United States Institute of Peace

International Network for Economics and Conflict

Decentralization in Indonesia as a Partial Solution to Indonesian Conflicts

Successful decentralization of the public sector in Indonesia, which started in the late 1990s helped prevent the collapse of the Indonesian state and encouraged economic growth.  It is now possible to draw lessons from the Indonesian experience that could be applied to situations elsewhere, such as the Arab Spring.

East Timor seceded from Indonesia in 1999, following a popular referendum.  This separation was violent in part because Indonesia strenuously resisted the region’s independence.  Many lives were lost.  At the time several other Indonesian provinces were threatening to follow (e.g., Aceh, Papua, Maluku, North Maluku).  Conflict (in some cases armed conflict) over racial matters, religious issues, and the economics of natural resources grew, threatening to spin out of control.  

At the central government level, there was fear that the Indonesian state would collapse, especially if Aceh left Indonesia.   Most Indonesian Muslims looked to Aceh for leadership, because it is the most Islamic province in Indonesia, which is about 85 percent Muslim.  I believed then and still believe that there was a very significant risk of serious violence.   If Aceh and other provinces tried to leave Indonesia, the central government would resist by force, as it did in the case of East Timor.  Public officials in Jakarta, the Indonesian capital, shared my view (which was a much more important matter than that I held that view). 

It was against this backdrop that the Indonesian government began the process of decentralizing significant government authority and functions to the district level, one level of government below the provincial level.(1)     This decentralized approach reduced the propensity for violence in Indonesia and helped to avoid further, potentially far-reaching consequences.

Decentralization has also been useful in the US and elsewhere.    In Indonesia, there have been many benefits.  A generation of admirable local officials has come to power locally, and they may eventually help reshape the central government’s view of Indonesia.  

Foreign direct investment has become simpler, as substantial decision-making authority now resides at the district level, reducing the delay and added costs of involving the central government at every stage. Despite the many successes, there have been a number of transition problems.  For example, initially unions created a problem in Jakarta and West Java.   The power relationship between the central government and its regions is not yet firmly settled.  And it will not be.  Fiscal federalism or decentralization involves in Indonesia as in the US, many shifts of relative power among the various players.  This issue is actively under discussion again In Indonesia.    

This Indonesian experience will not be replicated in every situation.  In fact, according to a paper by Joseph Siegle and Patrick O’Mahony, the presence of natural resource wealth (such as in Indonesia) could actually increase the likelihood that decentralization efforts will contribute to instability.  However, there are several benefits of decentralization that could decrease the likelihood for violent conflict and possibly bolster post-conflict recovery in many contexts.

First, as local populations have increased agency and exercise more control over decisions affecting their daily lives, the power structure shifts and people have a way other than violence to express grievances.  Second, decentralization necessarily shifts oversight and responsibility to the local level, increasing accountability and ideally leading to a better match between desired and delivered public services.  Finally, the impact on both the reality and perception of corruption and equitable revenue-sharing (especially in the case of natural resource wealth) could dramatically undercut a frequently underlying conflict-causing grievance of resource-rich regions.

(1) I was deeply engaged as one of the principal managers for USAID of US governmental efforts to support the Indonesian government in its efforts to carry out decentralization.

For more information on economic growth in conflict-affected settings I recommend USAID's, A Guide to Economic Growth in Post-Conflict Countries.

Comment #2

Why should the USA help Pakistan? They harbour the Al Qaeda. There must be a special reason why they do this, but I am against it. - Dr. Paul Perito

Comment #2

I also think that Dai is partially right. But she failed to analyze other trends that affect a country. It is not purely the decision-makers that has the say in how to run the government. The input from the people is also a very important determinant. - Dr. Paul Perito

Connect With Us

Our Partners

Economists for Peace & Security Logo