This webinar is the first of a series of three and focuses on competitiveness and fiscal autonomy at the subnational level of Indonesia.
REGIONAL ECONOMIC STUDIES PROGRAMME WEBINAR
Wednesday, 4 November 2020 – Following the end of the New Order in 1998, Indonesia embarked on a far-reaching decentralization drive. Sweeping legislative changes were passed, which curbed the power of the executive, revitalized the role of the legislature, and rolled back controls on political life. Taking the upcoming 20-year anniversary of the national reforms as a reference point, this webinar – the first of a series of three – sought to explore the impact of the decentralisation exercise on Indonesia’s fiscal autonomy at the subnational level and overall competitiveness. Organised by the Regional Economic Studies Programme at ISEAS – Yusof Ishak Institute and supported by Konrad Adenauer Stiftung, the webinar featured three key speakers: Dr Puspa D. Amri, Assistant Professor of Economics at Sonoma State University, California; Dr Mulya Amri, Research Director at Katadata Insight Center, Indonesia; and Dr Yogi Vidyattama, Associate Professor at the National Centre of Social and Economic Modelling (NATSEM), University of Canberra.
Following introductory remarks by Dr Siwage Dharma Negara, Senior Fellow at ISEAS, Dr Puspa D. Amri began her presentation by talking about the motivations behind fiscal decentralisation in Indonesia. Using empirical evidence, she explained that the proportion of expenditure handled by Indonesia’s subnational governments is now comparable to that of federal countries. So far, the nation’s revenue-sharing rules have mostly benefited low-population districts through improvements in governance and public services, but concerns about local capacity persist. Dr Amri then elaborated on the concept of the “Indonesian Democracy Index (IDI)” to measure changes in democratic aspects at the provincial level – the Index includes indicators of civil liberties, political rights and institutions of democracy. Based on recent statistics, Indonesia’s competitiveness appears to be correlated to the IDI index and two of the three sub-indexes (political rights and institutions of democracy, but not civil liberties).
Extending the discussion further, Dr Mulya Amri presented data from the World Bank to show that, while GDP per capita and value-added per worker are increasing in the country, neither variable is higher than before decentralization. Similarly, mixed results are observed for productivity across Indonesia. The national employment rate has been inching up slowly, but full and formal employment rates have declined over the years, meaning that much of the growth comes from informal sector employment. Interestingly, district revenue per capita has increased substantially after decentralization. Overall, however, it remains unclear how much of the changes can be attributed to decentralization, Dr Amri concluded.
Drawing the audience’s attention to Indonesia’s fiscal autonomy, Dr Yogi Vidyattama focussed on two research questions: how much space do local governments have in managing their expenses? And, have local government become more independent in terms of revenue? The latest figures show that, although districts and provinces do maintain some control over expenditure autonomy, they are severely restricted when it comes to capital investment. The district of Java has fared particularly well in this regard. On the revenue side, Dr Vidyattama said that local governments are too disparate and enjoy much less freedom – with matters further worsened by the ongoing pandemic. Here, too, Java appears to have outperformed other districts.
The ninety-minute webinar was attended by an audience of sixty-eight people, including research scholars, students, members of the media and the public. The panellists answered their questions on an array of topics, including: the extent to which the national political system has influenced the (under) performance of decentralization; the specific policy responsibilities that should be transferred from the centre to provinces and districts; the time lag between democracy and competitiveness; and the impact of the new Job Creation Law (UU 11/2020) on Indonesia’s fiscal autonomy and decentralization.