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

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’s “new 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.