Indonesia's 'big bang' decentralization experiment: Helping poor regions spend resources well


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After five years in Indonesia, my family and I have left this wonderful country and moved to Kenya. The last five years have been excellent years for Indonesia. The economy stabilized, growth resumed and services started to improve, although modestly and not in all areas. Indonesia still remains an underrated country, but this may change. Indonesia has only mildly been affected by the global crisis. After holding its second direct presidential election, where more than 100 million Indonesians cast their votes, the country can expect another five years of political and economic stability, and possibly some improvements in the business climate.

In my last blog on Indonesia, I’d like to focus on Indonesia’s decentralization experiment, which was put in place ten years ago and made effective on January 1, 2001. Indonesia’s decentralization was a by-product of its democratization after the dismantling of Suharto’snew order” regime.  Indonesia then implemented one of the most ambitious decentralization programs of modern times, radically transferring responsibility and financial resources to lower levels of government. My colleagues Bert Hofman and Kai Kaiser coined the phrase “big bang decentralization” (pdf). Even though decentralization makes sense in a country covering three time zones and more than 17,000 islands, many were skeptical about this experiment, particularly in the central government.


Wolfgang Fengler

Lead Economist in Trade and Competitiveness

Join the Conversation

Louis O'Brien
August 25, 2009

This article (or blog entry) is very well done. I wish you well in Kenya and hope we will cross pathes again. Louis and Sammy

August 25, 2009

Finally, a just picture of the Indonesian economy, beyond the superficial perceptions, beyond the macro data ! Indonesia deserves this. In the past few years, I have published a number of articles and given a number of lectures on grassroots trends in Indonesian society to bring across a more realistic picture of this enormously diverse island archipelago. The main challenge for Indonesia remains to turn macro-economic success into micro-economic success and, as you indicated, the decentralisation process, which is crucial in this, is gradually bearing fruit.

Kind regards & all the best in Kenya,

Matthijs van den Broek
Business Trends Asia

August 25, 2009

a very good and inspiring article.. wish u the best in new place and thanks for what u've done in Indonesia, especially in Aceh. Best Regards from Bappeda Aceh

Frank van Gelder
October 14, 2009

A good article that puts the regional economies of Indonesia in perspective. I fully agree with the premise that the challenge for regions is not that they don't get enough money, but that the challenge is to spent the money wisely. In my company New Frontier Solutions ( we work with companies in and outside Indonesia and assist them in the process of optimally allocating their limited resources (people, trucks, inventory, money, etc). We have developed some good techniques that have proved very effective. These can techniques can also be applied in the sphere of local government. Maybe there is a regional government that is 'switched on' and where a pilot project could be run.

Having been a World Bank consultant myself for one year in Jakarta in the post-Asia crisis environment, I have since been struck by the fact that the great work the World Bank is doing can be further be enhanced by from time to time borrowing a page from the book of business. (And there may be things that the world of business can learn from the Bank, but that is another story).