Territorial Splits (Pemekaran Daerah) in Decentralising Indonesia, 2000–2012: Local Development Drivers or Hindrance?

Abstract

Not many countries have experienced as fast a growth in the number of local governments as has present day Indonesia. This study examines how territorial splits under new decentralisation policy have effected local development. The paper also critically discusses what needs to change and improve in decentralisation policy to encourage local development. Territorial splits have reinforced spatial fragmentation and ‘local selfishness’, hindering rather than driving local development. Territorial splits have also been a substantial additional burden to the national budget, and have resulted in many conflicts, disputes and tensions at the local level. This paper recommends that there should be a comprehensive review into the practice of territorial splits and suggests that there is a need to make regional mergers a more attractive option for the efficient and effective provision of public services at the local level.

Acknowledgements

The author would like to thank the Editor, Ronan Paddison, and two anonymous referees for comments on an earlier draft. However, the author alone is responsible for any mistakes and shortcomings.

Notes

In accordance with the Indonesia's Fiscal Balance Law (Law 33/2004) the local governments are entitled to annual local government revenues consisting of: an equalisation block grant from the General Allocation Funds (Dana Alokasi Umum— DAU); Income Sharing Funds (Dana Bagi Hasil—DBH), which consist of natural resources utilisation revenues, especially forest products, fisheries and gases and oil; sharing income from employee, land and building taxes; and own income (Pendapatan Asli Daerah—PAD). The General Allocation Fund is essentially an unconditional block grant allocated to the local government to be used for local needs, including wages and salaries, without central government intervention.

The territorial split process in Indonesia includes: establishment of a potential area (Daerah Persiapan); development of the potential area; and establishment of a definitive area, which should be done at least five years after its establishment. The proposal for establishment should be approved by the Advisory Council of Regional Autonomy (Dewan Pertimbangan Otonomi Daerah—DPOD), an inter ministerial committee chaired by the Ministry of Home Affairs. The proposal then has to be endorsed by the President of the Republic of Indonesia to the National Parliament (Dewan Perwakilan Rakyat—DPR). However, the creation of a new region can also be initiated by the DPR, and the Senate (Dewan Perwakilan Daerah—DPD), because proposals for territorial splits may proceed through one of those three institutions. Nevertheless, thus far most proposals have proceeded through the Parliament initiated by the members representing the region concerned.

As Fitriani et al. (2005) argue, other reasons for territorial splits may include one or a combination of the following: (1) administrative dispersion, because the jurisdiction is too large; (2) preference of homogeneity, with respect to ethnicity, religion, language, etcetera; (3) fiscal spoils, since splitting could bring additional fiscal resources (p.66).

The total amount of grant transferred from central government to the local governments is allocated according to the ‘fiscal gap’ (celah fiscal), that is, the difference between revenue capacity and estimated expenditure. The total transfers from state budget to the provincial and local governments which amounted to Rp. 129.7 trillion in 2004 had increased more than twofold in the subsequent four years to as much to 292.4 trillion in the 2008 state budget (Government of Indonesia, 2008; see also Mardiasmo, 2009). This amount is nearly 25 per cent of the total state budget. The amount went up to Rp. 344.7 trillion in 2010 and Rp. 405 trillion in 2011, whereas in the state budget draft of 2012 the amount is estimated to reach Rp. 464.4 trillion, which is about 30 per cent of the total state budget of Rp. 1,400 trillion (Presidential Speech on State Budget Proposal 2012, August 16, 2011).