public administration and development

Public Admin. Dev. 25, 227238 (2005)

Published online in Wiley InterScience
(www.interscience.wiley.com) DOI: 10.1002/pad.363

OBLIGATORY FUNCTIONS AND MINIMUM SERVICE STANDARDS FOR

INDONESIAN REGIONAL GOVERNMENT: SEARCHING FOR A MODEL
GABRIELE FERRAZZI*,y
Department of Rural Development, Brandon University, Canada

SUMMARY
The government of Indonesia is revising the 1999 regional government framework, in part, to better address the obligatory
functions of the regional government. These refer to the minimum levels of service that regional governments must deliver.
Regional actors have been demanding clear rules of the game on this issue in aid of accountability. Since 2000, the Ministry
of Home Affairs, in concert with the key sectoral ministries, has tried to develop and test a suitable model. The findings of
these efforts underscore that affordability of minimum service standards is a key concern, followed by capacity issues: recently
the government has signalled its intent to forge ahead with a prescriptive approach by embedding the concept more firmly in the
new law on regional government (Law 32/2004). It must still clarify the concept and provide concrete guidance to sectoral
agencies to establish minimum service standards that will be affordable, feasible and enforceable. This article assesses
the feasibility of the evolving Indonesian model. It concludes that a prescriptive approach is attractive, but its
prospects are doubtful in the current Indonesian governance context. A cautious and phased approach is recommended.
Copyright # 2005 John Wiley & Sons, Ltd.
key words Indonesia; regional government; regional autonomy; obligatory functions; minimum service standards

INTRODUCTION
Central governments wishing to give a significant measure of autonomy to the local government (LG) are faced
with the challenge of pursuing national objectives when the delivery of key public services is made the responsibility of LG. Particularly in resource strapped developing nations, an assignment of functions to LG that follows
general competence principles raises the question of how the nation will be able to effectively pursue public service objectives that stress equitable coverage and standards of service quality. It is possible that in the quest for the
promises of decentralised governance a nation will imperil the achievements of the Millennium Development
Goals or other poverty reduction objectives. Successful decentralised governance in many large and populous
countries depends on a proper conceptualisation of the scope and mechanisms for central government influence
over LG, including ultimately the ability to gain compliance on critical performance expectations relating to service delivery. One way of gaining some control is through the introduction of obligatory functions (OF) of local
government, and their associated minimum service standards (MSS).
OF/MSS in the Indonesian context originate in the framework Law 22/1999 on Regional Government and its
follow-up Government Regulation 25/2000. The unclear formulation of these twin concepts in this framework has
been widely acknowledged. The concept has recently been more firmly embedded in the revision of the framework
law (now Law 32/2004), and regulations are currently being drafted to make the concept more complete and
operational.
*Correspondence to: G. Ferrazzi, 21 Miller St. Guelph, Ontario, Canada, N1L 1P1. E-mail: gabeferrazzi@rogers.com
y
Independent consultant in decentralised governance and Adjunct Professor in the Department of Rural Development, Brandon University,
Canada.

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G. FERRAZZI

The OF/MSS initiative coincides with the Government of Indonesia (GoI) effort towards performance-based
budgeting for regional government as part of wider financial management reforms (Ministry of Finance, 2002).
As well, regional actors themselves desire to use MSS as a tool for accountability, elected councillors to hold the
regional head accountable and regional heads to know what defines good or bad performance.1 There is much at
stake in getting OF and MSS right. A botched effort could cause much confusion and tensions among regional
actors, unduly distort regional financial allocations and further stress already strained centrallocal relations.2
While OF and MSS are widely used internationally, there is very little literature to describe how these are formulated and used for the purposes required by Indonesia; a prescriptive system that is compatible with a strong
form of decentralisation, affordable and acceptable to stakeholders, in line with the technical capacity of all actors
and congruent with the larger governance context. Some guidance may be derived from the international practice
and principles of functional assignment and LG finance, but it is evident that much more attention is needed for this
critical issue.
The article uses the term local government generically to refer to the simplified model of central government
in a unitary country (or formative unit of a federal nation) with one level of LG beneath it. For Indonesia, the actual
nomenclature of its politico-administrative system will be used. This unitary state is composed of two regional
levels, 32 provinces and 442 districts/cities, as of 2004.

INTERNATIONAL PRACTICE
MSS are found in many countries. They may be self-imposed standards for a given level of government. However,
for the purposes of this article, MSS are discussed in the context of OF of the local government. Literature on MSS,
which relates to centrallocal relations is scant. Local finance literature is notably silent on this issue. There is also
a dearth of coverage on the larger governance system within which OF/MSS must be embedded. The points that
follow are thus somewhat tentative.
Obligatory functions of the local government
OF are discernible in many countries under various terminology or formulations. For instance, they may be
described in legal documents as mandatory or essential functions, or as duties of LG. Their intent is to place
an obligation on LG to discharge a certain function, usually a public service. That obligation may stem from a
constitution or legislation of a higher level government (e.g. central government in a unitary state).
Literature offers little in the way of good practices for formulating OF of LG. A cursory survey of legal frameworks shows that higher level governments have chosen a variety of routes to set, enforce or support OF assigned to
lower level governments.3 In many countries the issue is left rather vague in the framework laws for subnational
government, and the actual practices must be understood by viewing them from several vantage points (Ferrazzi,
2002a). Moreover, the connection between OF and MSS is often implicit, particularly where the architecture of LG
functions does not clearly discern between what is obligatory, traditional expectations or merely a menu.
In the Indonesian case, OF are explicitly recognised in the framework of regional government law and are to be
operationalised through MSS. The latter applies only to OF (as opposed to optional functions of regional government) and defines the expected performance on dimensions directly felt by the recipients of public services. In this
respect there is relative clarity in the Indonesian approach, though the formulation of other important aspects of the
concept in laws and regulations (in the 1999 framework) has been flawed and confusing (May, 2003).

1
The new Law 32/2004 removes the risk of impeachment found in Law 22/1999, but the desire to be re-elected will no doubt push regional heads
to consider performance expectations.
2
For an explanation of this danger, see the arguments put forward in Martinez-Vazquez et al. (2003).
3
Some examples are a general competence formulation accompanied by a short list of OF (New Zealand); a list of optional functions and a list of
OF in the same LG law (Nepal); general competence formulation in a framework LG law, and a variety of OF from higher level governments
through various laws (Germany) or other legal instruments (home rule in United States); obligatory posts (officers) of LG (Philippines).

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Prescribed performance
management plan, indicators
and targets for indicators
Prescribed performance
management plan
and indicators
Prescribed performance
management plan
Voluntary performance
management system

Figure 1. Levels of prescription for local government performance.

Minimum service standards related to obligatory functions

International practice shows considerable diversity in the labelling and application of service standards for LG. For
instance, these may be found within a performance measurement system (Philippines); performance management system (South Africa); and best value initiative (U.K.). The common thread is the pursuit and measurement of selected inputs, outputs or outcomes in key LG services and to make this information available to a
supervisory level of government and other stakeholders. The initiatives generally seek to cover essential (important) services to the public, providing the clients and general public with the results of the performance measurements, along with relevant benchmarks and a longitudinal perspective. The intention is to inform clients and
citizens, who in turn will voice preferences and call LG to account on service delivery dimensions, particularly
quality, efficiency and probity.
A performance approach to government is well under way in OECD countries, with legal requirements for
agency and overall government reporting. However, the challenge of measuring outcomes, matching resources
to outcomes and of attributing success or failure are well acknowledged (PUMA, 2001). These challenges have
meant that some countries have tended to work through output measures first (most easily attributable to the
actions of the relevant government units) or a combination of inputs, outputs and outcomes (PUMA, 2002).
In many cases, performance management systems have been voluntarily adopted by LG. Often, these are complemented with prescribed elements set by a higher level government. Ferrazzi (2002b) has categorised the possible levels of prescription seen in international practice (Figure 1). Some countries appear to only have a voluntary
set of standards of service, but closer scrutiny usually reveals prescriptive sectoral standards.4 Their formulation
varies widely, with the minimum sometimes being implicit, as might be expected in an OECD context where
services are generally quite well developed, and the focus is on internal or relative benchmarks.
Most donor supported projects that introduce performance management systems in developing countries have
worked with self-assessment tools, for example rating systems, benchmark comparisons and customer satisfaction surveys. The Philippines is one example where several donors are involved in a number of such voluntary
approaches, facilitated by the central government (see, e.g. the UNDP supported effort described in DILG,
2000 and the AusAid effort described in DILG, 2002).

4
LG omnibus laws tend to only set out some aspects of centrallocal relations. Particularly where local governance is split among several
institutions, e.g. a core municipal organisation and several semi-autonomous boards and agencies, the role of sectoral laws assume greater
importance.

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A crucial issue in introducing OF/MSS is how the higher level impositions can be reconciled with LG autonomy. This issue is particularly felt where the politico-administrative architecture of the country is specifically
designed to give a high degree of political, administrative and financial discretion to LG. In these cases, state functions are assigned to LG in a strong form of decentralisation, i.e. devolution. In this arrangement, LG is not simply
an agent of the central state, but can exercise considerable autonomy, with a robust form of accountability towards
its local constituents.
Some advocates of LG autonomy claim that MSS are a distorting intrusion in the affairs of LG. However, most
observers and practitioners seem to agree that the central government (or any level of government charged with
responsibility for LG) has the right and duty to set a framework that protects national interests, weighing these
against local interests. Both interests are ideally based on democratic processes; they simply differ in vantage
point, with those of the national level being largely concerned with the national values and externalities that call
for a national or international response.
Financing OF/MSS
It is generally held that nations should clearly stipulate in their constitution or laws the principles of LG financing.
This good practice is particularly important for OF, as these are expected to be enforceable. The constitutions of
Germanys Lander usually make it explicit that the state must make available the necessary funding for tasks
transferred to the LG (see, e.g. the case of Bavaria as described in the Federal Republic of Germany, 1997,
pp. 44). In Hungary, a similar provision pertains to compulsory functions assigned to LG. In this case, Parliament will ensure the financial conditions necessary for their being carried out; it shall decide on the extent and
method of the budgetary contribution. (Government of Hungary, 1990, p. 1)
In most countries, LG mandates and performance levels have accrued incrementally. As these obligations
arise, they tend to be visible and thus generate a discussion or debate, on their likely impact. The threat of
unfunded mandates on LG will be easily noted and likely resisted. In the United States, it has long been noted
that numerous federal and state level mandates eat up local funds and take away decision-making authority
(Oliver, 1997). According to the National Association of Counties, higher level mandates leave counties
with discretion over only 15% of their budgets (Milbank, 1997). LG in the U.S. has in recent years made a
strong case for impact assessment and compensating funds. This visibility and impact awareness is less in
the case of radical decentralisation, particularly if it is rapid. It is not surprising then that in Indonesia OF/
MSS are being retrofitted several years after the initial decentralisation reforms. The full import of taking this
route has been delayed by the rush to transfer functions, people and funds; the controls for guiding regional
governments have only lately come to the fore, and the details have yet to be worked out. Ideally, the national
level should consciously craft the levers it wishes to retain to influence LG before putting into effect radical
decentralisation.
Because obligatory functions generally relate to the core functions of LG, these should ideally be financed
from their own revenues, supplemented by an equalising transfer if necessary.5 The transfer could be permissive (block or general grant) and be applicable across sectors. Alternatively, the transfer could be one or more
conditional (categorical) grants, tailored to specific sectors/programmes. The mainstream view assumes that
conditional grants should be used to further the particular aims of the central government with respect to
LG budgeting and programming. However, this principle should not be thought of as sacrosanct in view of
the grievances heard about the distorting (efficiency reducing) nature of proliferating conditional grants for
LG financing.
The Indonesian approach, relying on own revenues and a significant block transfer, offers a conceptually elegant solution to the inherent tensions in centrallocal relations than is commonly found in many countries heavily
reliant on conditional grants. However, the financing of LG internationally is much too diverse, and muddled, to
5
It can also be expected that financially strong LG will use loans for some categories of investments that are in support of important public
services. This financing option will not be open to financially weak LG. For the purpose of simplifying the discussion, this option will not be
further discussed.

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draw confident inferences from international models as to the promise of the Indonesian model as it stands at the
moment.
In principle, a prescriptive approach such as that put forward in Indonesia could combine both a measure of
control and allocative efficiency through:
1. Shifts in allocation from functions of less priority (non-obligatory) to those deemed, through a national
consensus, to be of greater priority and therefore made binding (obligatory).
2. Allowing flexibility in the delivery of services; properly set MSS can allow freedom to choose inputs and
strategies (e.g. inter-LG cooperation, private sector partnerships, contracting, use of voluntary sector).
3. Reduction of leakages as performance targets force a more performance based budgeting and its attendant
transparency.
4. Termination of unnecessary functions or yielding the terrain to other actors.
These results are unlikely to be automatic. They will depend on a number of complementary or broader good
governance initiatives within which OF/MSS need to be embedded, particularly a proper vertical supervision and
constituent oversight system.
Governance context for OF/MSS
OF/MSS are tools for increasing the accountability of LG, principally to the central government but also to local
constituents. Most discussions found in the literature pertain to LG performance management systems that are LG
driven6 or negotiated between central/state and LG.7 The need for sound data and reporting for the use of local
politicians and the public is well covered in these accounts. For those systems that are designed primarily by central government for vertical accountability, the additional element of supervision must be given serious attention,
encompassing:

reporting system to central government;

support system of central government to increase LG technical capacity;
financing adequacy and
enforcement, i.e. rules of the game for non-compliance.

The importance of each of the above elements largely depends on the degree of prescription. A system that
prescribes the specific targets for the set of prescribed indicators (top level of prescription in Figure 1) would
be expected to encompass all of the above elements in a robust fashion.
On the other hand, if local accountability is to be the primary driver (versus a prescriptive approach that emphasises vertical accountability) and voluntary initiatives are encouraged, then the governance context should exhibit
the following supportive characteristics:

High own revenues as a proportion of the local budget.

Relatively high levels of education and political awareness/activity.
Election systems for councillors and mayors or executives that tie these actors tightly to local constituents.
Long standing/capable local government.
Stable relations between local government and higher level government.
Generally comparable fiscal capacity among local government.

The above characteristics support strong accountability. Even so, many OECD countries that seem to largely
meet these conditions nonetheless have chosen to use some degree of prescription, suggesting perhaps that a combination of central level prescription and local initiative yields the best outcome.
6
See for example the Ontario (Canada) example of the voluntary benchmarking effort of several Chief Administrative Officers as found in
OMBI (2001).
7
See for example the Australian states approaches as found in National Office of Local government (2001).

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G. FERRAZZI

THE INDONESIAN MODEL

Legal and conceptual framework
OF/MSS in the Indonesian context were initially rooted in the unique architecture of the functional assignment set in
the now eclipsed Law 22/1999 on Regional Government (see Ferrazzi 2002c). This radical framework law gave districts/cities8 jurisdiction over all the governmental functions, except those retained by the centre and provinces. These
exceptions, listed in a subsequent regulation, left the districts with a strong form of general competence through a large
and undefined residual.9 To ensure that districts would not just take up revenue yielding functions, to the neglect of
onerous and costly service functions, Law 22/1999 set out (mistakenly) obligatory sectors10 for the districts.
In mid 2000, the State Ministry for Regional Autonomy provided the relevant national sectoral agencies with a
cursory introduction to the concept of OF/MSS to help these agencies produce the necessary lists of OF/MSS. The
resulting OF/MSS lists that were sent to the districts in 20002001 were highly variable in format, detail and quality across the sectors.11 Faced with the confusing and overwhelming directives, most districts did very little. Only a
few made an effort to incorporate MSS in their district development planning, and fewer tried to reflect these in
their district budgets.
Recognising the above difficulties, the Ministry of Home Affairs (MoHA),12 with support from a number of
donors,13 issued a circular in mid 2002 to provide guidance and indicate how the concept would be further developed. The main features of this clarified concept were as follows (MoHA, 2002):

The national government sets the obligatory functions, based on a set of criteria.

Minimum service standards are attached to obligatory functions to determine minimum acceptable levels of
service delivery.

Obligatory functions and minimum service standards apply to all districts/cities.

The central government must assure that there will be adequate financing of obligatory functions and minimum
service standards.

The pursuit of minimum service standards will be done keeping in mind the varying conditions and capacities of
the districts/cities.

The governor, as representative of the central government at provincial level, will play a large role in monitoring
progress and supporting districts/cities.
The financing approach however remained cloudy. There was some discussion of using the neglected special allocation grant mechanism (Dana Alokasi Khusus), but there was resistance from many quarters to this approach, in part
to distance this decentralisation initiative from the Soeharto period that was characterised by a proliferation of conditional grants that stifled local autonomy. While there has been discussion of a sectoralisation of the existing block
grant (Dana Alokasi Umum-DAU), this is so far being considered only for the purpose of generating a formula that
responds to the expenditure needs as defined by MSS rather than as compulsory budget allocations that would apply at

Districts and cities were treated in the same way in Law 22/1999 and also in the new Law 32/2004; district will refer to both unless specified.
A general competence architecture allows local government to take any action required to provide services, protect people and property, and
develop the community/region. In its purest form it is only limited by the requirement to not infringe on higher level laws and regulations.
10
These sectors were public works, health, education and culture, agriculture, industry and trade, investment, environmental affairs, land affairs,
cooperatives and labour affairs. The intent of the drafters of Law22/1999 was actually to identify those sectors within which obligatory functions
would be contained, but the formulation in the law ended up reading as obligatory sectors; this is widely acknowledged to have been a legal
drafting error, one that caused much confusion and tension between levels of government, adding to the calls for the revision that led to the
recent introduction of Law 32/2004.
11
When compiled into one volume, this thick tome was widely referred to as buku bantal (pillow book).
12
Having by this time incorporated the functions of the former State Ministry for Regional Autonomy.
13
A donor working paper was prepared in early 2002. The donor and technical assistance agencies or their consultants involved in supporting the
government in this initial effort were the Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ), United States Agency for International
Development (USAID), Canadian International Development Agency (CIDA), Japanese International Cooperation Agency (JICA), Australian
Agency for International Development (AusAID), The World Bank, Asian Development Bank (ADB) and the United Nations Development
Program (UNDP).
9

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the regional level. Created in 1999, the DAU had by 2002 become popular with districts, and it would have been difficult to reduce this fund in favour of the conditional grants. Hence, the GoI sought to maintain the primary role of
DAU and build alongside it separate mechanisms that could influence or direct regional expenditures.
The above description of the Indonesian OF/MSS model still holds today, even after the introduction of Law 32/
2004. This law gives more prominence to the concept, but still does not flesh it out, beyond making OF/MSS also
relevant for the provincial level, and hinting that the introduction will be phased (bertahap); it is not clear what
exactly will be phased.
Notwithstanding the uncertainty, it may well turn out that the Indonesian approach is more autonomy friendly,
if properly executed, than what is generally seen with the extensive use of conditional (categorical) grants, with a
better end result in term of fulfilling the central aim in LG financing, i.e. making the connection between the taxpayer and an accountable LG that meets basic service needs and in general reflects local priorities and preferences
(see Bahl, 1999).14 Rather than rely on restrictive inputs (e.g. specified budget allocations, staff positions) commonly seen in conditional grants, the OF/MSS approach would allow LG to choose the means (strategies, budget
levels, programming, inputs) by which they achieve the MSS. The central government would merely ensure
that the total financing of LG is sufficient to meet the set MSS, plus some additional increment to allow for full
autonomy over some fully discretionary activities of LG; once LGs have met the MSS, what they do within these
obligatory services or other activities would be entirely up to LG.
The above features represent a fairly robust model in principle, one that very much fits with the top level of
prescriptive possibilities shown in Figure 1. However, many fundamental questions still remain to be answered
before the model can be said to be complete and ready for implementation, particularly regarding the selection
of OF/MSS,15 devising equitable and sufficient financing, budgeting for outputs and outcomes and gaining consistent compliance.
Model building exercise and piloting
To answer some of the above concerns, a model building exercise was conducted from January to March 2003 in
seven districts/cities of three provinces (East Java, West Java and Nusa Tenggara Timur). The exercise focused on
the lists of OF/MSS prepared by the participating departments (health, education, home affairs), with the aim to
gauge regional reactions to the lists of OF/MSS prepared by the central level agencies involved, and to jointly
anticipate their financial and other implications. The exercise consisted of an intensive interaction between the
central government agencies, regional officials and other stakeholders. The interaction consisted mainly of group
discussions, with some effort to simulate the application of MSS, particularly in budgeting. Subsequently, a more
in-depth piloting activity followed in six districts and two cities of five provinces, funded by the Asian Development Bank. This effort, concluded in February 2005, focused on developing a costing methodology and assessing
the readiness of regional government to apply the concept.
Awareness of regional actors regarding OF/MSS was found to be generally low. Yet they were engaged with
interest and an appreciation of the importance of the issues. The most frequently voiced concerns regarded the loss
of autonomy (district level), insufficiency of finances and inability of data systems to support outcome measures.
Other concerns centered on the challenges of planning for the achievement of outputs or outcomes, particularly
those of a cross-sectoral nature (WBDTF, 2003).
Both central and regional actors, and supporting donor agencies, realised that tools for costing functions at the
desired performance levels needed to be further developed. The very rough calculations undertaken in simulation
exercises suggested that the achievement of MSS would vastly outstrip allocations of current budgets in some
resource poor districts (e.g. Kediri, in East Java and East Lombok in East Nusa Tenggara) (ADB, 2005).
A worrisome finding was the possibility of perverse incentives; the most dangerous being that the identification of
numerous obligatory functions was expected to attract scarce regional and national funding to a given sector or agency.
14
This comparison applies only to typical conditional grants versus block grant with OF/MSS; the best way to forge this nexus would be to
increase the low own revenues of the districts.
15
Three main criteria have been used: (1) protect individual and collective constitutional rights, (2) protect fundamental national interests, based
on a national consensus, by maintaining public lfare, security and equity, (3) comply with international agreements and conventions.

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Current status of model development

The consultative exercises and analysis undertaken to date have made some GoI officials more aware of the complexity and pitfalls of the prescriptive model being pursued. The need to avoid disputes over functional assignment
that marred the application of the old Law 22/1999 in relation to sectoral laws has pushed policy makers to change
the architecture of functional assignment as a whole through Law 32/2004. There is no longer a large undefined
residual as the basis for general competence at the district level. Instead, obligatory functions (and their related
MSS) make clear what both regional levels must do. These obligatory functions are to be enshrined in separate
laws, or at least government regulations, pertaining to each sector; the potential clash of sectoral laws and regulations with omnibus regional government law/regulation is thus averted. As well, optional (discretionary) functions
have been introduced as a category, possibly allowing for a form of general competence to still existif subsequent regulations properly bring this category of functions to life.
A regulation is presently being prepared to give instructions to central level sectoral agencies to prepare draft
lists of OF and MSS that will be made binding through sectoral laws and regulations, by a drafting process to be
defined. There is some awareness in the government that considerable consensus and coordination will be needed
in setting and activating OF/MSS to maintain consistency across sectors and safeguard regional autonomy principles in the process.
Whereas a heated debate on financing issues marked the cooperation between donors and the GoI in 2003,
donors had largely vacated national level policy support to the Ministry of Home Affairs by mid-2004, in part
due to the lack of take up of offered advice. Nevertheless, donors hope from a distance that their cautions about
the likelihood and downside of unfunded mandates will be remembered as the GoI prepares regulations and implementation measures. The GoI on its part has defended the emerging model by pointing out its flexibility, where
MSS are set nationally but the regions may work towards these over stipulated multi-year periods. These officials,
and some donors, maintain that the number and burden of OF/MSS can be limited by adhering strictly to sound
criteria, by prioritising/phasing sectors, functions within sectors and MSS (or levels and pace of achievement
desired towards their fulfilment) in a way that does not undermine the prescriptive nature of the model. The prescriptive dimension is seen as essential towards building a robust supervision system that can respond both with
incentives and sanctions towards regional governments that fail to adequately deliver public services, bringing
pressure to bear particularly on those that shirk despite adequate financing.
Most detractors believe that the GoI will not be able to chart a careful course between prescription and flexibility/supportive action, and that only confusion and discord (between sectors and the central and regional governments) can come of long and burdensome lists of OF/MSS that can never be funded. The latter group generally
advocates a guidelines approach, where regional government does its best to take the guidelines into account in
its planning and budgeting, with no direct central government repercussions if these are not met.
Some GoI policy makers, acknowledging that it will be difficult to force the sectors to pare down their lists, have
come to the conclusion that the unrealistic aspect of these lists is of little consequence; the harsh reality of budgets
will force the regions, and their constituents, to make choices about which OF/MSS to give attention to. While their
statements do not go as far as saying that the prescriptive dimension should be dropped, the stance of these officials
is in essence incompatible with a prescriptive approach.
The policy basis for the emerging OF/MSS concept has not been made any clearer through Law 32/2004. It is
only clear that the GoI is serious about pushing ahead with the model. However, the GoI is finding it hard to speak
with one voice, and relevant officials are opaque or vacillating on important issues, with serious implications for
the coherency of the eventual OF/MSS model and of the entire set of centralregional intergovernmental relations.
DISCUSSION
Affordability: the example of the educational sector
GOI is still in the early stages of costing services and estimating the financial impact of MSS. Estimating costs is
challenging for health, and only somewhat more tractable for education. The Ministry of Education (MoNE) has
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developed candidate OF covering 10 services, accompanied by 192 MSS. The most financially burdensome OF
are primary and junior secondary schooling with MSS dealing with, among others, participation rates, student drop
out rates, percentage of students passing on to the next level of schooling, percentage of students succeeding in
standardised examinations, final level of education attained by the students, number of qualified teachers, quantity
and suitability of physical infrastructure and other inputs. There has not been any attempt yet to prioritise the OF/
MSS proposed by MoNE. Suggestions from donors to that effect for all candidate lists have not been well received
by national sectoral agencies; they are all important has been the refrain.
Lewis (2003) examined the proposed MSS for the participation in primary, junior and senior secondary education. According to the official figures, as of fiscal year 2002, participation rates in primary, junior, secondary and
senior secondary schools were: 83.6%, 72.9% and 45.6% respectively,16 yielding an overall school participation
rate of 66.4%. Minimum participation rates for the three categories of school proposed by the MoNE team charged
with developing the standards are 90%, 80 and 60% respectively, till the year 2008.17 Their weighted average,
approximately 80%, was used as the minimum participation standard in the Lewiss analysis. He found that reaching the 80% participation level would mean increasing physical capital and other expenditures by around 15%, an
increase of about seven percent of the total local government expenditure budgets.
Lewiss calculations must be seen in terms of the wide variation in expenditure patterns and fiscal capacity
found among districts/cities. For instance, Lombok Timur, a poor district in Nusa Tenggara Barat, spent nearly
50% of its 270 billion rupiah budget on education in 2001.18 The World Bank expenditure review team noted that
based on the current enrolments the district fell short by 20% of the 6573 required primary school teachers and by
13% of the 1329 needed teachers for junior secondary schools (World Bank, 2002, p. 40). Evidently, achieving the
MSS for the poor districts will require substantial additional central level financial assistance. Whether the central
government will be able to close the gap in education, and other sectors, has not been determined, but preliminary
evidence suggests that a much more prioritised and modest approach is needed.
Political acceptability
Regional government associations have made bullish public statements about regional government responsiveness
(see, e.g. APKASI, 2003), but they have yet to take a policy position on OF/MSS. Individual regional government
responses vary. Some welcome the standards and foresee few problem in achieving them, or even surpassing
them.19 Some governors/provinces are eager to play the guidance role that the current model promises them.
Aggressive governors have jumped the gun and designed their own MSS and made these obligatory (with questionable legality) on the districts, seemingly with little negative reaction,20 though it is unclear how seriously districts are treating these provincial MSS. Many regional actors welcome the introduction of MSS to clarify the rules
around local accountability. Others, echoing the donor community, fear that OF/MSS will undermine regional
autonomy, or that they will bankrupt the regions or the nation.
On the donor side, similar worries can be found. Although the 2002 MoHA circular was the fruit of a strong
cooperation with donors, donor consensus has been strained at best. Aside from practical questions of technical
feasibility and affordability, some donors appear to be ideologically committed to a voluntary model of LG performance management21 (the first level in Figure 1). Fundamental differences of opinion are found not only among
donor agencies but also within agencies and projects.
16

All data on school-aged children, school-aged children attending school and participation rates are from Badan Pusat Statistik (BPS) for year 2002.
There are large conceptual and policy implications of setting minimum participation rates at these levels, or at any level below the full achievement
of the MSS (which in this case promises everyone a basic level of education, not a lesser proportion), but these issues are not treated in this article.
18
Calculated from the report of World Bank (2002), Annex Tables 4 and 5.
19
This was the stance of Surabaya city officials taking part in the February 2003 model building exercise in Surabaya. Also, the regional head for
district Sleman (East Java) took a similar position in his discussion held with donors at a regional forum held in Jakarta by the Center for Local
Government Innovation, 11 June 2003.
20
See for example the province of Yogyakarta where the governor has set standards for the districts/cities that pertain even to productive sectors.
21
Dinamis, a project funded by DFID and executed through PACT Indonesia, has sought to develop minimum service standards locally rather than to
assist the Ministry of Agriculture to develop national minimum service standards. The Center for Local Government Innovation, a USAID funded
body bringing regional associations and other stakeholders into cooperation to strengthen LG capacity, also seems bound to a purely voluntary
approach.
17

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G. FERRAZZI

As yet, a number of important stakeholders have yet to be consulted. Professional associations have largely been
bypassed or only nominally involved. The press, NGOs, research institutes and regional government watchdogs
have yet to engage meaningfully in what could be a very important initiative towards improved local governance.
Many regional governments themselves have yet to adequately understand the current OF/MSS model, let alone
speak for its desirability.
Technical capacity
Challenges common to any government performance management initiative include:

Selecting indicators that are meaningful for cross-LG comparisons despite varying technology and financial
accounting systems.

Establishing a data system that supports the desired measurement.

Dealing with cross-sectoral outputs and outcomes.

Distinguishing technical standards versus quality/access standards.

Estimating the financial impact of standards.

Making the reports intelligible to politicians and the general public.
Additionally, because of the prescriptive nature of the Indonesian model, the GoI will need to ensure equitable
financing of diverse regions and an enforcement system. The Indonesian bureaucracy, at central or regional level,
will be hard pressed to address these issues adequately, even with donor technical support. A great deal of coordinated capacity building efforts will have to be mounted across all regions if standardised approaches to costing,
budgeting, accounting and reporting are expected. This capacity building would have to be heavily supported by
donor assistance, which entails regrouping the rather fractious donors behind a coherent model. Additionally, the
framework of central-regional supervision will need to be modified to reinforce the governors role and to entrench
reporting requirements and sharing of information among central level agencies for the purposes of technical and
financial support. All of these onerous tasks will surely stretch GoI agencies given their persistent tendencies to
work in isolation or competition, focused on power and benefit stream maintenance, often to the neglect of the
public good.
Suitability to governance context
The conditions that favour strong LG accountability have been mentioned earlier. In contrast, Indonesia is characterised by the following:

Low own revenues as a proportion of the regional budget.

High variability in fiscal capacity among regional government.
Relatively low levels of education among the public.
Cultural acceptance of power (for its own sake) and top-down approaches.
Election system for councillors and executive branch that ties these more to party organisations or their own
interests rather than to local constituents.

A lack of rule of law at all levels of government.

Regional government that is heavily implicated in corrupt practices, especially in money politics in the election and accountability processes.

Reporting and supervision systems for regional government that are incomplete and often perfunctory.
A prescriptive OF/MSS model along the lines being developed by Indonesia is badly needed precisely because
of the existing governance deficiencies, but these same deficiencies will make it hard to introduce a coherent,
affordable and enforceable prescriptive model.
The above difficulties should not lead to the simplistic reduction of candidate OF/MSS lists in a bid to make
these affordable today. Nor is making the current overambitious OF/MSS lists mere guidelines likely to be helpful to regions that have a limited capacity and little accountability pressure from below. The middle way may be the
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best. This would see a preparation period of perhaps two to three years where OF/MSS are not binding while technical capacity is built up, and consensus and awareness is enhanced. This would be followed by a prescriptive
approach that is backed by proper costing and financing, and yet has flexibility. This would mean judiciously reducing OF/MSS to those that are most crucial to welfare. These will still outstrip current resources, but they could be
phased (education and health first) and pursued over a reasonable time frame. Both financial incentives and
enforceable sanctions are needed to give the model any credibility, but initially the emphasis should be on learning,
calling for a facilitative rather than punitive action. Only in the most egregious cases of regional government
neglect should the central government step in, and that too with graduated measures. As government budgets
increase in real terms, OF/MSS may be extended or ratcheted upward. Eventually, MSS will lose urgency compared to regional government driven performance initiatives that surpass MSS levels.
CONCLUSIONS
The preliminary findings from the model building and piloting efforts for OF/MSS are sobering, and give support
to those within GoI and the donor community calling for a cautious approach to OF/MSS. A great deal of more
dialogue will be needed to bring relevant central level agencies, and supporting donors, together around a fully
elaborated and robust model of OF/MSS.
In supporting the models development, donors should provide coherent support for a workable prescriptive
model before proposing the purely voluntary LG models that do not generally exist on their own even in many
OECD countries where local accountability is strong. Donors should however continue to caution the GoI that
confusion and conflict could result from a poorly designed prescriptive model, with its attendant unfunded mandates and a legal framework that is patently unenforceable and could be used capriciously.
Whether the GoI is able to craft a suitable prescriptive system is doubtful at the moment. Difficulties of data and
measurement are technical constraints that are amenable to solutions. Difficulties with sectoral cooperation, institutional interests that hinder allocation shifts and the general reluctance to increase accountability in spending pose
more significant hurdles. To solve these issues to allow for a coherent OF/MSS model will take considerable political will; the new cabinet and the President will be put to test.
The search for an OF/MSS model in Indonesia indicates that more attention needs to be paid in decentralisation
efforts to the challenge of retaining the levers for exerting national influence over LG on important national and
international commitments to key public services. In this respect, even if the Indonesian model is not properly
elaborated and executed, it does suggest that there may be alternatives worth exploring to the current mainstream
use of conditional grants that historically have tended to proliferate and unduly limit local autoonomy.
ACKNOWLEDGEMENT

The author gratefully draws on technical assistance assignments carried out in the context of development cooperation between various donors and the Ministry of Home Affairs in the area of obligatory functions and minimum
service standards. The authors assignments have been commissioned through the German GTZ, the World Bank
Dutch Trust Fund and the Asian Development Bank (RTI-GTZ). The views expressed in this article are those of the
author and do not necessarily reflect opinions or policies of the mentioned organisations.
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