their public administration. They recognize the importance of the results of BPK audits in improving their performance. However, there are still many public agencies which are unresponsive and lack commitment to act on recommendations from BPK. For instance, public agencies have been unwilling to comply with regulations from the Ministry of Finance aimed at improving the state finance system, as indicated by the lack of integration of IT application systems for financial management in the government sector and the slowness of government in adapting the accrual-based accounting system. BPK sent letters directly to the President on this matter, but received no response. As data and information indicated that the public sector agencies lacked commitment to act on BPK recommendations, BPK has tried to bring awareness to the leaders of the public sector agencies by providing discussion on the importance of acting on BPK reports as a means to reform public administration. Recommendations for Improving Quality of Audit Reports Based on the comprehensive study of the effectiveness of public sector auditing in Indonesia, some recommendations are suggested to make BPK a more excellent and reputable audit institution. Although some effort has been made and some reforms have been achieved, BPK still needs to improve its weaknesses and to be aware of threats from the external environment. These recommendations can help BPK to get better performance in the future. The recommendations are divided into six aspects namely (1) legal basis; (2) institutional; (3) training process; (4) effectiveness of audit reports; (5) human resources; and (6) Information Technology (IT). Legal Basis Aspects To strengthen the role and functions of the ethics board and inspectorate unit of BPK. To implement audit law and audit standards effectively with law enforcement and sanctions for any auditors and members who do not comply with regulations, such as accepting bribes or other gratification from auditees. To keep proposing judicial review of the tax and State Owned Enterprises (SOEs) Laws that impedes BPK from auditing the national tax revenues and SOEs.

Institutional and Resources Aspects To communicate effectively between BPK, parliament and government about the importance of accessing data and information for auditing tax revenues, MA revenues, and SOEs, as mandated by the Constitution. To protect auditors from external pressure or who uncover sensitive cases (such as fraud, corruption and other irregularities) to maintain their audit independence and the quality of audit reports. To build networking with public sector auditors professional association, public policy, public administration groups to develop auditors expertise in measuring organizational performance. To create stronger commitment and integrity of the members of BPK in providing an objective and credible information in audit reports through training and education that focus on psychomotor and cognitive targets, such as revitalization integrity and anticorruption ethics training programs. To improve the quality of audit resources in all new BPK representative offices, mainly for information technology that allows auditors (1) to access data and information relating to the activities of the audit office and public sector regulations and documents; (2) to share information between auditors and other interest groups; (3) to get faster and cheaper communication with other SAIs; (4) to help auditors to detect fraud and to conduct audit disaster.

Effectiveness of Audit Reports Aspects To pay more attention to performance auditing for assessing the results, outputs, benefits and impacts of the public sector organizations in short, medium and long terms that will improve economy, efficiency and effectiveness of state programs. To assist members of Parliament in understanding BPK audit reports to perform their duties and functions to hold the public agencies accountable to the public. To focus on the value of audit reports, with a concrete and constructive recommendations, and clearer and more understandable analysis that takes into account the needs of stakeholders. To provide more effectiveness of monitoring and controlling in the implementation of follow-up audit reports. Human Resources Development Aspects To allow more opportunity for graduate auditors to pursue formal and professional education and trainings inside or outside the country to develop auditors with knowledge and skills, especially to improve BPK capacitys for conducting performance auditing and complying with audit standards. To improve communication building capacity of auditors with stakeholders, both orally and written for improving effective audit findings and reports and for reducing misunderstanding between auditors and auditees.

To improve the capability or power of information in audit reports in providing an objective and credible report for getting greater trust from auditees, users and stakeholders. To improve the knowledge and understanding of auditors in communication and information technology for providing a timelier manner audit reports. To engage with the problems faced by the bureaucracy, public administration and management, and other non financial performance measures for accommodating the needs of different auditees and for providing realistic recommendations in performance auditing for stakeholders to be followed-up. To rotate BPK auditors for different auditees to reduce the possibility of cooperative negotiation or negotiation impasses between auditors and auditees. To provide a wider variety of multidisciplinary skills, besides accounting and management, for conducting performance auditing. To enhance professional development of auditors through e-learning strategy for future learning environment in BPK. To evaluate the curriculum, teaching methods, trainers, and training facilities based on the training needs analysis.

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DECENTRALISATION, ACCOUNTABILITY, AND LOCAL GOVERNMENT PERFORMANCE IN INDONESIA Sujarwoto*) and Tri Yumarni**) Abstract What makes local governance working effective after decentralisation? Why some local governments are achieve better performance than others in managing decentralised public services and resources? How can malfunction local governments be reformed in order to perform effective and efficient? This article contributes to our understanding of these overarching questions by exploring the linkage between local government accountability, corruption, and citizens participation. Departing from critiques on fiscal federalism theory, we propose hypothesised pathways through which decentralisation can lead better local public service performance. The basic hypotheses underlying this research is that decentralisation will result in better local public service performance only if mechanisms for strengthen political accountability are established within local governments. Without strong political accountability, decentralisation only creates powerful incentives for political and bureaucrat agent to capture local political process and misallocate public resources. We test these hypotheses against evidence from 155 newly empowered local governments in Indonesia. Governance Decentralisation Survey Data (GDS) is used to examine the linkage between decentralisation, accountability and local government performance in the country. The results of simple and multilevel regression model broadly support the hypotheses. Less corruption, higher local government accountability and citizens political participation are all associated with better local government performance. In contrast, poorly performing local public services are often deeply rooted in their political and social contexts. Local governments often fail to provide better public service when political accountability is absent due to weak checks and balances, lack of transparency, and weak electoral incentives. These effects remain statistically robust across all regression specifications. Keywords: decentralisation, political accountability, and local government performance.

*)

PhD Student at Institute for Social Change University of Manchester UK Email: sujarwoto.Sujarwoto@postgrad.manchester.ac.uk
**)

Lecturer on the Department of Public Administration, Jenderal Soedirman University Purwokerto Central Java Indonesia Email: trieyumarni@yahoo.com

Introduction In recent years, there has been considerable discussion on the merits of decentralisation. The discussion has often focused on the provision of a greater variety of public goods that may result from decentralisation. More recently, greater emphasis has been placed on political accountability issue at local governments. Recent decentralisation reforms substantially focus on political decentralisation rather than administrative and fiscal decentralisation (Crook and Manor 1998:1, Bardhan and Mookherjee 2006a:4, World Bank 2008). Political decentralisation emphasizes the working of political participation and political institutions, such as political parties and civil society, to ensure the accountability of local politicians and local officials. Proponents of political decentralisation argue that bringing citizens closer to government and allowing them to hold politicians accountable are an important foundation to enhance local public services performance. They argue that better quality of representation and greater transparency will be created when citizens are allowed to be more actively engaged in public affairs. Although political decentralisation promises better government and deeper democracy, in practice this approach meets challenges. Under decentralisation citizens should have greater say in the policy making and programme choices of government, but evidence at many developing countries suggests that this is not often the case. In some cases, local governments may actually be more subject to capture by vested interests than national ones after decentralisation (Bardhan and Mookherjee 2000; Bardhan 2002; Bardhan and Mookherjee 2006b). Bardhan and Mookherjee (2006b:164) elucidate some of the basic trade-offs involved in the delegation of decision making to local government: decisions are made on the basis of better (local) information, but they are made by an agent whose incentives differ from those of the principal thus leading to a loss of control or an abuse of power. In decentralised government, local governments may be more vulnerable to corrupt because local power groups can easily collude beyond the control of higher level institutions. Bienen and colleagues (1990:72-73) identify that decentralisation created opportunities for local elites to capture resources and decision making at the local level in Nepal. Rusia has faced a fast-moving decentralisation process since the early 1990s, when it was transformed from a centrally planned economy into a decentralised market economy. During the process of devolution, local leaders have been empowered and local governments have been captured by initial rent holders (Blanchard and Shleifer, 2000). This has led to very high levels of corruption, which are still a significant problem facing the Russian economy and society today (Lessmann and Markwardt 2010: 631). In Bangladesh, under President Ershads decentralisation reform, the decisions over allocation of resources continued to be made by elites of political factions that corrupted and controlled the local governments (Sarker, 2008: 1425). Instead of facilitating equity in participation, representation, influence and benefit sharing, decentralisation can lead to local government corruption. With corrupt local governments, there is a tendency for lack of accountability and inefficiency of public services.

Despite the recognised importance of local accountability system in determining decentralisation performance and an extensive descriptive literature, there have been surprisingly few empirical studies. Most of empirical research on decentralisation has dealt with the impact of intergovernmental administrative and fiscal relations on the performance of local governments. Insufficient emphasis has been paid to the varying patterns in the adjustment of local accountability systems to the new institutional environment created by decentralisation reform. There are several empirical studies which explore how exactly local accountability systems are transformed or created and how they in turn affect local public service delivery in developing countries. However, most of them are descriptive in nature and use qualitative methodology (see for example Bienen and colleagues 1990, Hadiz 2003, and Sarker 2008). Few quantitative studies have been conducted to examine accountability and decentralisation reform, but they either use province or village as unit analysis (see for example Blanchard and Shleifer 2000, and Bardhan and Mookherjee 2006). In addition, most of them use limited sample so that the results can not be generalized on the population. This study addresses those gaps by using a large sample of households and local governments. Various factors which determine the working of local accountability are examined to explain local public services performance in the new empowered local governments in Indonesia. Following economic and political crisis in the mid 1998, political system in Indonesia changed from highly centralised government to decentralised government. The passing of the bill on regional government (22/1999) and the bill on fiscal balance between the central government and local government (25/1999) transformed the rhetoric of political decentralisation and regional autonomy into reality. These bills devolved resources and responsibilities from the central government to around four hundred local governments in Indonesia in all governments administrative sectors, except for security and defence, foreign policy, monetary and fiscal matters, justice, and religious affairs. Significant public expenditure has been devolved to all districts amounting to around one-third of total national expenditure. In particular the bill on regional government 22/1999 prompted a major reorganisation of political accountability chains in this country. First, it eliminates the hierarchical relationship between the central, provincial, and local governments/districts. Citizens have freedom to elect their local leaders and parliaments through direct election. The major and district government officials are elected by and responsible to the locally elected assembly (Dewan Perwakilan Rakyat Daerah). Second, for locally assigned responsibilities, the branches of ministries in the districts are placed under the jurisdiction of local governments. Indonesia's decentralisation, therefore, neatly reflects the concept of political decentralisation. In this article, we seek to find answers to several questions: when local governments are charged with new responsibilities and are equipped with more resources, to what extent they can enhance performance? How is the performance of local governments affected by the citizens participation, accountability, and local government corruption? What is the

likely pathways connecting decentralisation and performance? What is the implication of political decentralisation for better government? To find answers to these questions, we use the 2002 Governance Decentralisation Survey (GDS) data collected from a stratified random sample of around ten thousand respondents nested in one hundred and seventeen districts in the country. We use the data to measure the performance of districts as perceived by citizens and seek to explain why districts perform as they do. GDS is designed to collect information both at the level of citizens and districts. This nested or multilevel structure allows the use of multilevel analysis to capture unobserved variations between local governments. The rest of the paper is structured as follows. We begin by proposing a model linking political decentralisation, accountability, and performance. Next, decentralisation change in Indonesia as the context in which study based is introduced. Then, we present hypothesis and discuss some methodological problems on measurement. After that, we present empirical results and discuss some key findings before conclusion.

Decentralisation, accountability and performance There is a long theoretical literature on the advantages of decentralization. The following are some of the advantages that decentralization will make information revelation as citizen preferences are easier to perceive at the local level (Manin and Stokes 1999), improve accountability since it is easier to link the performance of local services to local political representatives (Peterson 1997), match with citizens and policy preferences as decision making move to local jurisdictions, improve fiscal management, and improve economic growth and market security (Wibbels 2000). All these benefits lead to enhance efficient and less corrupt governments (Fisman and Gatti 2002), and to increase democratization and participation (Crook and Manor 1998). While there is an array of theoretical reasons why decentralization should be expected to improve local government performance, the empirical evidence has not been as supportive. The empirical results of decentralization throughout the world have been mixed at best (see Agrawal and Ostrom 2001, Bardhan and Mookherjee 2003; and Ribot 2004). Litvack, Ahmad, and Bird (1998) present evidence from Eastern and Central Europe and suggest that public services can suffer as a result of decentralization, at least in the short run. In a similar vein, Crook and Sverrisson (1999) have provided evidence that despite extensive strides of devolution of authority and resources to democratically elected local governments, decentralization in Colombia, West Bengal and Brazil has achieved little in improving service delivery. Rather than improving local government performance, some authors find that decentralization increased potential for elite capture in Nepal and Bangladesh (Bienen and colleagues 1990, Sarker 2008), rent seeking and corruption in Rusia (Triesman 2000, Blanchard and Schleifer 2000), exclusion of local minority populations, and conflict for new

resources in local government in other developing countries (Prudhomme 1995; Ribot 2004). Why is it, the, that decentralization-more of than not-does not live up the expected benefits? A number of studies suggest that the outcome of decentralization crucially depends on the extent to which central management is replaced by democratic institutions ensuring that the community can exercise control over local government (Agrawal and Ribot 2000, Ostrom 2000, Anderson 2003, Rodden 2003). In a well functioning democratic system, citizens are able to exert pressure on local elected representatives to provide needed goods or services. However, in many cases the fundamental prerequisites democratic institutions and local accountability are missing (Crook and Manor 1998, Bardhan and Mookherjee 2000). If political accountability is incomplete, decentralization may in fact create powerful incentives for local elites to capture the local political process and divert public resources to match their own aspirations rather than those of the broader community. In this case decentralization implies a power shift from central to local elites rather than improvement of the external accountability of the public sector (Bardhan and Mookherjee 1999, 2000). Recent studies hint that thinking about sequence of reform is important to understand the working of institutional reform such as decentralization and local democracy in developing countries (Grindle 2004). Putting decentralization on it sequences will provide clues when local democracy works to achieve effective decentralization. Indeed, traditional theory of fiscal federalism, which is developed in a Western context, has been challenged in terms of their political applicability for designing and implementing decentralization in developing countries (Bardhan 2001). Fundamental to the workings of this normative model is a precondition that local governments already have sufficient institutional capacity which enables them to discharge their responsibility (Dillinger 1994). This model implicitly assumes well-established systems and mechanisms that enable citizens to express their preferences and local governments to respond to their demands. In many developing countries that embraced decentralization, however, these preconditions or process are lacking or are still in the process of being established and developed. Hence, undertaking analysis on sequences of decentralization reform would provide insight into time dimension of change and promote greater tolerance for local governments in developing countries to establish preconditions for effective decentralization. Thinking in sequences, we present hypothesised pathways through which decentralisation lead to better local public service performance. In figure 1, we present a model of these pathways. It is assumed that the process of decentralisation in post-centralistic developing countries will grow from t0 to t3 where t3 > t2 > t1> t0. Here, the duration does not matter, only the sequence does, because development on each phase depends on local governments achievement on some preconditions. For example, improving local public service performance (t3) requires existing political accountability (t2). How long local government takes time to achieve accountability depends on the development of effective

citizens political participation. Similarly, we also do not know how long local government takes time to reduce corruption. It may reduce along with the increasing citizens political participation. Here, political participation is a necessary precondition to achieve improved public services. Figure 1: hypothesised pathways through which decentralisation may lead to better local public service performance
Decentralisatio

Citizens political participations

_
Local government Local government accountability

Local public service performance

t0

t1

t2

t3

From this model, we can divide decentralisation into two phase, say t0-t2 for earlier phase and t2-t3 for the next phase. The first phase take places when the central government formally transfers their power to local governments. As experiences in many developing countries show this phase focuses on securing the legitimacy of the state and on consolidating national stability (Bardhan 2002; World Bank 2002; Bardhan and Mookherjee 2006a). For instance, World Bank (2002) notes that the widespread of decentralisation in Latin America, Asia, Africa, and Eastern Europe since the 1980s is mainly to enhance the legitimacy of state due to the failure of centralised government in those countries. Similarly decentralisation in Indonesia has occurred following the failures of Soehartos authoritarian government and economic crisis in 1998s. Decentralisation in the country is key political

choice of central government to secure national unity and stability. Here, the initiatives of reform mainly come from the central government rather than local governments. Meanwhile, the second phase of decentralisation is initiated when preconditions of effective decentralisation are developed. What make the second phase is different from the first phase is that decentralisation in this phase is established by effective citizens political participation and local government accountability. Along with increasing local government empowerment, the main actor of decentralisation is changed from central government to local governments. Hence, the initiatives of decentralisation grow partly from the initiatives of local citizens. Following this model, local public services are suffered in the first phase. This is due to the extent of corruption and elite capture are unchecked by local governments. Corruption tends widely occurs in this phase due to decentralisation acts through local leaders as channels for distributing resources from central government. These actors are on the privileged position to use or misuse resources directly. Platteau (2004:227-230) suggests that the probability of resource misuse by local elite is increased when decentralisation act through local leaders. This is because decentralisation enables leaders and outside agencies to channel considerable amount of resources from communities. Experiences from several countries show the evidence of local corruption and elite capture in the early decentralisation. Blanchard and Schleifer (2002) provide evidence on local elite capture on Russian decentralisation in the early 1990s. Instead improving local democracy and performance, Russian decentralisation creates empowered local leaders who capture local government power and resources. This has led to very high levels of corruption, which are still a significant problem facing the Russian economy and society today. Similarly, Sarker (2008) illustrates how decentralisation reform in Bangladesh has dominated by elite of political factions rather than open opportunity for citizen participation particularly on the decision over allocation of resources for local development. In Indonesia, Hadiz (2003) provides qualitative study on how local political context became charged with elite capture and corruption in three newly empowered local governments at North Sumatra. With corruption and elite capture, local democracy may not function appropriately, thus limiting accountability of local governments (Lieten 1996; Crook and Manor 1998; Bardhan 2002; Bardhan and Mookherjee 2006b). Local government may be susceptible to capture by special interest groups or reduce effort to improve public services without facing any risk of losing their positions. Hence, there is a tendency for the local government to over-provide the service to elites at the expense of the non elites. In that case public service delivery may worsen under decentralisation. Decentralisation will result in better local public services in the second phase. In this phase, some pre-conditions of political accountability are established. Citizens political participation grows along with political awareness, regular and fair election, and effective civil society organisation. Political awareness improves along with increasing literacy and socio-economic status within the communities, apart from exposure to independent media

sources. Regular and fair election will ensure accountability of governments through threat and reward of re-election. It is a form of incomplete contract which permits citizens to express their displeasure with corrupt and incompetent official by refusing to re-elect them (Seabright 1996). Furthermore, existing civil society organisations will not only demand good performance, they can also provide models of how improvements can be made, participate in decision making and implementation activities, and take an active role in monitoring the performance of elected and administrative officials. All of these are necessary to foster effective citizens political participation, and thus for strengthening local government accountability. As proponents of democratic decentralisation argue, when local citizens have the opportunities to participate in political process, they become more effective at rewarding and punishing the behaviour of local officials (Tiebout 1956, Oates 1972). This condition will create forceful incentives for elected officials and civil servants to reduce opportunistic behaviour and improve public service provision, thus enhance local government performance. The important of citizens participation and civil society organisation in determining better local public services performance is supported by decentralisation experience at Illave Peru and Porto Allegre Brasil (Baiocchi 2003:45; Grindle 2007:1). Both cases are well known as an example how community participation and social groups within community has predominantly role in achieving success decentralisation. As identified by Baiocchi (2003) and Grindle (2007), local democracy and services are more effective in Illave and Porto Allegre because community and their social groups are more active to pressure and support, demand making, and ensuring local government accountability. In the contexts of developed countries, Putnams analysis of Italys local governments and the impact of civil society and social capital (Putnam, Leonardi and Nanetti 1993). Putnam posits that the degree to which devolution of authority lead to better local government is based on the level of organization of civil society and the extent to which civil actors are able to monitor and hold local officials accountable. This bottom-up approach places agency not in politicians, but rather citizens themselves and their ability to organize and interact with the formal political structure. The role of citizens participation and civil society is particularly important in the Indonesian context with strong corporatist traditions and powerful executives, where local politicians have historically been accountable to political parties and a small handful of elite supporters. Indonesian decentralisation experience Indonesia has made remarkable progress in creating a decentralised system of government. Since the 1999, decentralisation bills (bills 22/1999 and 25/1999) were enacted and implemented in 2001. The enactment of these bills has changed Indonesia from a highly centralised state to a decentralised state. In particular the bill on regional government 22/1999 prompted a major reorganisation of political accountability chains in this country. It eliminates the hierarchical relationship between the central, provincial, and local

government. In a break from the past, the local government officials are elected by and responsible to the locally elected assembly. In addition, for locally assigned responsibilities, the branches of ministries in the districts are placed under the jurisdiction of local governments. Furthermore, the bill no 25/1999 on fiscal arrangement transferred additional fiscal sources to local governments. More than a third of national budget was transferred to local governments. The central government and donors have continuously increased the pool of resources transferred to local governments in relative and absolute term. This fiscal reform is followed by reassigning more than 2.5 millions of civil servants to districts. This makes the local governments have authority to manage human resources and capacity. In addition, a second round of democratic election took place in 2004 at both national and sub-national levels in a credible fashion. Now, all local governments have freedom to elect their local leaders and parliaments through direct election. With these changes, local governments are more independent in electing their own leaders, promoting their own interests, developing their own institutions, initiating their own policies, managing their own financial resources, and mobilizing support from their own communities. Like many other developing countries, Indonesian decentralisation was accompanied by hopes and worries. Local governments performance increasingly varies depending on the extent to which they took advantage offered by decentralisation. A significant number of local governments have forged ahead with reforms and became the locus for innovative form of government and better public services. Elsewhere, however, local political contexts became charged with lack of accountability and failure to respond to local needs (AsiaFoundation 2002). There is some evidences that suggest key political accountability mechanisms are only weakly developed in some of the newly empowered local governments (Kaiser and Hofman 2003; Malley 2003; World Bank 2003a). Local corruption and suspected bribes in the annual local government account report have occurred in several local governments (World Bank, 2003a). These suggest that decentralisation in the country does not have a uniform impact on local governments capacity but rather lead to a differentiation process with regard to both performance and level of accountability across localities. Hence, the principal aim is to understand how these different outcomes are brought about and if accountability and local government performance are interconnected.

Hypothesis Based on the foregoing discussion, we hypothesise that local public services performance in decentralised government is a function of citizens political participation, local government accountability, and local government corruption. Corruption and local capture in the early phase of decentralisation decreases local public service performance. On the other hand, citizens political participation and local government accountability will increase local public

service performance. The degree to which decentralisation lead to improvement on local public services is depend on the extent of citizens participation and the existing social groups within community.

Data This paper used several data sources to test our hypotheses. First, Governance Decentralization Data survey wave 1 (GDS 1) which was fielded by the World Bank Indonesia in conjunction with the Centre of Public and Policy at Gadjah Mada University during 2002 one year after a radical decentralization implemented. Previous studies used this data to examine decentralization public services in Indonesia (Kaiser and Hofman 2003, World Bank 2003a, and Eckardt 2008). GDS 1 covered a randomized sample of 177 districts. Quantitative indicators for both local public service performance and most of the explanatory variables are derived from this source. The sampling ensured representativeness at both the national and the district level. In each of the sample districts, about 60 households were questioned using structured questionnaires covering their perceptions of various issues relevant to the analysis. In particular, the questionnaire included about perceptions of the quality of public services, perceptions of the workings of various political process, transparency, and participation. In this paper, I restrict only on respondents who already have political right to vote in Indonesian national election (age 17 years or older). In addition to these survey data, district-level fiscal and socio-economic data were merged into the dataset. The fiscal data were retrieved from the Regional Finance Information System. Fiscal data used refers to years 2001 one year after decentralization.

Measuring performance This study use citizens responses to measure both performance and some of the explanatory variables mentioned above. We realize that using perception indicators raises some methodological problems. The concept of public service performance are rather elusive and therefore measuring or observing this variable posses considerable difficulties. Compared to most parts of the private sector, performance measurement in the public sector is fraught with problems (see for example Andrew and Shah 2003: 64-65; de Silva 1999: 1-3; Uphoff 2003). There is no agreed upon and readily available set of indicators to measure the performance of public institutions comparable to profit margins, market share, and productivity to measure the performance of private sector. In practice, this has often led to the application of several parallel criteria in the assessment of performance, including various perception-based indicators. Such perception-based indicators are commonly

applied in research on public service performance. Even so there is widespread agreement that they should be treated with cautions3. Despite these limitations, citizens responses on performance can provide valuable information that it is noteworthy for understanding local public service problems. Putnam (2003: 53-55), for instance, uses public satisfaction measure and find valuable information about the different performance between local government at Southern and Northern Italy from 1977 to 1988. Next, Deichman and Lall (2003:1) use citizen satisfaction measure to evaluate service delivery performance at two Indian cities, Bangalore and Jaipur. They find that citizen satisfaction can provide valuable information to evaluate the impact of decentralization on service delivery in urban areas. But, they warn that responses in satisfaction survey are at least in part determined by factors that are unrelated to decentralization performance like age, gender, education, income, and ethnicity, as well as attitudes and predispositions related to political beliefs or past experiences. By controlling various socio demography and economic characteristics, Lewis and Pattinasarany (2009:85) find a significant correlation between objective measures of education services and household satisfaction levels in Indonesian local governments. In addition, the use of citizens response on performance is also better than simple satisfaction rating (Swindell and Kelly 2000). This is because this measure eliminates the effect of different qualities at the outset of decentralization and focuses on changes that occurred since decentralization. Even if this measure have limited precision, they are sufficient to derive ordinal scale variables.

The satisfaction data used in this study are more useful since the questions are measured before and after decentralization. In the survey, respondents are asked in your opinion, how is the quality of (services) in the districts, comparing year 2002 and year 2000? The services include school, local public health service, general public services, water management, and cleaning services. The study focuses on changes in three particular areas where the local government provides front end services that are directly consumed by citizens: public health services, public education services, and general public services including the issuance of permits, identity cards and various licenses. These service areas

Perceptions are in fact often noisy proxies for the underlying concepts, e.g. they are unsystematically influenced

by factors other than the ones in question. In interviews, individuals may simply have difficulty understanding and responding to certain questions, they may answers strategically, or provide responses that they deem socially acceptable. In addition, perceptions will reflect the personal characteristics and expectations of the respondent. For example, respondents level of education or prior experience is likely to impact upon his or her assessment. It is thus important to control for some of these by including personal characteristics in the estimation.

were chosen since they represent the bulk of local public expenditure. Taken together, they account for between 40 and 50 per cent of local public expenditure. These services are also crucial with regard to human development and they allow for a representative and plausible appraisal of government performance.

Based on the survey responses on perceived service performance, an index is calculated using factor analysis. Variance of factor one is 2.3 (eigenvalue = 2.3) with proportion 75 per cent. The ranges of performance index vary from -3.1 to 1.3. Table 1 presents the description of performance index and variables used to develop the index. Table 1: descriptive of dependent variables Variables Primary school services Community health services General services Local public service performance index N Source: GDS 2002 mean 2.4 2.4 2.4 0 5602 sd 0.6 0.5 0.5 1 5602 min 1 1 1 -3.1 5602 max 3 3 3 1.3 5602

Three different regression specifications: OLS regression, random effect with GLS regression, and fixed effect regression model are used to estimate the relationship between local public service performance and the explanatory variables. The multilevel models include residual at the citizen and local government level. Thus, the residual variance is partitioned into between local government's components (the variance of local government residuals) and within local government (the variance of citizen level residuals). The local government's residuals represent unobserved local government characteristics that affect citizens satisfaction. It is these unobserved variables which lead to correlation between citizens satisfaction for citizens from the same local government.

Measuring accountability, corruption and citizens participation

Political accountability refers to specific conditions within the political system under which citizens have the ability to demand answer from agents within the public sector about their proposed or past behaviour, citizens ability to discern that behaviour, and to impose sanctions upon the public sector in the event that their behaviour is believed to be unsatisfactory by the citizens (Schmitter and Karl 1991, Keahone 2002). This definition entails three essential features of political accountability. First, accountability is though of as an inherently relational term: a person or organisation has to be accountable to someone else. Second, accountability includes the obligation of actors that are accountable to provide information and explanations for their actions. Third, accountability requires the ability of those to whom these actors are accountable to apply sanctions when these actions are deemed unsatisfactory. Scott (2000) points out that questions of who is accountable to whom and for what are the heart of all concepts of accountability. Following those features, we use three indicators to measure accountability including (1) suspected bribes in annual local governments account; (2) information dissemination regarding local development budget; (3) the ability of local government to apply sanction on corruption. We expect the first and third indicators likely reduce local government performance, while the second indicator likely increases performance.

Local governments corruption is measured by perceive corruption of household on community health services, basic education services, and general services. In the survey respondents are asked have you heard any corruption cases in schools, community health services, village and district where you living? Perceive corruption has been most commonly used in previous work in the economic literature (Bardhan 1997). Previous studies use this indicator to measure decentralization performance (see for instance Brueckner 2000, Fisman and Gati 2002, and Gong 2006). This variable is meant to capture the likelihood that local government officials will demand special payments, and the extent to which illegal payments are expected throughout local government services. Consistent with the hypotheses, we expect that higher perceive corruption in the beginning of decentralization is likely reduce local public service performance.

Citizen participation is measured by indicators including (1) participation in local election, (2) participation in community development (i.e. village health services and village development improvement), (3) membership in social organisation (i.e. youth organisation, women groups, and religious groups), and (4) the existing village decision making. Participation in local election is viewed as a mean for ensuring accountability of government. Through fair election, citizens can express their displeasure with corrupt and incompetent government by refusing to re-elect them. Hence, higher citizens participation in local election likely improves local government performance. Next, participation in community development and membership in social organisation not only provide channel

for exert pressure on the public sector to provide better service, but they can also provide models how improvement can be made. Furthermore, the existing social groups both created by government such as village decision making provide opportunity for citizen to participate in policy process. Through these groups, citizens can take an active role in monitoring the performance of elected and administrative officials-and sanctioning and rewarding them at election time. Thus, we expect the existing social groups in community likely improves performance.

Other explanatory variables Previous studies indicates several socio demography and economic variables which strongly affect responses in satisfaction surveys (Deichman and Lall 2003; Lewis and Pattinasarany 2009). These variables include age, gender, education, household expenditure, and household living in rural areas. Education and household expenditure likely have negative association with service performance. The higher economic status and more educated people likely have higher expectation with public services quality compare with the lower economic status and less educated people. Therefore, we expect the higher economic status and education likely reduce satisfaction. On the other hand, female and household living at rural areas is likely having lower expectation with quality of service delivery. We expect both variables have positive association with local public service performance. We also include geography in the model since this variable is an important factor which determines citizens characteristics in Indonesia. As an archipelago state, Indonesians are separated on different islands which have different on ethnicity, culture, religion, and economic development achievement. Hence, including geography variables in the model will control the association of those variables on local government performance.

In addition, a number of variables capturing fiscal conditions are included in the analysis. Controlling for fiscal condition is important since it allows us to asses how far local government budgets matter in local service provision. On the expenditure side, the model controls for share of wage on total expenditure. Higher wage bill is expected to be associated with lower performance since higher wage bill pressure lack of budget for public services. On the revenue side, the model controls for share of general allocation grant on total revenue. In the early decentralization, most of local governments depend on the central government grant. This is because most of local governments have lack of fiscal capacity to mobilise tax and resources. Thus, we expect higher share of general allocation grant on total revenue to be associated with higher performance.

Empirical results

Following the model proposed, we expect local public service performance will suffer in the earlier phase of decentralization. In contrast with the expectation, services seem to have improved in the eyes of a large majority of respondents. Decentralization apparently does not lead to a breakdown in service at the local governments, but sparked considerable improvement in reported satisfaction with services. As can be seen from figure 2, the survey results draw quite an optimistic picture of the effects of decentralization. Two years after decentralization, the overwhelming majority of respondents perceived public services to either have remained the same or to have improves as compared to the period before decentralization. The highest rankings occurred in the health and education sector. As indicated by figure 2, on average more than 40 per cent of the questioned respondents reported improvements with regards to education and health service. Only a small fraction of respondents perceived deterioration in the quality of the public services.

Figure 2: perceived changes in the quality of local public services (percentage of respondents).

70

60

50

40 % 30

Worse Same Better

20

10

School

Health

General services

Source: GDS 2002 Survey. Question HH RD7 However, we have to be careful in interpreting this result. This is because survey responses of citizens may suffer from social desirability bias. For instance, respondents may be

responding in a polite manner to survey questions about satisfaction, but not in away that necessarily represent their real views. Respondents may also have low expectations about service delivery, which when compared to actual quality of service lead to relatively high levels of satisfaction. Therefore, it is probably best to understand this result as indicative of relative and not absolute levels of performance.

Next, a brief look at the data suggests a variation with regard to respondents characteristics, local conditions of local government accountability, citizens participation, and performance. Table 2 presents descriptive statistic of the explanatory variables. Most respondents are male and tend to be older (range above 43 years old). Most of them are graduated from senior higher school. Respondents tend to have lower expenditure. The percapita monthly expenditure in the average respondents is about 540.000 rupiah (equal with US $ 54). In term of geography, most of respondents live at Java, Bali, and Sumatra Island. Few of them live in Eastern part Indonesia and remote islands. Table 2: descriptive statistic of explanatory variables Variables Age Female Education mean or % 43 30 % 4 Rp. 540.000 50 % 43 % 30 % 10 % 5% sd 12.3 0.5 1.3 min 17 0 1 Rp. 300.000 0 0 0 0 0 max 99 1 8 Rp. 7.000.000 1 1 1 1 1

Household expenditure Citizen lives at rural areas Citizens living at Java and Bali Citizens living at Sumatra Citizens living at Eastern Indonesia Citizens living at remote Islands Perceive corruption in community health service, schools, and local development programme Perceive suspects bribes in local government annual account report Presence of sanction on corruption

0.3 0.5 0.5 0.5 0.3 0.2

30 %

1.1

20 % 8%

0.4 0.4

0 0

1 5

Receive information regarding local development budget Citizen follow local election Citizen participation on community development activities Citizen membership in civic organisations Presence of village decision making institutions Share of general allocation grant on total revenue Share of wage on total expenditure N

2 59 %

1.9 0.5

0 0

5 1

1 41 % 60 % 54.5 % 72.9 %

1.0 0.5 0.5 19.3 16.4

0 0 0 3.0 72.9 5602

4 1 1 97.0 93.3 5602

5602 5602

Source: GDS 2002 Survey, Regional Fiscal Information System 2001 Corruption in local public services as perceived by respondents ranges from 0 to 3. Only few respondents report suspect corruption on the local public service during decentralization. Likewise, only around 20 percent respondents reports that annual local government accounts are suspects. Respondents report presences sanction of local corruption also very low with 8 percent. With regard to transparency as measured by dissemination on local development budget, only few respondents report that they were informed. Respondents participation in local election is relatively high. Participation in various civic organisations also shows variation ranging from none to almost half of respondent reporting involve in various civic organisations. Overall, participation in community development activities as measured by attendance in village health post meeting or posyandu is low. Controlling for fiscal condition is important since it allows us to asses the effect of local government budget on local service provision. Decentralization has resulted in vast differences in fiscal conditions of local governments. The variation in the importance of the general allocation grant as revenue source (from 90 percent to around 15 percent) reveals considerable difference with regard to the revenue side of local budgets. Whereas the civil servant wage bill consumes 97 per cent of the budget in the district with highest salary outlays, it only accounts for 3 per cent in the district with the lowest.

Table 3 presents regression results for a range of explanatory variables in both simple and multilevel models. First, elaboration about several individual control variables is presented. The older respondents perceive decrease in performance of local public services. Women are more satisfied with local services compared to man. Those with higher education perceive less improvement. In contrast with the expectation, households who relatively

have higher expenditure tend to perceive improvement. In terms of geography, they who live at main Islands (Java-Bali, Sumatra, and Eastern Indonesia) likely perceive better performance. In contrast, respondents who live at remote Islands likely perceive less improvement on local public services. Citizens who live in rural areas perceive better local public service than they who live in urban areas.

Table 3: OLS, random-intercepts, and fixed-effects regression models for explanatory variables OLS coeff. Individual Female 0.084 0.030 0.010 0.004 0.001 0.000 0.024 0.011 0.030 0.009 0.005 0.050 0.052 0.028 0.070 0.245 0.042 0.000 0.218 0.042 0.000 0.549 0.069 0.000 0.300 0.087 0.000 0.087 0.030 0.000 0.099 0.030 0.000 -0.004 0.001 0.000 0.004 0.001 0.000 -0.023 0.011 0.040 0.022 0.011 0.050 0.009 0.005 0.050 0.008 0.005 0.080 0.054 0.029 0.060 0.068 0.029 0.020 0.225 0.044 0.000 0.136 0.051 0.010 0.211 0.044 0.000 0.194 0.045 0.000 0.531 0.071 0.000 0.469 0.076 0.000 -0.301 0.090 0.000 0.277 0.095 0.000 se p random intercepts coeff. se p fixed effects coeff. se p

Age

Education Household expenditure Citizen lives at rural areas Citizen lives at Java-Bali Citizen lives at Sumatra Citizen lives at Eastern Indonesia

Citizen lives at remote Islands Perceive corruption in community health service, schools, and local development programme Perceive suspects bribes in local government annual account report

0.113 0.021 0.000

-0.114 0.021 0.000 0.114 0.021 0.000

0.185 0.033 0.000

-0.184 0.033 0.000 0.177 0.034 0.000

Perceive presence of sanction on corruption 0.056 0.034 0.100 Receive information regarding local development budget Citizen follows local election Citizen participation on community development activities Citizen membership in civic organisation Presence of village decision making institutions Local government Share of general allocation grant on total revenue Share of wage on total expenditure

0.051 0.034 0.130 0.046 0.034 0.170

0.031 0.008 0.000 0.147 0.030 0.000

0.031 0.008 0.000 0.029 0.008 0.000 0.145 0.030 0.000 0.134 0.030 0.000

0.097 0.014 0.000

0.096 0.014 0.000 0.091 0.014 0.000

0.064 0.027 0.020

0.061 0.028 0.030 0.057 0.028 0.040

0.022 0.028 0.440

0.024 0.029 0.410 0.024 0.029 0.420

0.107 0.023 0.000 0.141 0.027 0.000 0.304 0.077 0.000 0.060

0.115 0.024 0.000 0.124 0.026 0.000 -0.148 0.028 0.000 0.154 0.031 0.000 -0.292 0.078 0.000 0.272 0.078 0.000 0.060 0.060

Constant R2 overall 2 Housman test (Chi-squared) N

0.050 0.000 0.000 0.050 0.040 0.000 484.33 5602 5602 0.000 5602

Note: factor analysis-perception of local government performance on primary school service, community health service, and general administration.

The next block of results provide some support for the hypothesis that corruption in local public services is consistently associated with lower scores in the service performance. Similarly, perceived bribes in the local government annual accountability report is likely to decrease performance; again this result holds across various specifications of the model. The coefficient of perceived bribes is relatively high compared to other variables with 18-19 per cent. Meanwhile, perceive presence of sanction on corruption have no correlation with

local public service performance. The use of perception based indicators to measure the extent of corruption and bribes in annual accountability report, however, requires caution in the interpretation of these results. Higher citizens participation in local election, community development and social groups makes better service outcomes more likely. Citizens who follow local election perceive improvement on local public service since decentralization. The coefficient of citizens follow local election is relatively high compare with other variables with 13-14 percent. Interpretation of this result however should be careful. Participation in local election generally is viewed as a mean for ensuring accountability of government. Through fair election, citizens can express their displeasure with corrupt and incompetent government by refusing to re-elect them. Higher citizens participation in local election thus can improve local government performance through circulation of local government officials. Given perception as a measure of performance in this study, the association between both variables can also be driven by other factors. For example, citizens perception can directly change due to they follow local election. This is because citizens who follow local election have more informed about local government development. Participation in community development activities (i.e. voluntary health services or posyandu) and membership in various types of civic organisation (i.e. women association activities, child development group, youth organisation, and religious organisation) is also associated with perceived improvements in local public services. The effect remains in all regression models. In contrast, presence of village decision making institution which originally designed by government has no correlation with performance. Getting citizens involved directly in the lowest structure of government can improve local governments capacity both in improving and in providing services. Community participation and social groups which is built from community can affect this capacity by, for example, proposing types of services which they needs as well as providing direct material benefits or helping to target material resources most efficiently within a community. Next, transparency, as measured by dissemination on local development budget, is likely to improve local public service performance. Engaging citizens to monitor local development activities through village decision making institution encourages local bureaucrats to respond to communities demands. In the lowest structure of government, citizens can better oversee the way local agencies use public fund and deliver services in daily life. Here, information dissemination can be understood as channels for improving citizens political awareness. By providing information about how government spent their money, they will have opportunity to monitor and to evaluate local government activities. Whether or not we can attribute this effort as a causal chain, between participation and transparency to more accountable local governments and therefore improved services can be contested. The results may also be driven by other factors. For instance, participation might by itself change

respondents perceptions of services, simply by providing more information about changes and improvements in service delivery.

Some of the measures for difference in fiscal conditions are related to variation in the service. The share of the general allocation grant in total revenue improves performance. General allocation grant from the central government is the main revenue for most districts, particularly for less developed districts. These are deemed to lack of capacity in mobilising resources in the early phase of decentralization. Hence, grant allocated from the central government and international donors are important to support the operation of local public sectors. Respondents in districts with less wage costs are more likely to report less improvement on performance. Higher share of wage on local expenditure may create budgetary pressure that restrains the local government from investing in the service improvement. Or conversely, lower wage bills are related to more fiscal flexibility since the government has more resources at its disposal to allocate to sectors of particular importance. Moreover, higher wage bills are presumably associated with lower physical infrastructure and part of the effect may be attributed to the fact that changes in infrastructures may be more visible to respondents than other characteristics of service quality and thus driving perceptions.

Discussion While interpretation of the results should be viewed in light of certain data limitations, there are a number of important findings. Previous studies recognize that decentralization not only can improve local government performance, but also can lead to inefficiency on local public services and corruption (Bienen and colleagues 1990; Blanchard and Shleifer 2000; Sarker 2008). Reflecting from decentralization experiences in Nepal, Russia, and Bangladesh, this study confirms that the potential of corruption and capture is serious when local government accountability is weak. This study finds both perceive corruption and suspected bribes in local governments account report are important determinants in explaining poorly performing local services. The index of local services performance decreases along with perception of corruption and bribes in local public services. This study confirms that various channels enabling citizens to be involved in providing services and to articulate their voices in policy making improve performance. Membership in social groups which is designed by community such as youth organisation, women association, and religious group has an important role in improving performance. Likewise, citizens participation in community development activities particularly volunteering in village health posts improves performance. In Indonesian contexts, the positive association of community participation on local service provision is also reported by Miller et al.

(2006:1094-1096) on their study about social capital and health. They identify that community which have higher participation and denser social groups likely have better health. The link between citizens participation, social groups, and local services performance can be explained through several mechanisms. As citizens have opportunities to participate, they become more effective at rewarding and punishing the behaviour of local officials. As a consequence, local officials have incentives to be responsive to local needs and concerns. Meanwhile, social groups not only can exert pressure on local government to provide better services, but also can provide models of what kind of services and how improvement can be made according to local concerns. For example, earlier studies find that many community health post or posyandu in Indonesia have an important role in providing preventive health care, immunization, vitamin supplements, and health information, below the cost of comparable services in the private sector. In terms of the relation between various control variables and local public services performance, this study finds both contrast and similar evidences with previous studies. This study confirms that local public service performance of most local governments still depend on transfer of grant from central government. In the early decentralization, most of local governments have lack of fiscal capacity to mobilize own resources, so that grant from central government is the main source for running local public services. As identified on this study, there is a relatively strong correlation between shares of general allocation grant on total expenditure on performance. Local governments which have higher share of general allocation grant on total expenditure likely have better local service provision compare with they who have smaller share. This finding contrast with previous study by Eckardt (2008) which identifies no significant effect between shares of general allocation grant in total revenues on local public services performance. The reason of this different result perhaps because in his study Eckardt do not take into account random intercepts between local governments as well as local government fixed effects in the analysis.

This study also confirms that geography has strongly correlated with local government performance. This study finds that citizens in remote Islands less likely perceive less performance than they who live in main islands particularly Java and Bali, and Sumatra. As an archipelago country, geography has major challenges for local governments to deliver service delivery (Lewis and Pattinasarany 2008). As a result, most of citizens in remotes islands have lack access of services both in terms of quantity and quality. Here, negative correlation between remote islands and public services performance may reflect lack of local public services performance at these areas.

Conclusion

The general hypothesis tested in this article is that the performance of local public services is to significant extent determined by the existing citizens participation, local government accountability, and local governments corruption. The results are broadly consistent with the predictions of the hypothesis. Higher local government accountability, less corruption, higher citizens participation and presence of social groups in communities are all associated with higher performance perceptions. These effects remain statistically robust across all regression specifications. While we should be cautions in interpreting the results as causality in the strict sense, they still provide an interesting pattern that should be addressed in further empirical analysis.

Poorly performing local public services are often deeply rooted in their political and social contexts. Local governments often fail to provide better public service when political accountability is absent due to weak checks and balances, lack of transparency, and weak electoral incentives. If political accountability is incomplete, decentralisation will create powerful incentives for political and bureaucrat agent to capture local political process and misallocate public resources. Conversely, better performing local public services are consistently with higher citizens participation and active social groups within community which strengthened local government to be responsive and deliver service more efficient. Higher accountability will increase the political costs of inefficient and inadequate public decisions and public service performance is likely to improve. This requires a politically active community that able to broaly participate directly and indirectly in examining accountability.

Future research on explaining local government performance with public services will do well to concentrate some of its efforts on improving the information base related to local government environments. The collection of data on additional aspects of local corruption will be important in order to appraise the potential pitfalls of decentralisation. More broadly, additional work on specifying and collecting data on objective indicators of local public service performance, as contrasted with perceptions, while quite difficult, will be most helpful in enhancing the robustness of these types of analyses.

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ANALYSIS OF DEMOCRATIC PUBLIC SERVICE NETWORK

(Case Study in Urban Transportation Service in Makassar City, South Sulawesi Province, Indonesia)

Dr. Alwi, M.Si*)

Abstract

In general, public services organized by government bureaucracy are still a serious problem, including urban transportation services / public transportation in Makassar City. In this case, urban transportation services in Makassar City have not been able to provide service as expected by citizen. As principle of democracy, citizens are "masters who must be delivered service satisfactorily by state officials. Therefore, government bureaucracy, in fact, must understand the needs of citizens and this is what writers call democratic public service. Theoretically, to solve complex problems such as problems of urban transportation services necessary interorganizational networks, because many institutions associated with it. Merging the two concepts into the concept of democratic public service (urban transportation) network is a new concept in the science of public administration. Interorganizational network aims to use resources efficiently and effectively, as well as democratic public service aims at making citizens as the focus of public service through their involvement in the process of solving public problems. This study aims to describe the implementation of democratic public services (urban transportation) network in Makassar City. This study used qualitative methods and case study research strategy to uncover the deeply democratic public services network. Data collection techniques used was observation, indepth interviews, and documents. Processing technique and data analysis is the analysis of qualitative descriptive case study. The result of research pointed out that the implementation of democratic public service (urban transportation) network in Makassar City has not been effective.

I. Background

*)

Teaching Staff in Department of Administration Science, Hasanuddin University, Makassar, Indonesia

Democratic public service delivery is core of local autonomy, which its implementation is full responsibility of local government. Local government must attempt to deliver of public service to the citizen effectively, efficiently, economically, and social equity (Frederickson, 1980). Nevertheless they have not been satisfying citizens expectations. This case caused by bureaucracy as public service still leader oriented, not customer. This phenomenon in accord with research of Dwiyanto et.al (2002), there are 76,7 % of respondents said that public service based on rule of law and leader instructions, and 18,7 % only satisfactorily in Makassar City, Indonesia. Nevertheless, one of core function of government is to deliver of public service that customers oriented (Davis & Heineke, 2003; Doherty & Horne, 2002; Osborne & Plastrik, 2000; Osborne & Gaebler, 1995; Barzelay & Armajani, 1992). One of public services that are focused on this research is public transportation (city transportation) in Makassar City. Public transportation service delivery based on Law No. 22/2009. The aims of public transportation are to accomplish safety, fast, and order transportation. Based on above, there are government efforts in this case such as idealization of transportation network configuration as recommended by Regulation of General Director of Transportation No. 274/HK.105/DRJD/96 about Technical Guidance of General Transportation in City Region. In this case, for Great City (more than 1 million populations), like Makassar, design of ideal line such as vital line served by train or large bus; branch line served by medium bus; sub branch line served by medium bus or city transportation; and direct line served by large bus. Based on this case Makassar City has not been having ideal line network, because line network has not been systematically and too many city transportation are operated. There are some regulations about transportation service such as mentioned above. This case pointed out that public service in public transportation is urgent, because road transportation involve about 96 % of people trip, both private and public vehicle (Lubis et.al, 2000). Furthermore, based on research of Lubis et.al about public transportation in Bandung, West Java Province, Indonesia, there are 65 % of people trip use public transportation. Also, Lubis and Isnaeni (1999) researchs about customers perception to city transportation service in Bandung City pointed out about 47 % of customers said that public transportation service unsatisfactory especially busy time, morning and afternoon. There are 42 % of respondents said that operators of city transportation impolite while run the car. The phenomena as same as in Makassar City, because its characteristics likely BandungCity. Therefore, if operators (drivers) of city transportation attempt to massive strike, then economic activities of the people will be stopped. Conceptually, complex problems such as city transportation case will handle through inter-organizational network as proved by Pfeffer and Salancik researchs (Donaldson, 1995) that pointed out 90 % of organizational performance determined by

external factors and only 10 % determined by internal factors of organization. This case showed the urgency of inter-organizational network to solve organizational problems and public service problems. The research result also supported by Becerra (1999) that the successful of organization to achieve goals determined by inter-organizational network. As mentioned above, inter-organizational network and democratic public service concepts were complementary. Because democratic public service interests of citizenry public service, the citizen or public interests are center of attention on public servant in public service delivery. The aim of inter-organizational network is to use resources effectively and efficiently, and the aim of democratic public service is to engage citizen in the solution process of public problem. Combination of these concepts is crucial to public service delivery that democratically, effectively, and efficiently. Merging the both concept of inter-organization network and democratic public service into the concept of democratic public service network is new concept in public administration. Therefore, the focus of this research is how the model of democratic public service (urban transportation) network in Makassar City, South Sulawesi Province, Indonesia.

II. Goal and Advantages of Second Year Research

A. Research Goal To describes the implementation of democratic public service (urban transportation) network in Makassar City, South Sulawesi, Indonesia.

B. Research Advantages 1. Academic: Result research will give contribution to science development in public administration, because this research will explore of dimension of new concept, democratic public service network. 2. Practice: This result will give contribution to decision maker in implementing democratic public service network.

III. Theoretical Framework A. Concept of Democratic Public Services

1. Definition Until now, public service has found some comments by some peoples, especially by customers. These cases occurred because bureaucracy as organization of public service delivery has not given full attention to citizen interests in public service delivery (Alwi, 2005; Alwi & Butarbutar, 2007). In this case, public service bureaucracy is leader oriented in implementing its functions. Leaders determine performance of followers. Therefore, followers do their works based on leader instructions; however, they have a job description. Public service as such is legal oriented, not citizen oriented; in public administration perspective is classified classic perspective. In democratic concept, administrators have to concern to citizen interests, because they are king, they must be served. Democratic public service, essentially, is implemented by bureaucracy necessary focuses on citizen interests (Gawthrop, 2002; Lyn, 1996). Public servants have much to listen what the public say is, rather than tell what the public do is. As well as public servants have to serve them, rather than steers them. Citizens and public officials are working together to define and to address common problems in a cooperative and mutually beneficial way (Denhardt and Denhardt, 2003). According to the case above, democratic public service is not focuses on how the run public service efficiently, but focuses on how the implement public services that will contribute to all citizens life (Denhardt and Denhardt, 2003). Public service delivery efficiently is required the best comparing input and output. In this case, the efficient require the best result and minimum cost. Democratic public service can not be required, because it more than process orientation, such as citizen engagement process in problems identification to problem solving. Citizen engagement in governance process will be better change in citizen life.

2. New Public Service: Foundation of Democratic Public Service In study of public administration, there are some perspectives or paradigms that explain public administration phenomena. By the end 1980s and begin 1990s pointed out big efforts of scholars to overcome complex problems in public management or administration. These efforts have been risen three general perspective, i.e. old public administrations, new public management, and new public service. Epistemologically, as paradigm have different point of view. New public service is a perspective that focuses on democratic public service delivery. Public servants have to recognize public interests in public service delivery, because they will become base on designing of some public service programs.

This is perspective dissimilar of two above perspectives. New public management focuses on public service delivery such as a system in business organization. Nevertheless, new public service is not focus on uses business management techniques, because business organization is different with public such as state of Denhardt & Denhardt (2003), government shouldnt run like a business; it should be run like a democracy. ....both elected and appointed public servants are acting on this principle and expressing renewed commitment to such ideals as the public interest, the governance process, and expanding democratic citizenchip. There are 7 essential principles of democratic public servicebased on new public service perspective Denhardt & Denhardt (2003): Serve citizens, not customers, Seek the public interest, Value citizenchip over entrepreneurship, Think strategically, Recognize that accountability is not simple, Serve rather than steer, Value people, not just productivity.

B. Concept of Inter-Organizational Network 1. Definition Study of inter-organizational network is development of management literature (Savage, 1996). Based on history of organizational theories, inter-organizational network is last change of organizational theory agenda that focuses on increasing inter-organizational network (Leach et.al, 1994). According to Roberts (2000), collaboration, translated as working together is premised on the principle that by joining forces parties can accomplish more as a collective than they can achieve by acting as independent agents. Then, Gulati (1998) states interorganizational cooperation is thus a means by which organization manage their dependence on other organizations in their environment and attempt to mitigate the uncertainty generated by that dependence. Base on definition above, inter-organizational network develop cooperation some organizations that have forces to control scare resources in their environment.

2. Inter-organizational Network Theories There are some theories that explain inter-organizational phenomena, for example resource dependency theory and institutional theory. According to Preffer and Salancik, resource dependency theory is theory that explain that the goal of an organization is to minimize its dependency on other organizations for supply of scare resources in its environment and to find ways of influencing them to make resources available (Jones, 2004). The strength of one

organizations dependence on other organizations for a particular resource to function two factors, i.e. first, how vital the resource is to the organizations survivals. Second, the extent resource is controlled by other organization. Therefore, organization attempt to develop strategy to mitigate dependence on other organizations through inter-organizational network. Then, according to Hodge and Anthony (1988), there are 8 conditions that foster inter-organizational relationships i.e. 1) 2) 3) 4) 5) 6) 7) 8) Cost-benefit (inducement-contribution) Power Resource Scarcity or Performance Distress Reaction to Super ordinate Goal or Outside Force Structural Conduciveness of the Environment Boundary Permeability Organization Goals Opportunities to Coorporate Resource dependence theory is different from institutional theory. Resource dependence theory focuses how develop strategy to obtain scare resource that is controlled by other organization. But, institutional theory focuses values and norms in the organization to obtain essential resources in its environment. To obtain these resources, organization attempt to find out acceptability and legitimacy in its environment. Basically, institutional theory places organizations in the same category as other social institutions such as the family and political system. But, organization and institution is different when they are contrasted with the economic or bureaucratic model that vies organization as uniquely and formally rational instruments for the realization of clearly defined objectives. Once an organization is viewed as an institution, it takes on the sociological baggage that renders it less rational, less formal, and less single-mindedly goal directed. Calling organization institution means that they are not simply black boxes that produce goods and services but human organization driven by emotional and tradition. Viewing organizations as institutions means that organization have a history, a culture, a set of values, traditions, habits, routines, and interests (Jaffee, 2001). Institutional theory is a theory that learn how organizations increase their capability for survive and growth in environment situation unpredictable and competitive through legitimacy by their stakeholders (Jones, 2004). According to Scott (2001), institution is institutions consist of cognitive, normative, and regulative structures and activities that provide stability and meaning to social behavior. Institutions are transported by various carriers cultures, structures, and routines and the operate at multiple levels of jurisdiction. Based on definition above, three pillars of institutions that become base on them to obtain legitimacy from their environment i.e. cognitive pillar, normative pillar, and regulative pillar. Cognitive pillar involves symbols, believes, and social identities. Normative pillar involves obligations, norms, and social values. Regulative pillar involves rulers, laws, and sanctions (Jaffee, 2001; powers, 2001). An institution find out legitimating, according to Mayer and Rowan (Jaffee, 2001), is required institutional isomorphism. Isomorphism is a single form or shape, anticipates a

further theoretical argument of institutionalism theory focusing on the mechanisms that explain similarity among organizations within the same field or population. Isomorphism refers to these mechanisms such as mimetic, normative, and coercive. Mimetic forces refer to the tendency for organizations to imitate the procedures and structures of those organizations that are exemplary models, carry high prestige, or have successfully adapted to the environment. Japanese management techniques are prime example. Normative pressures operate to channel organizational behavior and procedures in appropriate, expected, and legitimate directions. The examples from higher education apply here. Coercive mechanisms imply some formal consequences for failure to conform with particular operating procedures and structures. An example would be the regulatory requirements for industry. This research is not focuses on shaping inter-organizational strategy, but it focuses on organizational capability as institution that develops cooperation with other organizations to democratic public service delivery. Therefore, institutional theory is powerful theory that explains institutional phenomena, such as Becerra (1999) stated that legitimacy and status of an organization depend on inter-organizational network. IV. Research Method A. Location and Object of Research This research located in Makassar City and Research object is urban transportation service that implemented by Transportation Institution in Makassar City and others. Determining object of research based on considerations, such as: 1) city transportation service is essential public service, because they involves safety and fairness for citizens; and 2) Makassar City as metropolitan city has not shown transportation service that main concern to safety and fairness such as claim the Law No. 22/2009. B. Research Design This research uses qualitative design and uses case study as its strategy. The second stage (of three stages), this research uses qualitative case study design and descriptive type of research. C. Informants Determining informants in this research based on purposive sampling, - they have competency in relating with city transportation service delivery in Makassar City. They are: 1. Major of Makassar City 2. Officials in Transportation Institution in Makassar City 3. Members of Local Representative House (DPRD) in Makassar City 4. Members of NGOs in Makassar City 5. Citizen as users of urban transportation in Makassar City

D. Data Collection Techniques Data collections techniques use in this research are observation, in-depth interview, and documentations.

E. Data Processing and Analysis Techniques Data processing technique in this research is data reduction process and data analysis is case descriptive analysis. V. Results and Discussion As mentioned before that the second stage of this research is to describe implementation of democratic public service (urban transportation) network in Makassar City. This study showed the implementation of democratic urban transportation services network in Makassar City has not been effective. This can be demonstrated through the dimensions of the concept, as follows: 1. Regulation Regulation is a code of conduct for stakeholders in related urban transportation in Makassar City. Based on the results of research, regulation has not been known by the users of public transportation in Makassar City. This is caused by there have not socialized Law. 22 of 2009 about Road Traffic and Transportation and Makassar Mayors Decision No.551.05/938/Kep/XII/2009 on the Establishment of Traffic and Transportation Forum, so citizen as users not many know about the existence of this forum as a forum for discussing issues together relating to urban transportation issues in Makassar City. As a result, public transportation problems are still always the cases. 2. Commitment Actually the Government of Makassar City has demonstrated its commitment to solve various problems in public transportation in Makassar City. This is indicated by the decision the Mayor of Makassar on Traffic and Transportation Forum and pilot project of traffic and transportation that called Pilot Area of Traffic Security, Safety, Order and Smooth (KAMSELTIBCAR LANTAS). But, their implementation had not yet shown a real commitment by implementers, because their presences in the Forum are more driven by the responsibility vertically, not by organizational commitment. 3. Resources Resources are important factors in the network approach, particularly in terms of joint utilization their resources in the Forum which is formed. In this Forum, information as resources used together to produce a joint decision as KAMSELTIBCAR. However, at the level of policy implementation has not been realized joint utilization of resources relating to traffic and transportation in Makassar City. 4. Coordination Coordination has not been done effectively, since the Forum as networkbased organization's has not developed joint activities. It is also caused by the Forum has a dual management, namely Assistant for Economic and Development and Social, and Assistant for Governance of Secretariat of Makassar City.

5. Cooperation There has been no cooperation with other institutions in the form of MoU by the Government of Makassar to overcome various resources problems in the field of transportation. It can be seen still many transportation facilities and infrastructure are not yet complete. 6. Collaboration Collaboration with stakeholders in the field of transportation has been demonstrated by the Government of Makassar City, such as collaboration in policy making. This collaboration established pilot project concerning KAMSELTIBCAR LANTAS.

7. Participation In the concept of democracy, community participation as stakeholders is important. However, determining policy such as KAMSELTIBCAR LANTAS that are not involved the community as users and city transportation drivers in Makassar City, so they did not understand it. As a result they did not feel take responsibility for the problem of public transportation in Makassar City. VI. Conclusion and Suggestion 1. Conclusion Based on the description of the results and discussion above, that the implementation of democratic public services (urban transportation) networks in Makassar City has not been effective, because, 1) the regulation has not been socialized to the stakeholders in the Forum; 2) lack of commitment the stakeholders in implementing the Forums Programs; 3) there have not been joint use of resources in the implementation of the Forums programs; 4) each institutions at the Forum carried out their duties in accordance with agencys duties, 5) there have not been cooperation with other agencies to support the implementation of Forums programs, 6) there have not been clear collaboration in the implementation of Forums programs, and 7) there have not been all stakeholders participate in Forum activities.

2.

Suggestion In order to develop the science of public administration, this research require research development to find out what cause of there has not been effective implementation of democratic public service (urban transportation) network in Makassar City. Thus, this research will find out the model of democratic public service (urban transportation) network.

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