CHAPTER THREE

DECENTRALISATION IN INDONESIA:
Development and Its Implication on Distribution o Aut!orit"
bet#een Central $overnment and Local $overnment
Introduction
This chapter attempts to spell out the development of the decentralisation in
Indonesia with a special emphasis on explaining the dynamic development of the law
concerning local government and its implications on the distribution of authorities
between the central government and local government. It will address questions such
as what powers are reserved by the central government and what powers are conferred
on the local government? Finally, it will specifically focus on the implications of
decentralisation program on the government of Aceh,
The most interesting part in the contemporary political development in
Indonesia after the fall of uharto is perhaps the drive toward regional decentralisation.
uharto!s authoritarian system of government that nurtured corruption is often blamed
for the "##$ economic crisis. %eing dissatisfied with centralised socio&political
planning, reformers have turned to decentralisation to brea' the grip of central
government and encourage broader participation of the people in democratic
government. The implementation of decentralisation reflected the new post&suharto
political approach to institutionally reform and redefined the nature of the relationship
between the central government and regional government. (ecentralisation is assumed
to bring government closer to the people and manage better their own affairs. It helps
government to easily identify people!s needs and thus supply the appropriate form and
level of public services. Thus, it has been associated with the increased efficiency,
))
more thoroughgoing equity, greater participation and responsiveness of government to
citi*ens.
")+

The enactment of ,aw -o. ../## on regional autonomy and ,aw -o. .0/"###
has significantly changed the political scenario in Indonesia. ,aw -o. .. has brought
bac' democracy into Indonesia1 it enhances people!s political participation and
empowerment. In addition, ,aw -o. .0 has returned the due right of local government1
it recogni*ed the potential and diversity of regions in term of their economic capacity
to carry out local development that is based on the principle of 2ustice and equity. It
was a historic change, for the first time in the Indonesian political history that the
central government reali*ed the need to strengthen the regional legislature, so that a
sustainable development that based on equity and 2ustice could be materiali*ed. The
law is the bac'bone of the reformasi movement in Indonesia, which continues to aim
to eradicate the practices of 33- 4Korupsi, Kolusi, dan Nepotisme/ corruption,
collusion, and nepotism5, within the government bureaucracy. In this context, the
decentralisation policy was initially celebrated as mar'ing a ma2or step forward in
bringing the government closer to the people and creating the opportunity for the
Indonesian political elites to establish a democratically accountable state after three
decades of centralised authoritarian rule.
6owever, since ,aw -o.../"### and ,aw -o. .0/"### were formulated during
the time of crisis, the central government then realised that there are many defects in
those laws. 7n the one hand, the central government began to loose control over the
local government, while on the other local government found itself in trouble because
")+
ee, F. 8. 9nemou, :;roblems and prospects of local governance,! in African perspectives of
governance, ed., <. 6yden, (. 7lowu = 6. 7gendo 4Trenton/Asmara> Africa ?orld ;ress, .+++5, "$"&
.+@1 (. Aondinelli, B. Cc8ullough = A. Bohnson, :Analysing decentralisation policies in developing
countries> Apolitical&economic frame wor'd,! Development and Change, Dol. .+. 4"#$#5> 0)&$)
)$
of the burden that it should bear. These two factors forced the central government to
revise these laws and replace them with ,aw -o. E./.++@ and ,aw -o.EE/.++@.
Decentralisation under t!e Ne# Order Re%ime
6istorically spea'ing, decentrali*ation is not a very new policy at all in the
political development of Indonesia. It has been implemented since the colonial rule
era. In "#+E the (utch government introduced a form of decentralisation in Indonesia
to increase the efficiency of government administration.
")"
In the process, it too' nearly
two decades later before the district level governments were established, as a way to
create a more representative administration.
").

6owever, after Indonesian became fully independent from the colonial power,
the debate on the issue remained inconsistent and vague despite broad agreement on
the need for regional autonomy in a country the si*e of Indonesia. u'arno was so
overwhelmed by the idea of a unitary state of Indonesia, he had shown no interest in a
decentrali*ed system of government and he abrogated the Fnited tate of Indonesia
that was established by the (utch. For u'arno decentrali*ation policy is a deviation
from the sacred cause of the Indonesian ancestor, which he referred to the Sumpah
Palapa of the <a2ah Cada, the commander in chief of the Ca2apahit force.
")E
6e has
never entertained any idea for federal system of government, nor did he give face for
an autonomy system of the regional government. -ot until, the rise of insurgencies
")"
Terence 6. 6ull, Gtri'ing a most delicate balance> The implications of regional autonomy 4otonomi
daerah5 for the ;lanning and Implementation of (evelopment 8ooperation ;ro2ectsH, Final Aeport of
the AusAID funded ANU-IPI pro!ect on Population "elated "esearch for Development Planning and
Development Assistance, E (ecember "###, ..
").
<rayson ,loyd, Indonesia#s future prospects$ Separatism, decentralisation and the survival of the
unitar% state, foreign affairs, defence and trade group, .) Bune .+++,
http>//www.aph.gov.au/library/pubs/cib/"###&.+++/.+++cib").htmIdecentralisation 4accessed .E
7ctober .++@5
")E
<a2ah Cada had vision that the whole -usantara 4archipelagoes5 would be sub2ugated under the
3ingdom of Ca2apahit, and before he could achieve that he would never touch and eat the ;alapa fruit.
)#
movements in the regions of the outer islands from the late "#0+s until the mid&"#J+s,
in which the issue of ethnicity was gaining momentum and shoo' u'arno!s authority.
u'arno finally turned toward decentralisation as a mechanism for promoting political
stability.
")@

Deconcentration o $overnment Administration
6aving learned from the failure of u'arno, in terms of maintaining political
stability particularly in the region, uharto developed a more concerted approach to
decentrali*ation. 6e passed ,aw -o. 0/"#)@ on G;rinciples of <overnment at the
Aegional ,evelH
")0
and ,aw -o. 0/"#)# on G;rinciple of <overnment at the Dillage
,evelH. These laws stipulated that the relationship between the central government and
gocal government would br based on three important principles for the distribution of
governmental functions> 4i5 decentralisation of responsibilities to KautonomousK
provincial and district governments 4i.e. &otamad%a and &a'upaten level51 4ii5 de&
concentration of activities to regional offices of central ministries at the provincial and
district level1 4iii5 co&administration whereby provincial and district governments carry
out activities on behalf of the central government.
")J

In this context, the decentrali*ation efforts of regional development gained
momentum. The most important one was the "#$) GFrban (evelopment ;olicies in
Indonesia,H which declared the development and operation of many urban services to
be under the authority of decentrali*ed government and concretely identified a number
")@
ee ;amud2i, . GCa'na (aerah Ting'at II ebagai Titi' %erat ;ela'sanaan 7tonomi (aerah.H
Analisis CSIS, -o. E, Tahun LIL 4"##+5.
")0
Terence 6. 6ull, p. .1 see also 3. (avey, Central-local fiscal relations$ A report for the government
of Indonesia 4%irmingham> (evelopment Administration <roup, Institute of ,ocal government tudies,
Fniversity of %irmingham, "#)#51 -ic' (avas, 4ed.5, (inancing local government in Indonesia 4Athen,
76> 7hio Fniversity 8enter for International tudies, "#$#5
")J
;uspa (elima Amri, G(ampa' e'onomi dan politi' FF -o. .. dan .0 Tahun "### tentang autonomi
daerah,H )conomic *or&ing Paper Series CSIS, 4Bune .+++5> E, Mhttp>//www.csis.or.id/paper/wpe+0@N,
4accessed .@ 7ctober .++E5
$+
of their related responsibilities. According to mo'e and ,ewis, these responsibilities
include empowering local resource mobili*ation capability, improvement of the system
for financing urban infrastructure, development of decentrali*ed institutional,
manpower and procedural capacity, and enhanced coordination among the various
agencies and levels of government involved in the development of urban services.
"))
3eeping in line with the ob2ectives of these policies, the Cinister of ;ublic ?or's too'
the lead by launching the most prominent IFI(; 4Integrated Frban Infrastructure
(evelopment program5 in "#$0. The primary goal of IFI(; was to shift gradually the
emphasis away from the delivery of single, sector&specific infrastructure pro2ects to the
urban development process as a whole.
")$

In addition, the IFI(; also adopted a new approach to suit its primary ob2ective
which was intended to empower local governments to determine, plan and implement
their own service priorities1 it was in contrast to the traditional Gtop&downH approach.
In this context, the central government provided technical assistance for the
participating local governments towards the preparation and implements of a
comprehensive five&year investment plans as well as plans to enhance own&resources
and revenues to strengthen administrative and technical capacity.
")#

;rior to IFI(;, the Cinistry of 6ome Affairs too' a series of initiatives
focusing on strengthening the capacities of the local government in technical matters
that included capital investment programming, maintenance management, financial
"))
;aul mo'e and %lane d. ,ewis, GFiscal decentralisation in Indonesia> A new approach to an old
ideaH *orld Development, vol. .@, -o. $, 4"##J5> ".$"&".##.
")$
For detail on IFI(; see, Aepublic of Indonesia, Integrated Ur'an Infrastructure Development
+uidelines 4Ba'arta> Cinistry of ;ublic ?or's, "#$#5
")#
mo'e and ,ewis, ".#J
$"
planning and accounting.
"$+
In this pro2ect, the Cinistry of 6ome affairs received fund
from the ?orld %an'.
"$"

In "#$), another ma2or decentrali*ation policy was established, the T3;; 4,im
Koordinasi Pem'angunan Per&otaan/ Frban (evelopment 8oordination Team5, under
the 2oint decree of the tate Cinister of %appenas 4-adan Pem'angunan Nasional/
-ational (evelopment %ody5 and the Cinisters of Finance, 6ome Affairs and ;ublic
?or's. The team was established to coordinate the formulation of integrated urban
development policies, including the organi*ation of the institutional framewor' for
urban development1 coordination of integrated urban development policies and
programs1 coordination of institutional development through training and technical
assistance1 initiation, preparation1 approval and implementation of infrastructure
pro2ects1 and1 pro2ect monitoring and evaluation. %eing formally formed as a medium
for interdepartmental consultation, the team was used by the international development
agencies and technical department as the principal forum for discussing and approving
development pro2ect proposal.
"$.
In so doing, the %apennas also created an IFI(;!s
IC< 4Indonesian Canagement <roup5.
The central government was also concerned with the financial resources of local
government1 through the Cinistry of Finance a law -o. ". of "#$0 was enacted on the
;%% 4Pa!a& -umi dan ,anah/ ,and and %uilding Tax5. The legislation was to simplify
the former property tax system by consolidating various land&related taxes under the
(irectorate <eneral of Taxation and applying a uniform rate to all classes of property.
"$+
For a brief review of these programs see, ;. mo'e and B. %astin, :(ecentralising regional
infrastructure planning and finance in Indonesia> ;rogress to date and a strategy for the future,!
Development Discussion Paper -o. @J# 48ambridge, CA> 6arvard Institute for International
(evelopment, "##E5
"$"
According to mo'e and ,ewis, these two pro2ects of decentralisation of the two Cinistries were
implemented independently and poorly coordinated.
"$.
mo'e and ,ewis, ".#J
$.
It also substantially broadened the tax base by reducing exemption and changing from
a rental value to a capital value base, at the same time introducing measures to ensure
greater equity. Finally, the government also introduced strict deadlines and penalties to
ensure better registration and payment. The reforms indeed had a remar'able positive
impact on the regional revenue sources.
"$E
In addition, in "#$# the Cinistry also
introduced a lending facility such as A(A 4Aegional (evelopment Account5 that
provided the mandate for the use of formal appraisal techniques for evaluating
pro2ects, standardising interest rates on the loans it disbursed, enforcing strict
repayment of loans, and consolidating ma2or sources of loan finance for urban and
regional development.
"$@

(espites of serious decentrali*ation efforts of the government, it should be
mar'ed that the pace of decentrali*ation had largely been left to the central government
respective ministries involved in service provision, and most of them had a wor'ing
policy of interpreting the "#)@ decentralisation legislation. Ceaning that the
decentrali*ed local government was allowed to provide services only if explicitly
sanctioned by subsequent official decrees and regulation. In addition, there had been
very slow and inadequate effort to build local capacity in pro2ect planning and
implementation. For instance, ma2ority of document of the IFI(; and related
programs had been prepared fully or largely by appointed outside consultant, and
controlled and paid by central government technocrats1 it did not include the
participation of decentrali*ed local officials. As a result, the local officials often
perceived these programs and plans to be external and thus, failed to identify with
them and strongly support their implementation.
"$E
For the early result of the "#$0 property tax reforms see A. 3elly, :Implementing tax reform in
developing countries> ,esson from the property tax in Indonesia,! "evie. of Ur'an and "egional
Development Studies, vol. @ 4"##.5, pp. "#E&.+$
"$@
ee, A. Bohnson, :Aegional development account> policy and operational issues! /unicipal (inance
Pro!ect 4Ba'arta> Aesearch Triangle Institute, "##@5
$E
Accordingly, the preceding decentrali*ation efforts indicated that the
government was serious in its efforts to enhance decentrali*ation, but it should not be
seen as a genuine interest in significant political decentrali*ation1 rather, as Coffit
concludes that in its essence, the ,aw -o. 0 was designed to rein in local autonomy by
emphasising obligations to the central government over regional rights.
"$0
The law
governed both the administrative structure of the central government and the gradual
spread of regional autonomy without intending to provide every province with
autonomous governments with measures of political devolution. It was an
administrative decentralisation that aimed at enhancement of administrative efficiency
Aegional autonomy was an almost incidental detail. ,aw 0 was ostensibly intended to
promote national stability through the promotion of an authoritarian structure
extending from Ba'arta to the village level of Indonesia.
"$J
Coffit was right in his
critical assessment of the ,aw -o. 0, in which decentrali*ation was not directly aim at
democrati*ation and empowerment of the regional government1 it rather was directed
toward maintaining political stability.
,aw -o. 0 was not designed to govern central&local financial relationships for
which purpose a follow up law was intended. The problem was centered at the lac' of
consensus within the central government on the form of decentralisation to be pursued1
therefore, the debate on fiscal issues was complicated. In addition, the issue of the
distribution of national resources between regions has become another obstacle for
fiscal decentrali*ation during uharto!s era.
"$)
This has been a sensitive issue given the
central governmentKs dependence on resources from certain outer islands and the
"$0
C. Corfitt, :trengthening the 8apacities of ,ocal <overnment> ;olicies and 8onstraints!, in Central
government and local Development in Indonesia, ed., 8. CacAndrews 4ingapore> 7xford Fniversity
;ress, "#$J5, p. 0#.
"$J
,loyd, IndonesiaKs Future ;rospects>Op. J
"$)
-ic' (evas, KIndonesia> what do we mean by decentrali*ation?K, Pu'lic Administration and
Development, vol. ") 4"##)5> E00.
$@
subsequent spending of these revenues in more densely populated and less well
endowed regions such as Bava.
"$$

Decentralisation in t!e Post Su!arto&s Re%ime
%efore discussing the features and content of the present decentralisation laws, it is
imperative to highlight briefly factors that contributed to the formulation of these laws.
The foremost factor was an economic one. %oth laws were approved because of the
growing demand for decentralisation from the people in the regions, who complained
from in 2ustice and uneven development policy because of the centralised system of
governance during the -ew 7rder. The people in outer islands began to voice out their
dissatisfaction by demanding a better, even and 2ust policy of development in their
region. 9ver since the independence of the Aepublic of Indonesia, people in the
regions watched with distaste the exploitation of their natural resources for the so&
called national economic development, while the interest of the people living in the
outer islands had been disregarded. All income derived from the regional sources such
as taxes had been collected and accumulated by the central government.
"$#
%ased on
the report on the national budget year that out of "++P regional income Q taxes and
non&taxes Q #+P was spent by the central government and only "+P was returned to
the regional and local governments. imilarly, out of revenues derived from natural
sources, local governments received only a very small portion of such income.
"#+

In addition to the economic factor, the political factor played a ma2or role in the
push for decentralisation1 people began to voice out political demands for a more
"$$
Anne %ooth, ed., 0il 'oom and after$ Indonesian economic polic% and performance in the Soeharto1s
)ra 2ingapore> 7xford Fniversity ;ress, "##.5
"$#
Aa'sa'a Cahi, G;roses desentralisasi di Indonesia ditin2au dari segi pemerataan antardaerah dan
pening'atan efisiensi,H dalam Analisa CSIS, -o." 4LLIL/.+++5> J0
"#+
For instance, Aceh!s 7riginal ;rovincial Aevenue 4Pendapatan Asli Daerah Q ;A(5 can only have @0
billion Indonesian Aupiah, which is only +,0P of its forest richness. ee Al&8haidar et al., "E. ee also
6adi oesastro, G Aegional autonomy> 9conomic dimension and issues,H cited in ;uspa (elima, E
$0
democratic system of governance to put an end to the strong grip of the central
government imposed on the regional policies. In fact, it has become a general visions
as all Indonesians showed their dissatisfaction with the traditional top&down system of
governance, they raised demands for a more open and transparent process of policy
formulation. ;eople living in the regions in particular expressed desire for more
participation implying their involvement in the formulation of the regional policies and
the daily administration of their affairs. They were longing for a government that gave
green light for the regional and local government to rule, administer and decide by
themselves the policy concerning their respective regions and local governments. They
wanted the true sense of autonomy to be implemented in Indonesia.
The response to the growing demand of the regionalist triggered hot debate on
the issue of federalism and regional autonomy in Ba'arta between supporters of the
existing unitary system 4notably the Cegawati oe'arnoputri the leader of ;(I&; Q
Indonesian (emocratic truggle ;arty,5 and those advocating an examination of a
federalist alternative 4especially the leader of the ;A- Q-ational Candate ;arty,
Amien Aais5. The debate had strengthened the regionalists demand for regional
autonomy, to the extent that, the region of the Islands of Aiau threatened to declare its
own independence from Indonesia if the central government failed to pass the
decentralisation laws. The transition government was in an aw'ward position1 the state
integrity was at sta'e. In this context, 6abibie, the third president of Indonesia
proposed a radical model of decentrali*ation by extending broad regional autonomy
within the existing unitary constitution to build up political credibility as a reform&
minded administration.
6owever, 6abibie!s political manoeuvre triggered pro and contra within the
political elite groups in Indonesia. The exponent of decentrali*ation proposed that
$J
decentrali*ation might disintegrate Indonesia and it was against the sacred vision of the
Indonesian ancestor. 7n the contrary, particularly people from the outer islands made
an appeal to the central government for a better deal of political autonomy and fiscal
decentrali*ation. Their appeal was well grounded, and therefore obtained support from
the new government. 6abibie!s administration convinced that a centrali*ed system of
governance was no longer effective to manage a country li'es Indonesia, a country
with a population over .+E million 4.++" census5, diverse socio&cultural and religion
bac'ground, ethnic heterogeneous and the large archipelagic nature territory.
Thus, a strong, competent regional governments and greater autonomy are
fundamental requirement for Indonesia. %y giving a broader autonomous political and
financial authority to the regional and district governments, it would spear the central
government time to refocus its attention at cooping with the political and economic
problem at the national level. At the same time, it enhanced the capacity building at the
regional and district level, by bringing the government closer to its own people, and
therefore a more representative government could be established. It was based on the
assumption that district and municipal governments have a better understanding of the
needs and aspirations of their communities than the central government.
In 7ctober "##$ the highest legislative body of Indonesia, the C;A held an
extraordinary session to revise the antiquated ,aw -o. 0/"#)@. As the result, the C;A
issued the (ecree -o. LD/C;A/"##$ regarding the implementation of regional
autonomy covering the Aegulation, (ivision and Ftili*ation of -atural Aesources and
%alancing of 8entre&Aegional Finance within the framewor' of the Fnitary Aepublic
of Indonesia. %ased on the (ecree -o. LD/C;A/"##$, the Cinistry of 6ome Affairs
was responsible to form a team that composed of academician to formulate ,aw -o.
../"### on Aegional <overnance, and the Cinistry of Finance formulated ,aw -o.
$)
.0/"### on Fiscal %alance between the 8entral <overnment and the Aegions.
"#"
In
Cay "###, without any delay and much debate, both laws were pushed and approved
as the new framewor' for decentralisation in the country that would come into effect in
Cay .++", but by the C;A (ecree -o. ID/C;A/.+++, it was implemented in Banuary
"
st
, .++" which coincided with the new fiscal year.
After the "### general election, the C;A held a session in 7ctober "### for the
decentrali*ation policy in the "###&.++@ to be ga*etted in the <%6- 4+aris-+aris
-esar 3aluan Negara/ %road ,ines of tate (irection5. The <%6- section on
Aegional (evelopment 4-A- ID.<5 stipulated a broader range of regional autonomy in
order to speed up regional development by empowering local economic actors and
enhancing the role of the regional government. 8hapter ID.< provided regulations on
decentrali*ation of licensing, investment and resource management. In addition, with
respect to the region of Aceh and ;apua, the <%6- provided a new regulation for both
regions as special autonomy regions, in which ,aw -o. ../ "### did not envisage.
,aw -o. ../"### and ,aw -o. .0/"### brought an opportunity to forge new
power structures in Indonesia that reflects a division of powers and responsibilities
between the central government and regional governments that was not strictly
hierarchical.
"#.
Aeinforcing this position, the government began with democrati*ation
through democratic multi&party election, accountability, local participation and a fair
distribution of revenues.
"#E

Devolution o Political Aut!orit" to t!e Local $overnment
"#"
FF -o ../"### 4Undang-Undang "epu'li& Indonesia Nomor 44 ,ahun 5666> ,aw -o. ../"###5 on
,ocal <overnment1 FF. -o. .0/"### 4Undang-Undang "epu'li& Indonesia Nomor 47 ,ahun 5666> ,aw
-o. .0/"###5 on Fiscal %alance distribution between 8entral and ,ocal <overnment
"#.
6ull, p. E
"#E
ee also G(ecentralisation in Indonesia Q The framewor' for local government Q A (iscussion ;aperH
report -o. ?(+0, ,www.gt*fdm.or.id/capacity/ cbRindex.htmN 4accessed .@ 7ctober .++E5
$$
The 'ey features of the ,aw -o. ../"### were the devolution of a wide range of
public service delivery functions to the district and municipality governments, and the
empowerment of the elected district and municipality legislature, which bestowed with
a wide&range of political powers to supervise and control the district and municipality
administrations. ,aw -o. .. placed regional autonomy on five fundamental principles>
democracy, community participation and empowerment, equity and 2ustice, recognition
of the potential and diversity within regions and the need to strengthen local
legislatures. These principles were points of reference for the interpretation of the law
and the formulation of regulations that administered the implement the law.
The law outlined the new legal status of the local government that stated that
decentrali*ation was the transfer of authority of the government by the central
government to the autonomous region in the framewor' of the Fnitary tate of the
Aepublic of Indonesia.
"#@
It redefined the authority of the regional autonomy in terms
of authority to regulate and govern the interest of the local people in accordance with
rules and regulations.
"#0
In Article I number " of ,aw -o. ../"###, stated that
autonomous region was the legal unity of the society that owns a certain limited
territory, has the authority to regulate and manage the interests of the local society
according to their own initiative based on the aspirations of the people in the context of
the Fnitary tate of the Aepublic of Indonesia.
"#J

6owever, the ,aw -o. ../"### was stipulated to provide a broader and wide&
ranging autonomy 4otonomi %ang luas5
"#)
to the Ka'upaten and Kota 4district and
"#@
Article I letter E ,aw -o. ../"###
"#0
Article I letter h ,aw -o. .. /"###
"#J
For the evolution of law on the status and function of local government can be referred to the ,ocal
<overnment Act -o. "/"#@0, -o. ../"#@$, -o. "/"#0), ;residential (ecree -o. J/"#0#, ,ocal
<overnment Act -o. "$/"#J0, and -o. 0/"#)@.
"#)
The wide&ranging autonomy infers that the local government has responsibility for all government
matters, including public wor's, health, education and culture, agriculture, transport, industry and trade,
investment, environment, land matters, co&operatives and manpower. ee, Article )." and Article "",
,aw -o. ../"###
$#
municipal5 levels as the second level of government, while limiting the authority of the
regional government and the central government on the administration of the district
and municipality governments. The regional government only administered functions,
which cannot be performed by the district government, such as transportation and
forestry, for these functions were cross&local governments. Ceanwhile, related to
foreign affairs, security and defence, 2ustice, monetary and fiscal, religious affairs and
other related matters
"#$
were reserved within the authority of the central government.
"##
%ased on ,aw -o. ../"###, Indonesia now consists of E+ ;rovincial or
Aegional <overnments, @"J (istrict <overnments Q#. Cunicipal <overnment
4Pemerintah Kota5 and E.@ (istrict <overnment 4Pemerintah Ka'upaten5.
.++
As
mentioned above, ,aw -o.../"### in principle has removed the hierarchical
relationship among these different levels of government. It created multiples forms of
coordination, cooperation and partnership between them. At every level of
governments, there will be a (;A( 4De.an Per.a&ilan "a&%at Daerah/ ,ocal
;eople!s 8onsultative Assembly5
.+"
serves as local legislative assembly respectively.
Therefore, for the nomination of the candidates for the post of governor and deputy,
the (;A(&I should consult with the ;resident regarding the nominees> and upon the
latter approval then the nomination proceeds with the election of the governor and
deputy. The candidates for governor and deputy were elected simultaneously in one
pac'age to enhance the coordination and cooperation between the successful
"#$
7ther matters include macro&level planning, fiscal equalisation, public administration, economic
institution, human resource development, natural resources utilisation, strategic technologies,
conservation, and national standardisation. Article )..
"##
%ased on ,aw -o. ../"###, the structure of the government is divided into three levels, the 8entral
<overnment, Aegional <overnment 4first level5 and (istrict/ Cunicipal <overnment 4second level5.
.++
ince not all regions and local government are wealth of in term of natural resources, in order to
enable the implementation of regional autonomy, the regions are formed on the basis of their economic
capacity, regional potential, socio&political context, population si*e and land and area, as stipulated in
,aw -o. ".#/.+++. In a case of region that is incapable of organising local autonomy, due to, limited
economic capacity and regional potential may be eliminated or merged with other regions.
.+"
The establishment of (;A( is divided into three levels, (;A&AI Q at the central government or (;A,
(;A(&I Q at the regional government, and (;A(&II Q at the district and municipal government.
#+
candidates in running the local government. At the district and municipality the
(;A(&II has the authority to nominate and elect simultaneously the head and deputy
of their respective district and municipality. The election begins with the registration of
the qualified candidates at the respective regional (;A(&I. Then, the respective
representatives of the political parties might choose among many candidates to be their
respective candidates for the post and nominate them during the plenary session of the
(;A(&I. 7nly the candidates that acquire 0+P plus " of the total votes become the
governor and deputy.
.+.
Another important point worth mentioning is the line of command at the local
government. The enactment of ,aw -o.../"###, the local government or
administration was no longer running from the president down to the village level. It
created separation of local political power, the local executive branch and local
legislative body. The law stipulated that the heads of the local government are directly
elected and their candidacy did not require the clearance from higher level of
government1 and therefore, they were accountable only to their respective local (;A(&
II 4see Fig. "&E and Fig. .&E5.
In addition to the structural change, ,aw -o ../"### also stipulated that the
merging of the deconcentrated offices 4Instansi 8erti&al5 of central government
agencies at the regional level with the respective agencies of the regional governments,
including the transfer of the staff and assets to the regions.
.+E
'i%( )*+ E,ecutive and Le%islative on t!e Local Level
'orm and Structure o Local $overnment- La# No( ../+000
E,ecutive Le%islative
.+.
ee Articles EE&@+, ,aw -o. ../"###1 the law had transformed the old procedure of the lection of
governor, where the uharto monopoli*ed the nomination of the candidates and passed it through the
A%AI, %ureaucrat and <ol'ar.
.+E
ee Article ".#, ,aw -o. ../"###
#"
Local Administration
Source: $T1/SDR
The law implied that all matters related to government administration and
public affairs, which were formerly under the category of deconcentrated function,
now were to be discharged by the regional government and handled by the regional
agencies. ;rior to the transfer of this function, in Article $.., stipulates that the central
government should provide appropriate funding for the implementation of the
functions, in other words, Gunfunded mandateH should not be transferred to the local
government.
?ith the transfer of the deconcentrated function to the local government, the
Kecamatan 4sub&district5 level has become the deconcentrated units of the local
government and discharge deconcentrated function of the local government such as
coordinating the administration at the village 4Kelurahan5 level. The law also
authorised the community to form their own local institution such as village council
and a village chief 4Kepala urah5 in accordance with respective local tradition 4adat9
and need.
.+@

.+@
ee Article JJ and Article J), ,aw -o.../"###
#.
2epala Daera!
3a4il 2epala Daera!
Se4retariatDaera!
Dinas Daera!
Lemba%a Te4nis Daera!
De#an Per#a4ilan Ra4"at
Daera! 5DPRD6
Se4retariat DPRD
Plannin%
Researc! and Development
Trainin%
Supervision/ Internal Audit
Ot!er
Although, Article $.. stipulated that all mandate transferred to the local
government should be funded by the central government, the expenses for the
government administration remained the responsibility of the district government to be
included in the district budget.
'i%( )*. E,ecutive and Le%islative on t!e Re%ional Level
Line o Accountabilit" o Re%ional $overnment
777777 Reportin%-
Accountabilit"
Article 89- Article 8+- Article 8.- Article 8)- La# No( ../+000
In order to enhance financial capacity of the local government, ,aw -o.../"###
stipulated that local government derived its revenues from four sources> 4a5 the local
based revenues that include local taxes, local retribution, local enterprises and
utilisation of local assets1 4b5 fiscal balance1 4c5 local loan1 4d5 other legal revenues.
?ith regard to the fiscal balance revenue, it included land and building taxes, local
charge and fees on the land and building, general allocation fund and specific
allocation fund.
.+0

In terms of deliver services and other purposes the regional government was
authorised to establish interregional or inter&district cooperation1 and the central
government is acting as facilitator of activities of regional government. In order to
.+0
All these sources of revenues are stipulated in Article )#, Article $+, Article $", Article $., Article $E,
Article $@ and Article $0, ,aw -o. ../"###.
#E
President
Home Aairs
Re%ional Head De#an Per#a4ilan Ra4"at
Daera! 5DPRD*I6
supervise the smooth implementation of decentralisation process, the law codified a
mechanism by virtue of which regional decision or regulation could be nullified by the
central government1 and the same time the law stipulated the appeal mechanism for
regional governments against such decisions.
.+J
%esides ,aw -o. .. of "###, which sought to strengthen regional and local
government financial sources, the central government also passed ,aw -o. .0, "###
on GThe Fiscal %alance between the 8entral <overnment and the AegionsH as the legal
base for a fairer distribution of public revenues between the 8entral <overnment and
the Aegional <overnment.
'iscal Decentralisation: A :alance Distribution o Revenues
The enactment of ,aw -o. .0/"### was imperative for the realisation of
regional decentralisation. It reflected the empowerment and enhancement of regional
economic capabilities. The law stipulated a financing system of the regions by
emphasising on G2ustice, proportionality, rationality, transparency, participation and
accountability. uch funding system reflected the division of functions between levels
of government and reduced regional funding gaps.
,aw -o.0/"### spelt out the principles of financial relationship between the
central government, regional government and local government. The law is an attempt
to reduce vertical imbalance by reducing the dependency of local government on the
central government1 and to maintain hori*ontal balance among local governments. In
order to establish these balances, the law stipulates clearly the financial sources of the
local government.
.+J
Article ""@, ,aw -o. ../"###
#@
As stated in the Article )# to Article $0 of ,aw -o.../"###, ,aw -o. .0/"###
stipulated detail the three sources of the local government!s revenues>
". ;A( 47riginal revenues of local government5 Qincludes local taxes, local
charge and fees and revenues from local enterprise.
.. %alancing Funds include>
Aegional and local share of property tax 4Pa!a& -umi dan
-angunan :;%%5 and %;6T% 4-ea Perolehan 3a& atas ,anah dan
-angunan /property transfer tax51 and the regional and local share of
natural resources revenues. ee 4table "&E5 for the specification of
the sharing formula for such taxes and natural resources revenue.
(AF 4Dana Alo&asi Umum/ <eneral grant5 is derived from the .0P
of the domestic revenue which is stated in the A;%-. "+P of the
funds is transferred to the regional government and #+P is
transferred to the local government in the form of 'loc& grant where
the utilisation of the fund is entrusted to the head of the local
government.
(A3 4Dana Alo&asi Khusus/ pecific grants5 is specifically
transferred to certain local government to fund specific program
such as public education and health1 and the percentage of the fund
depends on the availability of the balance fund in the A;%-.
#0
E. ,ocal ,oan, the law stipulates that local government is authorised to ma'e
any loan domestically with the approval of the (;A(&I and externally with
the approval of the central government.
.+)
Table )*+- Revenue S!arin% o Ta,es and Natural Resources 5;6
No Revenue S!arin% Central
$overnment
Local
$overnment
Re%ional
$overnment
Resource
Ric! Local
$overnment
+ Propert" Ta,es +9 09 * *
. Transerred Propert" .9 <9 * *
) $eneral =inin%
a( 'i,ed 'ees
b( E,ploitation
'ees
.9
.9
<9
<9
+>
+>
>?
>?
? a( Oil
b( $as
<8
@9
+8
)9
)
>
+.
.?
8 'orestr"
a( IHPH
b( IHPH/PSDH
.9
.9
<9
<9
+>
+>
>?
>?
> 'is!eries .9 <9 * <9
Source: Hadi Soestro 5.9996
-ote> Forest 9xploration ,ic
ence Fee 4Iuran 3a& Pengusaha 3utan Q I6;65
Aegional Forestry Aevenue 4Provinsi Sum'er Da%a 3utan Q ;(65
Above all, in its essence ,aw -o, .0/"### reflects the good will of the central
government to redistribute all revenues, which were controlled by the central
government to district, and municipality governments, that implied the recognition of
the right of the local government in their local natural resources. Thus, with the
enactment of these laws, local government should be more independent in deciding
what is good for its respective community. It was expected that the local government
could fulfil its responsibility to speed up local economic development and enhance the
welfare of the people1 and reflect the five fundamental principles of regional autonomy
program> democracy, community participation and empowerment, equity and 2ustice,
.+)
ee Article E to Article "J, ,aw -o..0/"###
#J
recognition of the potential and diversity within regions and the need to strengthen
local legislatures.
The local government must be able to create a good government that is
competent to carry out development program. It should fulfil the promise of regional
autonomy program that implies a better economic performance and sustainable
development at the local level. It should minimise any possibility of the shift of bad
government practices from the centre to the regions, by being aware that
decentralisation might at anytime give birth to many local 'ings, who would misuse
their authority for breeding and nurturing bad governance, such as corruption,
collusion, and nepotism or 33-.
.+$
Accordingly, the local government should wor'
hand in hand with the (;A(&II to create a political environment for local
democratisation and people empowerment, by opening more opportunity for the
people to participate actively in the political process so that the principles of equity and
2ustice are reflected in the local economic development.
6owever, ,aw -o. ../"### and ,aw -o. .0/"### have very short life. After a
year of implementation, the government realised that it is necessary to revise these
laws. The government conceives that these laws have created gaps between the centre,
regional and the district or municipality governments, to the extent that not only has
the central government lost control over local politics, but has also become a conflict
of authority with the regional/district government. Thus, the central government
revised ,aw -o. ../"### and ,aw -o. .0/"###.
Revision o t!e La# on Local $overnment
.+$
Ais*al u'ma, G8onflict management in post&authoritarian Indonesia> federalism, autonomy and the
dilemma of democrati*ation,H in Autonom% and Disintegration in Indonesia, ed., (amien 3ingsbury and
6arry Aveling 4,ondon> Aoutledge 8ur*on, .++@5, )"
#)
There were several reasons why ,aw -o. ../"### had to be revised. 7ne of the
foremost reasons for the revision of this law was the amendment of the law on regional
government in the FF( "#@0 4Undang Undang Dasar 56;7/ "#@0 constitution5 by the
C;A during its annual meeting in August "+, .++.. The meeting addressed the Article
"$ on GAegional and (istrict governmentH of the "#@0 constitution. In comparison
with the previous Article "$ of the "#@0 constitution, the fourth amendment has
expanded the Article "$ from " article to E article plus "" verses, thereby providing
detailed explanation on regional and district government. ince ,aw -o... was based
on the previous Article "$ of the "#@0 constitution before amendment, it is very
rational that the law had to be revised and ,aw -o. E. was formulated to
accommodate the fourth amendment of the constitution.
.+#

econd important reason for the revision was the enactment of ,aw -o. .E/
.++E which stipulated the procedure of direct election of the president and vice&
president. The legislation of this law triggered the local government to demand from
the centre that the election of the governor of the region, regent of the district and
mayor of the municipality should be treated in the same way. The election of the
regional, district and municipality heads still practice the old method, the (;A(
elected the heads,
."+
not people1 and that against the law and new amendment of the
"#@0 constitution.
.""
In response to the pressures from reformasi, the demand for
direct election of the governor, regent and mayor has strengthened the (;A stand for
the revision of ,aw -o....
.+#
ee, GFF E./.++@ Cengulang 7rba,H Pi&iran "a&%at, .. April .++01 G3onte' historis> ;erubahan
undang&undang pemerintahan daerah 4FF -o. ../"### men2adi FF -o. E./.++@5H SA;;I3A 4.++J5
via Mhttp>//search.live.com/results.aspx?qT3onte'sU6istoris=srcTI9&earch%oxN 4accessed .@ Banuary
.++)5
."+
Article E@, ,aw -o. ../"###
.""
Article "$, Derse 4@5, FF( "#@0 after amendment.
#$
The third drive for the revision came from the perceived problem that came to
exist following the implementation of the law concerning the boundary of political
authority between the central government and regional/district government. The
central government perceives of the existence of an unfavourable political
development in the regions. Firstly, the central government began to restore control
over political development in the regions. econdly, it was alleged that the law had
raised and nurtured the formation of oligarchy authority in local governments and that
has been perceived as threatening to national integration.
,ast but not least, the legislation of ,aw -o. ../"### was contradict with the
previous ,aw -o. 0/"#)@, which had drastically changed the basic principles of
government administration. All administrative function and responsibilities such as
institutional function, staff, finance and the relationship between (;A(&II and the
regent/ma2ors had been shifted to the local governments1 it had drastically changed the
whole political setting in Indonesia. The question now is whether the local government
has all the capability and potential to carry out those functions and responsibilities.
uch drastic change introduced by these laws had created confusion not only at
the central government level which had been deprived of its functions and
responsibility, but also at the local government which had been given such a great
burden with a very limited capacity to shoulder them. As a result, the primary ob2ective
of the decentralisation might not be realised. It did not enhance cooperation in the
implementation of the law between the central government and local government1
rather it created a diametric pattern of relationship. The central government feels
relieved for being released of their burden and responsibility, while the local
government felt disappointed for being neglected and claimed that the central
##
government was half&hearted and not serious with the implementation of
decentralisation.
In addition to the defects of ,aw -o. ../"###, other regulations that
accompanied the implementation of ,aw -o... had not been reformed to
accommodate the rapid move of decentralisation program, such as regulation
concerning the administration of seaports. 7n the one hand, the central government
appointed the ;T. ;elindo to manage the seaport, while on the other1 the local
government conceives that under decentralisation law it has the right to manage the
seaport as stipulated in the ;; 4Peraturan Pemerintah/ +overnment "egulation5 -o,
.0/.+++. For instance the case in 9ast 3alimantan ;rovince, where 0)
district/municipality governments 2ointly formed a %(F 4%ali' ;apan (eclaration
Forum5 and planed to ta'e over the management of seaport from the ;T. ;elindo by
formulating their own local regulation.
.".

Another point worth mentioning was the growing affiliation with the local
identity, which had significantly affected the procedure for recruitment of the local
civil servants. For instance, the birth of local fundamentalism that emphasised on the
local youth GPutra DaerahH as the one of basic requirement for civil servant
recruitment and place other values such as competency and capacity as secondary
requirements.
6ence, due to the above reasons, the central government revised the ,aw -o.
../"###.
."E
The central government had to pull bac' some authorities that run out of
control, including the revision of the protocol relating with the relationship between
.".
ee G(aerah tida' berha' ambil alih ;erusahaan.H Kompas, ". August .++@, @1 and see also
GInvestasi 'epelabuhan masih terhambat.H Kompas, "E 7ctober .++@, 0
."E
ee (;A GalipH pemerintah siap'an revisi FF ../"###< Kompas, "" -ovember .++E, @1 G,ari& ulur
UU otonomi daerah,H (orum Keadilan, 9disi -o. E., @ Banuary .++@, "& EE.
"++
the governor and the regent/ma2or, concept of accountability of the <overnor/
Aegent/Ca2ors, remapping of the line of authority between regional and local
government, as well as among the district/municipality governments.
T!e Pros and Cons o t!e Revision
The move to revise these laws had significantly affected the people!s perception
toward the central government and had stimulated various reactions Q pros and cons.
Aobert 9ndi Baweng classifies these reactions into there poles> the pro&revision pole,
the con&revision pole and the middle Q the pro with reservation Q pole.
."@
The first pole
is the Depdagri 4Departemen Dalam Negri /(epartment of 6ome Affairs5 under the
Cinistry of 6ome Affairs and business group. The business group supported the
revision because the implication of ,aw -o. .. and ,aw -o. .0 was very significant
on business community, particularly when dealing with new regulation concerning
taxes that the local government imposed after decentralisation. The whole business
scenario experienced drastic change. It resulted in a problem of increasing tax and
uncertainty in term of mar'et environment. This claim was true, since one of the 'ey
points of decentralisation was to enable the local government to use local taxes as one
of its main local revenue generators. uch political setting created inconvenience
among the business community at the local level. Ari 3uncoro observes that
The most immediate impact of the new law is the race among local
governments to raise and create new taxes. ince, the greater portion of
incomes and corporate taxes collected exclusively by the central
government, the only way the local government could increase revenues
is to raise taxes or retributions on local businesses and local population.
ome local governments even tax the movement of goods through their
localities.
."0
."@
Aobert 9ndi Baweng,GIhwal revisi FF -omor .. Tahun "###.H Kompas, .+ (ecember .++@, )
."0
Ari 3uncoro, p. @
"+"
Although, decentralisation had resulted in business uncertainty, the business
community did not demand for reversed to the old centralised system1 rather they
sought to monitor the abusive practice of local government towards the business
sectors by establishing a (CF 4(ecentralisation Conitoring Fnit5, so that
decentralisation might not increase the transaction cost.
."J

%esides the business community, the A;;I 4Association of Aegional
<overnment of Indonesia5 also supported the move for revision of the law. In
eptember .++E, they held a "a&er 4"apat Ker!a/ 7perational Ceeting5 in %anda
Aceh, in which they discussed the implications of decentralisation on the governor!s
authority. They decided to ta'e this issue to the (;A for revision of the law1 and they
argued that with the absence of hierarchical structure between the governor and
regent/ma2or at the local level, the relationship between them had deteriorated and
became an obstacle for the smooth implementation of decentralisation.
.")
%y Banuary
.++E in a consultation meeting between governors and (;A an agreement was reached
to revise ,aw -o. ../"### and ,aw -o..0/"###.
."$
In addition, in another meeting
too' place in Bayapura, August .++@, A;;I again emphasi*ed that the revision should
not only focus on the reinstalment of the authority of the governors and their role as
the representative of the central government in the district/municipality government,
."#
but also on other points related to development of local autonomy. utiyoso, the chair
of A;;I, suggested that the problem between regional and district/municipality
government should be solved as early as possible. The process of revision should ta'e
."J
Ibid.,
.")
G;ertemuan <ubernur seluruh Indonesia berlangsung di AcehH Kompas, .@ eptember .++E, @
."$
G(ia'ui ada se2umlah 'endala, FF otonomi daerah perlu diperbai'i.H Kompas, E+ Banuary .++E, @
."#
GAevisi FF -omor ../"###, 2angan abai'an suara 3abupaten/3ota.H Kompas, .# eptember .++@, @
"+.
into account all inspirations from A;;I that were based on the field experience of all
governments in Indonesia.
..+
Along the same lines, the Depdagri, proposed a revision of ,aw -o.../"###
and ,aw -o..0/"### which emphasised the issue of national integration as the
framewor' for decentralisation. %y referring to the interpretation of the "#@0
constitution, they reaffirmed that the concept of regional autonomy in Indonesia
envisaged a concept of territorial decentralisation. Ceaning that there was no such a
concept of the Gstate within the stateH in Indonesia, because the central government
formed local governments and thus it had reserve legal rights to abolish them through
legal action. (ecentralisation was manifested in the form of devolution of authority to
administer or govern all matters specifically related with the interest of the local
community. It is the central government that carried out decentralisation policies while
local government discharged all matters related to regional autonomy.
.."
6owever, in response to the Depdagri argument, the con&pole that composed of
district/municipality government argued that it was too early to evaluate the
implications of decentralisation. The implementation process in fact needed to pass
through three important stages> transition, installation and consolidation. It was very
young still and 2ust went through the stage of transition 4"###&.++"5, and reached the
stage of installation 4.+++&.++E5. The con&pole assumed that decentralisation required
another three years 4.++@&.++)5 to reach the stage of consolidation, after all these
stages, then it would be reasonable to evaluate the implications of decentralisation on
national socio&political and economic affairs as a whole. Ceaning that it was very
unfair for the evaluation of a certain policy to be conducted while that policy had not
..+
utiyoso, quoted in GForum <ubernur desa' (;A revisi menyeluruh Fndang&Fndang otonomi
daerah.H Kompas, ) August .++@, 0
.."
ee, utoro 9'o, GCeng'a2i ulang -3AI.H Kompas, "+ February .++@, J
"+E
even passed the stage of installation. The central government should had been patient
and waited until decentralisation was completely consolidated1 only then it would be
reasonable and acceptable for the revision of the law, in case there is shortcomings in
the law.
...
They started to perceive hidden agenda of the central government in the revised
version of the law that Depdagri had proposed which reflected the reversion to the old
centralised governance embodied in ,aw -o. 0/"#)@ that reduced the authority of the
local government as an autonomous entity to formulate policies that were based on the
local preferences. uch reversion significantly affected the line of accountability that
,aw -o. .. had stipulated1 the line of accountability was reverted from hori*ontal to
vertical accountability & the <overnors are accountable to the ;resident through the
Cinistry of 6ome Affairs, and the regents and ma2ors are accountable to the Cinistry
of 6ome Affairs through the governor 4see fig.E&E5.
..E
The reversion of accountability line had limited the authority of local (;A and
increased the authority of the ;resident. It made the local government worried of the
possibility that the ;resident might be abusive to any governor, regent and mayor who
might come from different political parties,
..@
which may result in powerlessness of the
local government1
..0
and could reflect the inconsistency of democracy.
imilar arguments were voiced by several local government associations>
A;3AI 4Association of (istrict <overnment of Indonesia 5, A;93I 4Association of
Cunicipal <overnment of Indonesia5, A(3AI 4Association of (istrict (;A( of
Indonesia5, A(93I 4Association of Cunicipal (;A( of Indonesia5 and 8onsortiums
of tate 6igher 9ducation of Indonesia, to the effect that the revision of the law was
...
GTari' Flur revisi FF otonomi daerahH, (orum Keadilan, 9disi -o. E., @ Banuary .++@, EE.
..E
ee, utoro 9'o.
..@
(2ohermansyah (2ohan quoted in Koran ,empo, .) eptember .++E, J
..0
Gentralisasi di tengah semangat sesentralisasi.H /edia Indonesia, "E eptember .++E, E
"+@
considered as a conspiracy to minimise the authority of district/municipality
governments. They claimed that all negative accusation of maladministration at the
district and municipality governments were baseless, so far the district and
municipality governments had performed well in discharging all responsibilities
stipulated in Article "" ,aw -o. ../"###. As yau'ani 6A, the chair of A;3AI,
suggested that the revision of the law should be postponed and to be carried out after
the general election in .++@.
..J
In addition, he also reaffirmed that decentralisation would not cause national
disintegration1 rather it would strengthen national integration.
..)
6ence, they raised
demand for the postponement of the revision for it required a comprehensive research
and covered the all aspects of decentralisation1 and if the revision is to ta'e effect it
should not revert to a regional centralised system of governance.
..$

'i%( )*) E,ecutive and Le%islative on t!e Re%ional/District/=unicipalit"
Level
..J
yau'ani suggested the postponement of the revision based on his consideration of the burden that
(;A AI and government faced in the preparation for the general election in .++@, his concern was that
the revision might not be well prepared.
..)
ee, GAde'si ingat'an revisi FF ;emda.H Kompas, .# Carch .++@, E
..$
Aead (orum Keadilan, -o. E., @ Banuari .++@, E@
"+0
Line o Accountabilit" o Re%ional/District/=unicipalit" $overnment 5Revised La#6
777777 Reportin%-
Accountabilit"
The researchers and academicians who represented the middle pole also argued
that the revision that Depdagri had proposed surely implied recentrali*ation of
government administration. Alfitra alam, political observer of the ,I;I, too' up two
issues to support his argument against commandment> the first was the issue of
recruitment of civil servants and the appointment of the secretary of the local
government that should be through Depdagri, while the other was the issue of financial
authority where on the basis of the amendment that the local government in carrying
out this authority was obliged to consult the central government. %y emphasi*ing the
point of GconsultationH alam further argued, that it opened the way for the central
government to intervene in the A;%( 4Anggaran Pendapatan -elan!a Daerah/ ,ocal
<overnment %udget5 planning process. As a result it would deny (;A(!s authority on
budgeting, therefore decentralisation lost its 'ey principles.
..#

?hile, (2ohermansyah (2ohan viewed the foundation for revision of ,aw -o.
../"### was legally controversial and far from the ob2ectivity characteri*ing of the
..#
SA;;I3A, "0
"+J
President
Home Aairs
$overnor De#an Per#a4ilan Ra4"at
Daera! 5DPRD I6
Re%ent/=a"ors De#an Per#a4ilan Ra4"at
Daera! 5DPRD II6
evaluation of any policies. It gave the impression that the central government was
imposing this revision because the substance of the revision did not reflect the
inspiration of the local government who openly ob2ect the revision. 8onsequently, he
raised the question> Gfor whom is this revision?H
.E+

%ased on the above discussion, it can be inferred that all the three poles agree
on one point that decentralisation remains the only way to govern such a vast country
li'e Indonesia and none of them would accept the revision if it was going to be a
reversion to the old centrali*ed system of governance. In commenting on the revision
issue, 6ari abarno, the Cinister of 6ome Affairs, reaffirmed that the revision was
aimed at giving the opportunity for the district/municipality government to develop
and enhance the welfare of the local community, while at the same time maintaining a
harmonic relationship with the central government. The involvement of the central
government in local development planning should not be perceived as a movement
towards for recentrali*ation and limiting the power of the local government1 rather it
was merely an effort towards coordination and supervision of the local governments in
discharging their autonomous function, so that the local government would only issue
any local regulation that they deem necessary.
.E"
According to the report of the
Depdagri, since the launching of decentrali*ation there were about "+ thousands ;erda
4Peraturan Daerah/ ,ocal <overnment Aegulations5 which had been issued by all
regional or district/municipality governments in Indonesia. )+++ of them were
problematic and illegible to be passed. .+J of the )++ had become obstacles for
investment and the rest had been overlapping with each other.
.E.
.E+
ee, /edia Indonesia, " -ovember .++E, E
.E"
ee GCendagri bantah ada upaya resentralisasi urusan daerah.H Kompas, .# Cay .++@, 0
.E.
V Kompas, "@ August .++E, E
"+)
There were also many other cases of maladministration and misinterpretation
of the local decentrali*ation. I8? 4Indonesian 8orruption ?atch5 claimed that the
implementation of ,aw -o. ../"#### contributed to the emergence of three forms of
abuse of power that too' place in almost every district or municipality governments>
firstly, the wide spread of money politics during local election, secondly, the approval
of A;%( which did not accommodate local community interest and finally, the
imposition of regulations on extra payment over and above taxes to increase the
revenue of the A;%(.
.EE
6owever, In the Aa'ernas 4"apat Ker!a National/ -ational ?or' Ceeting5 III
on August .++E, A;3AI gradually began to soften their opposition and started to
support the revision as long as it was carried out with the spirit of strengthening and
completion the process of implementation of decentralisation. Through the "a&ernas
III, A;3AI proposed that the revision should emphasi*e the following three points
4"5 8larification of the authority division of district or municipality government, so as
to avoid multi&interpretation, overlapping and urge for recentrali*ation, 4.5
Aeaffirmation and clarification of the respective (;A( authority to supervise, and 4E5
reconsideration of the time for the sociali*ation of the implementation of direct
election of the local head.
.E@
7n August .++E in %attam, following the IA;3AI foot
steps, the A;93I in the "a&ernas II declared that they would not question the move
for the revision of ,aw -o.../"###, as long as it accommodated or bridged the interest
of the central and local governments.
.E0
?ith the conversion of the con&revisionist
.EE
Teten masdu'i, 'oordinator I8?, quoted in Kompas, .$ August .++0, @1 ee also G%an' (unia>
(esentralisasi belum beres.H Kompas, "J Buly .++E. ee also HAevisiting decentrali*ation.H ,he =a&arta
Post, ." Buly .++E, E
.E@
GAevisi FF pemerintahan daerah 2angan mengarah 'e resentralisasi.H Kompas, .) August .++E, @
.E0
GAevisi AFF otonomi, harus bisa 2embatani 3epentingan (aerah&;usat.H Kompas, .$ August .++E,
0
"+$
pole to pro&revisionist pole with some reservations the way was paved for the smooth
process of the revision of ,aw -o.../"###.
Thus, the effort of decentrali*ation in the past too' two different directions,
each one leading to its own extreme. 7n the one extreme, ,aw -o 0/"#)@ which was
considered as the point of reference for decentrali*ation had created a centrali*ed
system of government through out the -ew 7rder regime. ?hile on the other, ,aw -o.
../"### and ,aw -o. .0/"### led to other extreme of decentrali*ation. In practice
both ,aws were defective. Therefore, the central government continued the revision of
these laws to find a way to bridge the gaps and create harmony in the political relations
among the three levels of government as units within the frame of the Fnitary tate of
the Aepublic of Indonesia.
Furthermore, Cegawati!s administration claimed that the new ,aw -o.
E./.++@/ ,aw -o. EE/.++@ were the revisions of previous laws that emphasis on
creating political harmony among the levels of government. The new laws were
formulated to reflect the sense of political compromise by accommodating all
inspirations from the respective groups> those who support and those who oppose
decentralisation, i.e. it was a middle approach to address the decentrali*ation issues in
Indonesia. The next section deals with the features of ,aw -o. E./.++@ and ,aw -o,
EE/"###.
T!e La# No( )./.99? and La# No( ))/.99?: t!e Revised La# o
Local $overnment and La# on 'iscal :alance Distribution

6aving full support with some reservations from all parties, the central government
endorsed ,aw -o. E./.++@, the revised law on the local government in 7ctober "0
.++@. To accommodate all inspirations and suggestions from all interested parties the
"+#
Depdagri proposed several important substantive revision of ,aw -o.../"###. Firstly,
,aw -o.E./.++@ revised the rule on authority distribution1 it made a clear cut on
authority between the central government, regional government and district or
municipality government on three important principles> 4"5 externality, 4.5
accountability, and 4E5 efficiency.
.EJ
Implying that the central government had the role
encompassing all matter at the macro or national level, namely> 4"5 to establish rules of
the game> formulation of regulations and standard procedures1 4.5 to enforce rules of
the game Q monitoring, evaluation and supervision1 4E5 to facilitate the empowerment
of the local government in term of explanation of rules of the game to enable them to
follow the standard procedure of the game> and 4@5 other functions at the national
level. The functions of regional government includes> 4"5 to discharge all
administrative functions 4E+ functions5 at the regional levels and a cross&
district/municipality functions within the standard procedures that central government
has established.
.E)
Ceanwhile, the district or municipality government is in charge of
district or municipality administration including the formulation of policies and
regulations at the district/municipality level within the standard procedures that the
central government had established. The central government also creates additional
procedures for maintaining harmony in discharging interrelated and interdependent
relations among the levels of government.
econdly, it revised the regulation on institutional matters. It stipulated that all
matters that included in the E+ administrative functions should not only be clearly
institutionalised, but also clear in term of their connections with the institutions that
were established in the central government and district or municipality government.
6owever, the law still gave a room for the district or municipality government to form
.EJ
ee Article "+ to Article "@ ,aw -o.E./.++@
.E)
ee specifically Article "E and Article "@ ,aw -o.E./.++@
""+
their own administrative institutions under the condition that all these institutions must
be consistent with the institutions that are in the central government on the functional
matter. To ensure the consistency of administrative functions, the central government
had established a set guidance for the district or municipality government in matter
related to the formation of administrative institution at the district/municipality
levels.
.E$
Thirdly, ,aw -o.E./.++@ revised the position of the e'da 4Se&etaris Daerah/
secretary of the respective regional and district or municipality government5. The new
law stipulated that Se&da of regional government would be appointed and removed by
the president based on the suggestion of the governor according to stated regulations.
imilarly, the Se&da of district or municipality government would be appointed and
removed by the governor based on the suggestion of regent/ma2or according to stated
regulations. Implying that the law had limited the authority of the regional and district
or municipality heads over Se&da, and controlled them so that they could not remove
their respective Se&da as they wish. In addition, the law also stipulated that the
district/municipality governments could not appoint the sub&district head or camat as
they li'e, they had to consult with the Se&da who might propose at least three
candidates from the public officials
.E#
and select the most qualified among them to be
the camat<

This was to ensure the right person for the right position 4see Fig. @5.
.@+
Fourthly, it revised the Article related to regional, district and municipality
financial matter1 it was to clarify matter related to the distribution of (AF at the
regional, district and municipality governments. The previous law did not clearly
clarify this matter, and gradually during the implementation it had created a confusion
.E$
I'id<, see also SA;;I3A, @J
.E#
The term public official is used interchangeably with civil servant.
.@+
ee Article ".J ,aw E./.++@
"""
on the matter related to financial sources for the salary of the public officer at these
levels of government. The previous law stipulated that the salary pac'age was included
in the (AF, which significantly affected the status of local public officers and made
them attached to particular local government, meanwhile the public office was the
national entity.
.@"
This practice had disturbed the process of transfer and mutation of
the officers across different level of governments. In order to avoid such a problem, the
new law stipulated the separation between the salary pac'age of the public officer and
the (AF.
Restructurin% t!e Line o Accountabilit" o t!e Local
$overnment
In this context, the central government introduced a new procedure for the
preparation of the A;%( particularly related to the allocation and distribution of (AF
for the development of the local government that obliged the regional and district or
municipality government to consult the central government or governor as the
representative of the central government on this matter.
.@.

'i%( )*? E,ecutive and Le%islative on t!e Re%ional/District/=unicipalit"
Level
.@"
ee Article )$ ,aw -o.../"###
.@.
ee Article "E@ and Article "JE ,aw -oE./.++@
"".
Line o Accountabilit" o Re%ional/District/=unicipalit" $overnment 5Revised La#6
777777 Reportin%-
Accountabilit"
La# No( )./.99?
According to Cande that the consultation process did not minimise the
authority of the (;A( on the %udgeting process, because the regulation did not give
the central government or governor authority to change any priorities that the local
government had put in the A;%(. In addition, since there was no strong civil society
and pressure from the public, the consultation process might be a good way to ensure
the chec&-and-'alance between the regional and district or municipality government
with the (;A(. This was to avoid any possibility of the coalition between the regional
and district or municipality government and (;A(&II on the budgeting process, i.e., to
ma'e sure that local budget would reflect the public interest.
.@E
Fifthly, the new law also stipulates that the central government formulate
procedures on discharging public services in the form of ;C 4Standar Pela%anan
/inimum/ standardisation of minimum services5 which bases on three principles>
better, simpler and faster Q as a new mechanism to measure the minimum performance
of the public officer. In other word, the law obliges the regional and
.@E
Cade uwandi, interviewed by SA;;I3A, @)
""E
President
Home Aairs
$overnor DPRD I
Re%ents/=a"ors DPRD II
Re%ional
Secretar"
Local/=unicipalit
" Secretar"
district/municipality government have to follow the ;C in delivering services to the
public. The formulation of ;C enables the central government to monitor and
supervise the performance of the public office in every levels of government.
Finally yet importantly, in the effort to enhance local democratisation, ,aw -o.
E./.++@ stipulated that the people through local election would directly elect the
governor, regent and ma2or.
.@@
In contrast with the previous law, which stipulated that
the (;A( I and (;A( II respectively appointed governor, regent and ma2or. This
revision had significantly affected the procedure of political accountability at the
regional and district/municipality levels. It changed the line of political accountability
of the regional and district or municipality executive, they are no longer accountable to
their respective (;A(, instead both the executives and (;A( are accountable directly
to the people. Indeed, the legislation of ,aw -o. E./.++@ had redefined the pattern and
nature of the political relationship between the executive and legislative.
It changed the format of the ,;B 4aporan Pertanggung!a.a'an/ Aeport on
Acountability5 to ,3;B 4aporan Keterangan Pertanggung!a.a'an/ Aeport and
8larification of Accountability5 It implies that the governor, regent and mayor are not
supposed to prepare ,;B for the (;A( to evaluate1 rather it was enough for them to
provide the (;A( with ,3;B as another form of progress report of what they have
carried out. Fnder the new law, both executive and legislative at regional and district
or municipality levels were expected to cooperate with each other. The (;A( passes
the regulations and the executive implements those regulations, the executive runs the
government polices, while the (;A( supervises the implementation. %oth should
cooperate in preparing regional and district or municipality budget respectively. In
addition, the regional and district/municipality government are obliged to prepare a
.@@
ee Article .) 4.5 ,aw -o. E./.++@
""@
report on the performance of their respective governments to the higher officers, i.e.,
Aegent/Cayor submits a report to the governor and governor submits a report to the
Cinistry of 6ome Affairs. The regional and district or municipality executive are also
obliged to prepare the I;;( 4Informasi Pen%elengaraan Pemerintah Daerah/
<overning Information of the ,ocal <overnment5 to the public for their reference of
the performance of the regional and district or municipality government.
.@0

,aw -o. E./.++@ emphasised on two important points. Firstly, it provided the
central government with authority to monitor and supervise the smooth running of
regional and district or municipality decentralisation program. It enhanced the chec'
and balance process between the executive and legislative by the central government,
which the previous law did not address. econdly, it pro2ected the people as the sole
owners of political authority by enhancing the involvement of the public at the very
beginning of political process. The public is expected to be involved in the evaluation
of the capacity and qualification of the candidate of the contending political parties
prior to the election of the regional and district or municipality top executive1 and also
at the stage of policies implementation where the governor, Aegent and ma2or were
obliged to inform the public about their administrative performance.
The law also opened the way for the public to participate in the planning and
preparation of regional and district or municipality policies. The (;A( during the
formulation of the local development policies is obliged to accommodate and include
the inspiration of the public. 6ence, prior to the formulation of the local development
policies (;A( has to conduct socialisation by visiting the community and conducting
dialogue with the public. %y doing so, suggestion from the public can be monitored
and well accommodated in the local development policies.
.@J

.@0
ee Article 0J to Article J0 ,aw -o. E./.++@
.@J
ee Article @0 4e5 ,aw -o. E./.++@.
""0
In view of the above discussion, the revised law redefined decentralisation as a
concurrent system of governance, in which the central government, regional
government and district or municipality government concurrently managed public
affairs. The central government, regional government and district or municipality
government are responsible to administer similar affairs except affairs that had
specifically reserved for central government as stated in Article "+ 4E5 ,aw E./.++@.
These affairs included> 4a5 foreign policy, 4b5 defence, 4c5 security, 4d5 Budiciary, 4e5
national monetary and fiscal, and 4f5 religion. These matters were similar to the six
authorities reserved for central government that ,aw -o. ../"### mentioned in Article
). 6owever, the new law stipulated that these affairs could be delegated in the form of
deconcentration or assistance tas' to the lower level of government, regional or district
government.
Ceanwhile, in Articles "E and "@ concerning the authorities of the local
governments Qregional, district and municipality& the law stipulated "@ sectors of
public affairs1 and these affairs should be discharged concurrently by these local
governments. The regional government are responsible to manage the affairs at the
regional level, affairs related to cross district or municipality government relations and
affairs other than "@ affairs that district or municipality government could no perform.
Those "@ sectors of public affairs included> 4a5 infrastructure and general wor', 4b5
health, 4c5 education, 4d5 environment, 4e5 land, 4f5 cooperation and empowerment of
small& medium entrepreneurship, 4g5 human resource development and 4h5 investment.
In addition to these affairs, the law stated other six important affairs such as mining,
fishery, agriculture, plantation, forestry and tourism.
?ith respect to the ,aw -o. EE..++@ concerning fiscal balance distribution
between central government and local government, as the replacement of ,aw -o
""J
.0/"###, there was no serious revision in term of the percentage of revenue
distribution. The only revision was that it reemphasi*ed the increase of local
government!s revenues through (AF in order to speed up the implementation of
decentralisation program at the local governments.
La#s on t!e $overnin% o Ace! 5Lo$A6
After a series of parliamentary sessions, in an effort to accommodate the local
inspiration as the way to end peacefully the protracted conflict in the region, the C;A
endorsed ,aw -o. @@/"### concerning the recognition and reinstallation of the
autonomous status of Aceh region since "#0# and the implementation of Islamic
Shari1a in Aceh.
.@)
6owever, this law was not sufficient to address the special
characteristic of Aceh, then, the C;A issued other three important decrees Q(ecree
-o. ID/C;A/"### that mandated the autonomous status of Aceh ;rovince, (ecree -o.
ID/C;A/.+++ that recommended that the legislation of decentralisation ,aw on Aceh
should be ready by Cay .++" and (ecree -o. III/C;A/.+++ that endorsed the status
of >anun Aceh
.@$
as the subsystem of the national regulations that specifically
regulates the implementation of the law on the governing of Aceh.
.@#
The C;A also
included in the first amendment of the "#@0 constitution that >anun Aceh was
formulated by the local legislative assembly of Aceh. Thus, based on these decrees the
.@)
The endorsement of this law was to compromise with the demand of the Cuslim activists and Cuslim
traditionalist Ulama of the local Islamic boarding school for the reinforcement of the role of Islam in
region.
.@$
The terms ?anun was loaded by the local historical traditional value of Acehnese community, as
stated in the Aceh tate 8ode.
.@#
Thus, by virtue of the hierarchy of, ?anun as stated in the C;A (ecree -o. III/C;A/.+++, is the
subsystem of the national regulations which comprise of>
". "#@0 8onstitution
.. C;A (ecrees
E. Aegulations
@. ubstitution to Aegulations to <overnment Aegulations
0. <overnment Aegulation
J. ;residential (ecree
). ,ocal Aegulation 4for the government of Aceh it is >anun Aceh5
"")
Aceh government indeed received special treatment from the central government from
the rest of the region in Indonesia.
.0+

7n August #
th
.++", ,aw -o."$/.++" concerning governing of Aceh was
endorsed. <enerally, in terms of the distribution of authority, there was no significant
difference with the previous laws Q,aw -o. ../"### and ,aw -o. EE/.++@ which were
applicable to all other regions. The only difference was that ,o<A had been added
with a special recognition of the local custom and culture. The government of Aceh
had an authority to restore its local traditional socio&political institutions, such as the
*ali Nanggrou 4guardian of the state5 and ,uha Nanggrou 4the eldest of the state5 and
the implementation of the Islamic Shari1ah and the recognition of Shari1ah court as
part of national 2udicial system. Following the 6elsin'i CoF between <AC and the
<overnment of Indonesia which was signed on August "0
th
.++0, the law was revised
in order to accommodate recommendations that were embodied in the CoF1 and in
Bune ""
th
.++J, a new ,o<A 4,aw -o. ""/.++J5 was endorsed.
.0"
The new ,o<A indeed gave the government of Aceh a true sense of self&
government. It stated that the government of Aceh and its districts/ cities were given
authorities to manage and discharge all government matters in all public affairs except
matters which were reserved under the authority of the central government as stated in
Article "+ 4E5 ,aw E./.++@.
A part for the "@ government affairs and other special authorities stated in ,aw
-o. "$/ .++", based on the new ,o<A no. ""/ .++J, the government of Aceh were
given another six authorities that reflected the speciality of Aceh, namely>
.0+
ee Article .+ 4" and .5 of the first amendment of the "#@0 constitution.
.0"
This law was a synthesis of the six versions of ,o<A prepared by different groups of different
bac'ground> the political elites, ulama, academician, civil society and <AC.
""$
5< ?ith respect to the plan for any international agreement which central
government ma'es concerning the government of Aceh, the central
government has to acquire the consent of the local Assembly 4(;AA5.
.0.
4< ?ith respect to the plan for the formation of regulations which the national
Assembly 4(;A5 ma'es concerning the government Aceh, the (;A has to
acquire the consent of the local Assembly 4(;AA5.
@< ?ith respect to administrative policies concerning the government of
Aceh, such as restructuring of territory, formation of special territory and
planning for the formation and revision of rules and regulations which
directly relater to the territory of Aceh, the central government has to
consult and see' the consent of the governor of Aceh.
;< The government of Aceh has authority to ma'e direct 2oint venture with
foreign institution or company, except which has fallen under the authority
of the central government. Set, the agreement letter of 2oint venture should
write clearly the phrase that Gthe government of Aceh as part of the unitary
state of the Aepublic of IndonesiaH.
7< The government of Aceh can participate directly in any cultural and art and
sport events at international level.
A< The government of Aceh and its districts/cities has authority to form local
institution or commission according to the ,aw -o. ""/.++J with the
agreement of the local assembly1 and it should be regulated by the ?anun<
Accordingly, the administration of government matters are managed by the
government of Aceh and its districts/cities themselves, meanwhile the central
.0.
Fnder the ,o<A, (;A( in Aceh is 'nown as (;A&-A( 4;eople!s 8onsultative Assembly of
-anggrou Aceh (asrussalam5 then it was again renamed as (;AA 4;eople!s 8onsultative Assembly of
Aceh5
""#
government had the obligation to form a set of norms, standard procedures and
supervise the administration of government matters, without any intention to decrease
the authority of the Aceh government and its respective districts/cities.
T!e Empo#erment o Local Le%islative Assembl" 5DPR NAD6
%efore the endorsement of ,aw -o. ""/.++J, the local assembly in Aceh was 'nown as
the (;A&-A( 4;eople!s 8onsultative Assembly of -anggrou Aceh (arussalam5
"a&%at5 at the regional government and the (;A3 4;eople!s 8onsultative Assembly of
(istrict/Cunicipality5 at the district and municipality government. Then, it was
changed to be 'nown as the (;AA 4;eople!s 8onsultative Assembly of Aceh 5 at the
regional government as soon as the new ,o<A too' effect.
As the stated in the first amendment of the "#@0 constitution, the (;AA has
two important authorities. Firstly, it possesses authority to formulate ?anun Aceh by
consulting the governor in order to reach collective approval. econdly, it has authority
to provide local inputs and consideration to national legislative assembly 4(;A5 in the
formation of rule and regulation that directly concern the governing of Aceh.
%ased on (ecree -o. III/C;A/.+++ and further explanation of ,aw
-o."$/.++" stated that ?anun is local regulation of the Aceh government, the ?anun
can override any other regulations for it based on leB specialist derogaat leB generalis
by ma'ing appeal to the upreme 8ourt for revision of the substance of other
regulations vis&W&vis ?anun. Implying that it had the power to override any government
regulations that include presidential decree related to the special autonomy of Aceh.
.0E
8an the ?anun override the presidential decrees and regulations of the ministries that
.0E
ee Al Sasa! and Al Sasa! Abuba'ar and C. (aud Soesoef, GXanun sebagai peraturan pela'sanaan
otonomi 'husus di provinsi -anggrou Aceh (arussalamH, Department 3u&um dan 3a& Asasi /anusia<
Mhttp>//www.d2pp.dephu'umham.go.idN 4accessed "@ February .++)5, E
".+
by law are binding throughout the country? ,ogically ?anun should not contradict with
regulations higher in the hierarchy of law.
.0@
In case of such a paradox, which
regulation is binding? %y rule of special autonomy, the upreme 8ourt has to declare
that ?anun is binding.
.00
In order to avoid such paradox, in ,aw -o. ""/.++J the
central government stated clearly that it had the authority to abrogate ?anun if it is
against the public interest or in conflicts with other ?anun or other regulations which
are higher than ?anun.
.0J

Indeed, the endorsement of >anun Aceh as the subsystem of the national
regulations had empowered the local legislative assembly of Aceh. 8ompared to the
other local legislative assembly in other regions, the local legislative assembly in Aceh
had been given more authority to participate in governing the government of Aceh.
Thus, by the virtue of this authority, the (;AA has a responsibility to formulate ?anun
which ensures the efficiency and accountability of the government of Aceh in
managing public affairs in the region. It should maximi*es its role in supervising and
monitoring the performance of the government of Aceh to ascertain that local
development is well planned and allocation of local revenues benefit the public at
large.
Another important point that distinguished the speciality of the government of
Aceh from other regions, the law gave Aceh authority to form local based political
party to ta'e part in the local and general election. 8ertainly, it will enhance local
democratisation, which in the end might increase government accountability to the
people.
.0@
ee %angir Canan, Sistem dan te&ni& pem'uatan peraturan perundang-undangan ting&at daerah
4%andung> ,;;C&F-I%A "##05
.00
ee Bimly Asshiddiqie, ;enataan 'embali sumber tertib hu'um AI amandemen 'edua FF( "#@0 4%;
C;A&AI, .+++5
.0J
ee Article .E0, ,aw -o. ""/.++J of (epartment of 6ome Affairs, Aepublic of Indonesia.
"."
T!e Surplus Return o Local Revenues
In terms of fiscal balance distribution, Aceh is one of the main beneficiaries of this
decentralisation program. As Article @ 4E and @5 on balanced distribution of revenues,
lays down basic principles of balanced distribution between the central government
and the government of Aceh. The law stipulated that Aceh received #+ P of the yield
of property tax 4Pa!a& -umi dan -angunan :;%%51 $+ P of property transfer tax 4-ea
Perolehan 3a& atas ,anah dan -angunan Q %;6T%51 .+ P of personal income tax1
$+P of natural resources and forestry revenues1 $+P of revenues from mining1 $+P of
revenues from fisheries1 "0P of oil revenues and E+P of gas revenues 4ee table
E..5.
.0)
In con2unction with the special autonomy program, Aceh would receive
additional funds after tax 00P of oil revenues and @+P of gas revenues for the
duration of eight years starting from the date this law too' effect. ?hile beginning the
year # on ward, Aceh continues to receive E0P of oil revenues and .+P of gas
revenues.
Accordingly, Aceh experienced a drastic increase of regional revenues, coupled
with a large amount of funds for reconstruction and rehabilitation from communities
and donors both inside and outside the country following the disastrous (ecember
.++@ tsunami. Aceh received funds earmar'ed for reconstruction and rehabilitation
programmed were estimated to reach approximately FY ".$ billion in .++J1 placing
.0)
The law also introduced Ca&at as one of the local own source of revenue in Aceh, however, since the
law too' effect it has not been regulated for there still pro and con on the inclusion of Ca&at as one of the
sources of local revenue.
"..
Aceh among the richest provinces in Indonesia in terms of %udget and even more so in
terms of per capita.
.0$
After the endorsement of the ,o<A, Aceh, in terms of volume, experienced an
overall increase of natural resources sharing&revenue by more than "++ times
respectively FY ".J million in "### to FY ..0 billion in .++., and more than FY
E.0 billion in .++@.
.0#
7ther sources of revenue derived from the new tax&sharing
arrangement the central and local governments and regional and district/municipality
own source of revenue, which has experienced significant increase from "### to .++J
4see Table E.@5. %ased on these estimations Aceh had become one of the richest regions
in Indonesia.
Table )(.- Revenue S!arin% o Ta,es and Natural Resources 5;6
No Revenue S!arin% Central $overnment NAD
+ Propert" Ta,es +9 09
. Transerred Propert" .9 <9
) Income Ta, <9 .9
? $eneral =inin%
'i,ed 'ees
E,ploitation 'ees
.9
.9
<9
<9
8 Oil
$as
<8
@9
+8
)9
> 'orestr"
IHPH
IHPH/PSDH
.9
.9
<9
<9
@ 'is!eries .9 <9
ource> ,aw -o. "$/.++", Article @ 4E, @5
-ote> Forest 9xploration ,icence Fee 4Iuran 3a& Pengusaha 3utan Q I6;65
Aegional Forestry revenue 4Provinsi Sum'er Da%a 3utan Q ;(65
As stipulated in the ,o<A, the most important source of Aceh revenue derived
from intergovernmental transfers Q (AF, (A3 and revenue sharing, which has
increased three times in real terms from "###&.++J 4see Table E.E5. From "### to
.0$
ee ?orld %an' estimation based on data from I3(/CoF, .++@, cited in Aceh ;ublic 9xpenditure
Analysis pending for Aeconstruction and ;overty Aeduction.
.0#
8ompared to the period before decentralisation, the percentage of revenues that was returned to Aceh
had never been greater than +.+0 P of the total revenues that Aceh contributed to the central
government. ee *aspada, ""eptember "##$, 0
".E
.+++, transfers made up on average #"P of total revenue of Aceh government, a figure
that remained high after decentralisation too' effect Qan average of $" percent in .+++.
Aceh respectively continued to receive transfer fund from FY ".0 billion to FY #.@
billion.
In sum, Aceh continued to en2oy more authority and revenues following the
endorsement of the new ,o<A. Aceh received greater authority in managing its
economic matter. The law gave the government of Aceh a right to set its own interest
rate, which might be different from the rate set by that Indonesian central ban'. It was
authorised to retain )+ per cent of revenues from oil and gas, hydrocarbon, and other
local natural resources. It was entitled to 2ointly manage oil and gas resources with the
central government. It was entitled to request the central government to transparent in
revenue&sharing allocation and independent auditor. A part for those revenues, Aceh
also was entitled to receive additional . per cent of (AF for "0 years starting from
.++$ and " per cent for 0 more years.
.J+
Thus, the ,o<a -o. ""/.++J, was considered
as a starting point for the government Aceh to manage its internal socio&political and
economic development for the benefit of the local people.
Table )()- Composition o Provincial and Local $overnment Revenue in
Ace!- +000*.99> 5Rp( :illion6
+000 .99. .99> 5ProAection6
Prov( 2ab(/
2ota
Total Prov( 2ab(/
2ota
Total Prov( 2ab(/
2ota
Total
PAD )$ "+) "$0 "J+ "@J E+J "@$ "EE .$"
Ta,
Revenu
e*
@# .+E .0. ). .J+ EEE "+$ @)E 0$"
.J+
ee 8lause ".E.@ of the CoF
".@
S!arin%
Non
Ta,*
revenue
s*s!are
"$ $ .J .,+)$ ",EE0 E,@"E .,++J .,"0J @,"J"
SDO #$ ))# $))
INPRE
S
E0E )E. ",+$0
DAB .J+ E,0$E E,$@. @J" @,0J+ 0,+."
DA2 +,E@ ".. ".., E@ + 0#E 0#E
Ot!ers @@ J0E J#) "@) E@" @$$
Total 80> +-<.0 .-?.8 .->+8 >-90< <-@+) .-<@9 <-.88 ++-+.8
ource> ?orld %an' staff calculation based on data from I3(/CoF and %;&3. (ata are in
real terms 4constant .++J prices5
Table )*?( S!are o Revenue Resources o Total Re%ional Revenue in Ace!- +000*
.998 5Rp( :illion6
0
@
0
<
0
0
9
9
;
avera%e
pre*
decent(
9
+
9
.
9
)
9
?
9
8
;
avera%e
post*
decent(
Ta, Revenue*
S!arin%
"
+
"
+
$ J $ E @ E 0 @ @
Non Ta,*revenues*
s!are
"
$
"
)
"
"
$ "@ .
#
@
E
@
0
@
@
@
0
@"
SDO E
#
E
#
E
J
E
"
EJ
INPRES E
E
E
E
@
0
0
0
@.
DAB J
"
@
@
E
E
E
)
@
.
@@
DA2 " " E E E .
Ot!ers +.
"
0
+.
+
.
+.
+
.
+.
"
+
+.+) @ $ "
J
"
"
J #
Total Tarser #
+
#
+
#
.
#
@
#" #
E
$
$
$
"
$
@
#
+
$)
Total +
9
9
+
9
9
+
9
9
+
9
9
+99 +
9
9
+
9
9
+
9
9
+
9
9
+
9
9
+99
".0
ource> ?orld %an' staff calculation based on data from I3(/CoF and %;&3.
-ote> in .++E, the amount of Gother revenueH was very high. It was li'ely that some of the
amount derived from the sharing revenues.
Conclusion
The legislations of the laws concerning local government were the first
important attempt by the central government in its effort to respond to local need and
accommodate local inspirations and interest. These laws gave the local government
authority to manage "@ sectors of public affairs that include infrastructure and general
wor', health, education, environment, land, cooperation and empowerment of small&
medium entrepreneurship, human resource development, investment, mining, fishery,
agriculture, plantation, forestry and tourism. Ceanwhile, the central government
reserved the power to regulate matters related to foreign policy, security, defence, and
national monetary, fiscal and specific religious matter.
In addition, the law gave local government a bigger share of revenues, which
had never been given before. Fnder the new law, the local governments retained #+ per
cent of revenues from property taxes1 $+ per cent of revenues from transfer property1
$+ per cent of revenues from forestry, fisheries and general mining1 and "0 per cent
from oil and E+ per cent from natural gas. 6owever, fiscal decentralisation has created
a disparity of revenues between resource rich and non&resources rich
district/municipality government. To correct this, (AF and (A3 funds of .0 per cent
of the central <overnmentKs budget might be an effective means for reallocation of
fund between the regions based on needs and economic potential. The rationale behind
such huge percentage of revenue sharing was to assist the local government in funding
its new functions of administration.
In the context of Aceh, the central government endorsed ,aw -o. @@/"###
concerning the reinstallation of autonomous status for the province of Aceh1 and then
".J
,aw -o."$/.++" that specifically address the authority of the government of Aceh.
After the 6elsin'i CoF, the law was improved based on recommendation of the CoF.
The central government endorsed ,aw -o. ""/.++J or ,o<A which gave the
government of Aceh a true sense of self&government.
%ased on the ,o<A, the <overnment of Aceh was bestowed with other six
additional special authorities that distinguished it from the rest of the regions in
Indonesia. The endorsement of ,o<A to some extent did accommodate the local
inspiration and reflect the common interest of the Acehnese community. The law had
not only given the Acehnese authority to manage their own internal socio&political and
economic matters, but also had returned the dignity and respect of the Acehnese
community to be distinctively ac'nowledge by the central government, as the region of
capital for national independent and development. The name Nanggrou Aceh
Darussalam reflects the local historical value of the ultanate of Aceh (arussalam. %y
its own virtue is has been well received and appreciated by the people in the region.
The reestablishment and recognition of local traditional institution and
administrative system> *ali Nanggrou and ,uha Nanggrou, /u&im and +ampoung,
>anun, the implementation of Islamic ShariDh and authority to form local based
political party had indeed given the Aceh government a true sense of self&government.
It gave a sense of pride and honoured to the Acehnese community after living through
out long indifferently treatment from the central government. The people are happy for
the return of a true sense of Islamic identity, as the veranda of Ca''ah. ,o<A also
provided the government of Aceh with a greater percentage of revenue&sharing through
fiscal decentralisation and balance share of revenue. As a result, Aceh emerges as one
of the richest regions in Indonesia. ?ith such huge revenue, coupled with wide&range
of governmental authority, Aceh Qif it is well governed and coordinated Q might
".)
emerge as one of the most developed regions in Indonesia with its distinctive Islamic
identity. 6owever, it depended on the ability of the local elites to control their selfish
attitudes and maintained their self&integrity and professionalism in governing Aceh. It
would be very difficult for them to set themselves free from the vicious circle of
corruption, which had been there for a very long time. Coreover, the endorsement of
the special autonomous status for the government of Aceh was considered
metaphorically, as a mutilated man got bac' his hands, 4si puntung mendapat&an
tangann%a &em'ali5. ?ould the government of Aceh use its authorities and revenues
wisely for the benefit of public at large? The following chapter will address this
question.
".$