2017/8, 6 February 2017
The local governments of the Natuna and Anambas districts recently stated their desire to separate from the Riau Islands Province (known as Kepri), to form a new province. Both districts make up an archipelago of 510 islands, with a total population of 107,000. Together with the districts of Tanjungpinang, Bintan, Batam, Lingga, and Karimun, Natuna and Anambas form Kepri – one of Indonesia’s newest provinces. These islands are Indonesia’s northernmost, and their territorial waters border the disputed South China Sea – where Jakarta has caught Chinese vessels fishing illegally.
Natuna’s district head claimed that President Jokowi supported their initiative to make a “special defence province” citing Jakarta’s plan to revitalize the islands’ military facility. Beyond security, the plan has an economic motive, which is to bring local economic growth. As this area holds Indonesia’s largest reserves of oil and gas and given Indonesia’s existing fiscal structure, in theory the two districts stand to receive a greater share of fiscal transfers if they break off and form a new province. However, will a new province ensure growth?
Despite their natural wealth, the two local governments are overwhelmingly dependent on transfers from the central government, which have accounted for more than 80% of total revenue over the past three years. A significant portion of these, at least until 2015, consisted of oil and gas revenue sharing funds (DBH), whose sum is calculated based on the geographic location of the wells. For wells located within 4-12 miles of land: Jakarta gets 70-80%; the provincial government gets 5-10%; the districts in the province share the remaining 10-20%. Given the location of most of the wells, this means Natuna and Anambas need to share a relatively large portion of their oil revenue with the province’s five non-oil-producing districts. Beyond this, Natuna’s and Anambas’ own oil-based transfers from the centre have decreased due to the decline in oil prices: IDR 141 billion in 2015 to IDR 11 billion in 2016 (92% decrease) for Natuna; IDR 135 billion in 2015 to IDR 7.6 billion in 2016 (94% decrease) for Anambas. Thus, creating a new province consisting of only the two districts would increase the proportion of oil-based revenue they can retain.
This plan, however, highlights one major issue with Indonesia’s decentralization programme: the dependence of “autonomous” regions on transfers from Jakarta.
Since 1999, 215 new autonomous units consisting of 7 provinces and 208 districts/municipalities were born. The rationales included to “shorten the span of control between the centre and the region”, “increase local revenue” and “bring welfare to the people.”
In practice however, these aims have not been met. A World Bank review found that, over time, all provinces and districts have generated less revenue for themselves, relying ever more on central transfers. The Home Ministry stated that 60% of newly-created governments failed to significantly increase the welfare of their constituents. Furthermore, central transfers are overwhelmingly used to fund salaries instead of capital investments. As it stands, the fiscal transfer system encourages the creation of new provincial and district governments and progressive reliance on central transfers.
Seeing that central transfers will continue to fluctuate in tandem with oil and gas prices, Natuna and Anambas may not receive commensurate funds in the future. Beyond seeking to maximize natural resource-based revenue, these districts need to diversify their economies. Local leaders must keep in mind that even a “special province” status would not automatically generate economic growth.
Dr Deasy Simandjuntak is Visiting Fellow at ISEAS – Yusof Ishak Institute.
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