Source: The Jakarta Post, January 29, 2009
Perhaps we have been living so long with corrupt local bureaucrats we simply take them for granted. Our experience in dealing with them, from applying for ID cards to registering legal business permits, more often than not seems to confirm that they are at best hopeless and at worst deeply corrupt.
So when Newsweek (Oct. 20, 2008) praised our decentralization by pointing out the rise of some promising, clean local leaders, we could either disbelieve it or reluctantly accept it as an exception. And later when Tempo (Dec. 12, 2008) in their year-end special edition picked ten outstanding benevolent local heads, we read it with either great relief or deep reservation.
Nonetheless, let us take a closer look at two important questions concerning decentralization, corruption and local bureaucracy.
First, does decentralization bring better governance and less corruption than the previously centralized regime?
Second, after decentralization, what factors made local bureaucrats corrupt? But before addressing those two important questions, it would better to understand why, in theory, we needed decentralization at all.
Compared with centralized government, decentralization is an attempt to bring the government closer to the people, and is arguably a better arrangement for public services because, first, decentralized government has better information access and feedback systems.
With that we can allocate resources for public services more efficiently. Second, decentralized government is under closer scrutiny of local electorates, hence more accountable. Moreover, if you are too harassed by your local government, or they do not perform, you can always "vote by your feet", that is, by moving out of your region. It keeps another check on the government and keeps it competitive.
Conceptually, this is a much desired effect and with that, in 1999, as a part of the general reform in the country, off we went with a big-bang decentralization.
The magnitude of such a shift was best illustrated by Hofman and Kaiser (2002) who estimate that in the first year, the regional share of government spending soared from 17 to 30 percent, and over time will reach more than 40 percent, way more than the 15 percent during the 1990s.
In term of bureaucratic authorities, 2 million civil servants were transferred to the regions as well as around 16,000 public services facilities.
And the most fundamental feature of the decentralization were the new intergovernmental relations, previously dominated by earmarked grants, now the transfer is mostly in general grants and revenue sharing.
The law stipulated that a minimum 25 percent of central government revenue be transfered to the regions and, along with revenue sharing, it makes up the large bulk of regional government revenue.
All of this had to be done within a maximum two-year period. Understandably, some predicted that our plan was doomed to failure.
The existing empirical findings on the impact of decentralization on corruption and governance in Indonesia gives at best a mixed picture. In their survey, Patunru and Wardhani (2008) noted that in the early years of its implementation, there was a kind of euphoria among local governments as they now had new power and authority to extract revenue. As a result there was an explosion of new local regulations that are distorting in nature.
In terms of illegal extortion or corruption by local bureaucrats, two related studies (LPEM 2002 and LPEM 2007) on the cost of doing business found that despite initially in 2001 illegal costs were high roduction cost were for bribes - in the latter period of 2006 these figures have declined.
Moreover, a study by Henderson and Kuncoro (2004) finds that decentralization leads to the increase of bribery and corruption since the existing fiscal decentralization pushed the local governments that obtained small central government transfers to introduce licensing procedures to overcome the budget shortage that turned out to be prone to red tape and incidents of bribery.
And as recently as Dec. 1, 2008, the Finance Ministry found that out of 11,638 local laws examined, 2431 were recommended to be amended for distorting the economy.
On the other hand, recently there was an early indicator that decentralization leads to better local governance as interregional competition seemed to have started kicking in, and, as reported by Newsweek and Tempo, in some municipalities, genuine and competent leadership arose and gained more popularity.
One thing is clear, however, that despite all those discouraging predictions from the nay-sayers and existing evidence of imperfection, the doomsday scenario has never materialized. We see neither balkanization, disrupted public services, nor excessive drops in local economic indicators.
Yet now we also know that we still have problems with local government corruption. In my simple cross-regional estimation in 2005, I found that the structure of economic activities by sector did not matter in the corruption levels of local bureaucrats. But, in areas with a bigger middle class, local government tended to be more corrupt. I resort to two educated guesses here.
First, the middle class are still entrenched in the decentralized government. Second, the middle class also have grabbing hands. They are the bureaucrats' partners in crime.
Another interesting result directly related to our decentralization is that the larger the size of the central government tranfer, in term of the ratio of Dana Alokasi Umum (DAU, General Allocated Grant) and Dana Alokasi Khusus (DAK, Specific Allocated Grant) to the total regional budget expenditure in 2005, the higher the associated local government corruption. This is very much predictable because the higher dependency on central government funds leads to lower local taxpayer's accountability control.
Against these findings, we can make several points as follows. On a positive note, we now know that decentralization did not produce the disastrous effect some thought it would.
Yet we are not certain whether the decentralization reduced the level of corruption in the local bureaucracy. Needless to say, despite some early gains, we still have some tough work ahead. It surely takes time to produce a bureaucracy of high quality and I remain optimistic with the ongoing process in Indonesia.
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