Notes from the Field

From Indonesia: Survey Examines Decentralization’s Impact on Local Governance

February 10, 2010

The transformation of Indonesia’s political system in the past decade has included a radical overhaul of the country’s governance structure. What some have dubbed the “Big Bang,” responsible for decentralizing a range of public services to the country’s 500 plus regions, has made Indonesia one of the most decentralized countries in the world. Nine years after the decentralization law took effect; however, it is debatable whether efforts to strengthen local governance have indeed improved access to services, particularly for women and the poor.

The results of a new Local Budget Survey may now give Indonesians some answers. The survey examines the quality of local governance and public spending in 42 districts and municipalities in Indonesia. Launched February 2 in Jakarta by the Indonesia Forum for Transparency in Budgeting (FITRA), the survey was conducted with support from The Asia Foundation and funding from the UK’s Department for International Development (DFID). More than 15 civil society organizations worked for almost a year collecting and triangulating data through review of fiscal documents and interviews with stakeholders.

Among the most important trends is an expansion of incomes at the district level, which is playing an increased role in funding public services. Indeed, the decentralization law was intended to increase local funding for services and thereby improve demand for higher quality services and greater accountability. The study found that district revenue comes primarily through taxes, and in resource-rich districts, local government revenues have increased significantly as a result. However, activists are concerned that in some districts, fees charged for use of public hospitals and health centers make up as much as 40 percent of all district revenue. This is thought to be regressive given that many users of the public health system are poor.

The study also confirms the broadly-recognized fact that regions continue to rely heavily on funds provided by the central government. Funding earmarked for sectors like health, education, and basic infrastructure (referred to locally as DAK) fluctuates greatly from year to year, making it difficult for districts to plan effectively. Moreover, local budgets range dramatically; the worst-off district has only $50 per capita to spend annually, while the best-off district has 10 times that amount. Such disparity makes it difficult to develop overall best practices for each region.

Indirect spending has emerged as an area of greater concern. For example, some regions spend half of their budget on salaries for civil servants. With limited data on pay for administrative staff compared to civil servants who provide direct services (teachers, health workers), it is difficult to ascertain whether the problem is too many civil servants, inflated salaries and honorariums, or a combination of the two. Another area of indirect spending that clearly needs attention is social spending, designed to provide assistance to community organizations. The study also documents large increases in social spending during election years. Such spending makes up as much as one-third of all indirect spending in some districts, a clear indication of its use for political purposes.

The survey looks most carefully at spending in the health and education sectors. All but one district had allocated at least 20 percent of its budget to education, per national law. However, the majority of education budgets are spent on teacher salaries and infrastructure, leaving less funding for programs to improve the long-term quality of education or to provide scholarships for the poor. Health budgets fared less well, with only one district allocating at least 15 percent of their budget to health, also mandated by national law. At least half of the districts surveyed spent less than 7 percent on health, and almost no districts have increased health spending in the past three years.

In terms of governance indicators, the country is making clear progress. The survey notes relatively satisfactory levels of transparency in budgeting and reveals that civil society has access to most planning processes. However, as planning moves into allocation and spending, the government becomes more closed-door. Over 60 percent of local governments do not make spending reports publically accessible as required by national law. There was also some correlation between districts that have larger budgets scoring less-favorably on indicators of transparency and accountability.

“Decentralization has brought so many benefits – such as increased public participation – yet so many challenges remain,” said Director General of Regional Financial Administration for the Indonesia Ministry of Home Affairs Timbul Pudjianto at the survey’s launch event. “At the central level, we struggle to get the regulations right. At the local level, we depend on civil society to demand accountability and performance from their local governments.”
Fortunately, the evolving democratic environment in Indonesia is creating huge opportunities for citizens and civil society to participate in the planning, budgeting, and monitoring of government performance. The survey findings and a newly-launched national website that catalogues district data help provide local- and national-level leaders with the necessary data to bring the citizens of Indonesia’s 13,000 plus islands one step closer to access to services and better local governance.

Laurel MacLaren is The Asia Foundation’s Deputy Country Representative in Indonesia. She can be reached at

View all posts by Laurel MacLaren



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